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Operator: Good morning. We welcome you to The Navigator Company Full Year 2025 Results Presentation. [Operator Instructions]. I'll now hand the conference over to Ana Canha. Please go ahead. Ana Canha: Ladies and gentlemen, welcome to The Navigator Company conference call and webcast for the fourth quarter and full year results. We are joined today by the following directors: Antonio Redondo, Fernando de Araujo, Nuno Santos, Joao Le, Dorival Almeida and Antonio Quirino Soares. As usual, we will start with a short presentation followed by a Q&A session. You can access the presentation through the links on our website, and you can also send your questions via the webcast platform. Antonio will begin by presenting the main highlights for the quarter. I will now hand over to Antonio. Antonio Redondo: Thank you for joining us today. I am very pleased to be here once again and to share with you our fourth quarter and full year results. In the toughest market environment in decades, Navigator was able to maintain a strong market position, supported by its international footprint and the increasingly diversified business model, enabling volume growth and market share gains. Portfolio transformation remains a key driver of resilience. Vertical integration, operational flexibility, innovation and sustainability focus continue to underpin our competitive advantage as you'll see in today's presentation. I will begin with Slide 5 with an overview of the key highlights. 2025 was defined by persistent geopolitical tensions and rapidly shifting global landscape marked by high volatility, commercial defense barriers such as tariffs, weaker consumer confidence and very limited market visibility. In this environment, the pulp and paper sector faced particularly challenging conditions. From April onwards, pulp prices in China declined sharply with knock on effects in Europe. At the same time, uncoated woodfree consumption fell, growth in tissue and packaging slowed and in many products, operating rates reached unsustainably low levels across several regions. The industry also faced increased energy and chemical costs this year, further pressuring margins. Navigator's strategic diversification played a key role in protecting results, with tissue and packaging accounting for 29% of the turnover, but 32% of group's EBITDA. In tissue, we continue to successfully scale up operations and capture synergies. Turnover increased by 6% year-on-year, supported by the integration of Navigator Tissue UK in May 2024. Around 80% of sales are now international with U.K., Spain and France as our core markets. Packaging also delivered strong performance with turnover up 8% year-on-year, volumes in tons up 11% and paper area in square meters at 17% reflecting the growth of the Flexible Packaging segment with a shift to lower grammage products. The rebuild of PM3 in Setubal to further focus on low basis weight flexible packaging is progressing as planned. In printing and writing, we reinforced our competitive position with uncoated woodfree volumes up 6% year-on-year in a shrinking market and market share of European deliveries increasing to 26%. Looking ahead, we start 2026 with a positive final investment decision for the new tissue capacity in Aveiro, further strengthening our growth and resilience profile. Turning to Slide 6, we can clearly see the resilience of Navigator business model. The key strength of Navigator is its ability to generate strong cash flows, underpinned by our vertically integrated model, and leading cost positions in pulp, uncoated woodfree paper, tissue and Flexible Packaging in Europe. Over recent years, these cash flows have been strategically reinvested to strengthen our core business and diversify our portfolio, supporting long-term value creation. Since 2019, we have invested EUR 1.31 billion, including EUR 241 million in M&A and distributed a further EUR 1.32 billion in dividends. Our diversification strategy is clearly paying off. Recent international expansion and portfolio diversification have strengthened Navigator's results in tissue and packaging, providing more balanced and resilient earnings profile. This robust position enables Navigator to consistently outperform its peers as demonstrated once again this year, even in very challenging market conditions, underscoring its resilience and competitive edge. Strategic CapEx boosted by next-generation new funding and started in 2023 is phasing out in 2025 and will be fully completed by 2026. Last year, CapEx totaled EUR 210 million, with 60% classified as value-added sustainability investments, making a strong contribution to reducing future costs. While maintaining a strong financial position with net debt-to-EBITDA ratio at 1.87x. I will now hand it over to my colleagues, who will walk you through the results in more detail and share some insights on our different business areas we have been doing. Fernando will start by commenting on financial highlights. Fernando, please go ahead. Jose de Araujo: Thank you, Antonio. Turning to Slide 7. We can look at our debt maturity profile. Over the past 2 years, we increased the average debt maturity to 5 years, maintaining a well-staggered repayment profile and strengthening the indexation of debt to sustainability indicators to 90% versus 65% in December 2024. Also, Navigator continues to enjoy ample liquidity, EUR 390 million as of 31 of December. At the end of 2025, 70% of the total debt issue was remunerated at a fixed rate, either directly or through interest rate hedging instruments. It should be noted that despite the general rise in market rates compared to the last financing cycle, the average cost of finance at the end of December remains low at around 2.7%, an increase of 0.3% -- 0.3 percentage point, sorry. Turning to Slide 8. We can take a closer look at the main impacts on EBITDA in a year-on-year comparison. EBITDA stood at EUR 375 million, down 30% year-on-year, with an EBITDA margin of 19%. It should also be noted that given its size, integration of U.K. tissue business converting only brings down the group's EBITDA margin by 1.2 percentage points, which without this additional operation would have been 20.3%. The downward trending in uncoated woodfree and pulp sales price was pressured by falling benchmark index. Changing our product and geographical mix also influenced our average sales price as Antonio will explain further. On a positive note, the paper packaging and tissue segments saw a significant increase in sales volume. In 2025, cash costs were impacted by a combination of simultaneously and longer than normal planning and unplanned maintenance stoppage in our pulp mills, Figueira da Foz, Aveiro and Setubal. This includes a temporary shutdown following a small fire in the bleaching area at Setubal in July. There were no injuries and operations were fully restored within 2 or 3 weeks. This maintenance stoppage reduced energy generation from biomass during the period and led to higher natural gas consumption. Cash costs were also affected by the U.S. customs tariffs and the resulting increase in antidumping duties. Despite these headwinds, cash costs ended the year below the level at the start of the year. Finally, the volatility of the EBITDA was mitigated by our financial risk management strategy, including the hedging for energy price and foreign exchange which offset negative impact of negative evolution of the U.S. dollar and the British pound. However, the energy hedging strategy implemented in 2025 delivered [indiscernible] effectiveness, particularly in the first quarter when its impact was most critical. Joao will speak about the key projects focused on operational efficiency and portfolio diversification. Mr. Joao, please go ahead. João Cabete Gonçalves Lé: Thank you, Fernando. Turning to Slide 9, please. Navigator strategy is built on a responsible business model grounded in the belief that sustainability without performance has no impact and performance without sustainability has no future. This balance underpins responsibility, long-term growth and value creation. Drawing on decades of experiencing sustainable forest management, supported by science and technology, we have developed sector leading industrial assets and advanced R&D capabilities. Our R&D efforts span the full value chain from genetic improvement, pest and disease control, soil and climate characterization to support forestry management, industrial operations consumption efficiency and product development. At the same time, we continue to explore new long-term opportunities for product and business diversification, focused on adding value to Portuguese eucalyptus forests through new bioproducts, biomaterials and biochemicals. Despite challenging market conditions, we continue to invest in diversification and sustainable transformation. In 2025, we completed several key investments across all segments to strengthen business resilience. This includes the new chemical recovery boiler at Setubal, which will significantly enhance the mills operational and environmental performance. It will reduce malodorous emissions and marks a key milestone in our industrial decarbonization journey, cutting emissions by around 136,000 tons of CO2 per year, while enabling the capture in the incineration of noncondensable gases. And also, the oxygen delignification line in Setubal due to start up in April 2026, which will enable the plant to reduce consumption of chemicals at the pulp bleaching stage as well as improving the quality of the effluent from this industrial site. AI-driven control systems reduced process variability by around 20% and lowered bleaching chemical consumption by 55%. The reduction in variability reflects, for instance, an internally developed advanced process control applied to PCC incorporation and chemical savings resulting from APC projects implemented in pulp bleaching. We also scaled up Navigator hub, which generated EUR 300 million in online sales in 2025 and is now serving all business units, strengthening both our commercial reach and digital resilience. As already mentioned by Antonio, the evolution of our portfolio is a key pillar of our resilient business model. The tissue segment illustrates this shift growing from 5% to around 25% of revenues over the past decade through acquisitions and organic growth, supported by in-house R&D Alongside this development, sustainable packaging solutions designed and scaled up entirely on the basis of internal expertise, R&D and technology already account for 4% of sales, an important milestone in the fast-growing segment, achieved purely by repurposing existing uncoated woodfree assets without any significant investment. And of course, this enhances the operational flexibility of our assets, preserving the ability to produce uncoated woodfree grades while also enabling the production of a broad range of packaging grades. In 2025, we approved the rebuild of PM3 at Setubal to produce low grammage flexible packaging, equipping the machine with state-of-the-art technology to enhance flexibility, energy efficiency and product quality and to meet growing international demand. Our diversification has reduced our dependence on uncoated woodfree paper, which declined from 75% of revenues in 2017 to around 57% in 2025. Not due to lower turnover, but to growth in new segments, while uncoated woodfree revenues remained stable at EUR 1.2 billion. Uncoated woodfree remains a resilient core business, supported by highly competitive assets, world-class quality and strong new brands. This evolution reflects a disciplined integrated strategy focused on long-term value creation, innovation and responsible resource management. I will now hand over to my colleagues for a brief commentary on each of the business segments, starting with Quirino will comment on pulp and paper prices. Quirino, please? António Soares: Thank you, Joao. Good afternoon. Moving to Slide 11, we have the evolution of pulp and paper prices. Between April and August, the pulp price index for pulp in China, BHKP sharply decreased, largely driven by overcapacity in the pulp and paper sector. This overcapacity resulted from a sudden and expressive increase in integrated pulp capacity in China, alongside the local wood available at competitive prices, lower than imported wood. This occurred amid the current situation of severe tensions in international freight and the reduction in demand in several paper segments across the different world regions. Although this downward cycle has been shorter than previous ones. It started from a significantly lower peak, reflecting a structurally weaker base than in previous cycles. Recovery gained momentum in the first quarter with a clear improvement in pricing in China. Even so 2025 was the weakest year for pulp pricing in nominal terms since 2016, excluding 2020. Average prices in China fell to around $540 per ton on average, which is down 16% year-on-year. In real terms and from the perspective of both Iberian and Brazilian producers, prices were even weaker than 2016 and 2020 once inflation and exchange rate effects are taken into account. Transforming 2025 real prices as the worst prices in decades. In Europe, prices followed the volatile path after falling to $1,000 per ton at the start of the year, benchmarks recovered in the spring. Weakened again through the summer and then rallied in the fourth quarter. The hardwood pulp benchmark ended the year at $1,100 per ton reflecting this late year recovery, although average prices remained 12% below 2024 levels. In 2025, the European benchmark for office paper, PIX A4-Copy B, averaged EUR 1,003 per ton, which is down 9% year-on-year. This decline was more moderate than in hardwood pulp, where European benchmarks fell by 15%. Importantly, despite these adjustments, uncoated woodfree price levels remained structurally strong, still around EUR 149 per ton or 17% above 2016 to 2019 average. As Fernando mentioned, Navigator's average sales prices in Europe broadly follow benchmark trends, supported by 2 complementary strategies. On the one hand, we increased penetration in both economic and standard segments to quickly capture additional volumes, which weighs on the average prices, given our traditional premium rich product mix. Simultaneously, we reinforced pricing discipline on higher value-added products, particularly under our flagship brands, which achieved an 80 percentage point increase in price premium during the year of 2025. In international markets, paper prices were affected by both the weaker dollar and more significantly by the sharp decline on the China pulp market index. This dual approach on pricing has helped us remain competitive and responsive to market dynamics, balancing volume growth with value retention. Moving please to Slide 12. We have summarized the main developments on the uncoated woodfree markets. Apparent global demand for printing and writing papers was down by 2.4% year-on-year. Uncoated woodfree remained the most resilient grade declining by just 1.5% compared with a drop of 4.8% on uncoated woodfree and 3.2% decline in mechanical papers. This resilience reflects the versatility of uncoated woodfree end users, which has constantly outperformed other grades over time. In Europe, however, apparent uncoated woodfree demand declined by 5% year-on-year, driven by weaker deliveries from European mills and a sharp reduction in imports. In fact, intra-European deliveries fell by 5%, while imports dropped by 10% year-on-year, confirming a significant slowdown in the effective demand across the region. Despite a significant increase in uncoated woodfree capacity in Asia of 4.3 million tons between '24 and 2025, which more than offset the capacity reduction of 1.5 million tons in Europe and the U.S. In the U.S., the decline was not as significant with consumption down by 3.8% year-on-year. At the same time, the closure of a major domestic mill increased the structural need for imports, which rose by 16%, partly also driven by anticipation of new tariffs last year. This tighter supply environment, combined with tariff impacts has supported higher price levels in the U.S. market, which are expected to remain elevated. Navigator's operating rate measured as deliveries over capacity stood at 87%, up by 8 percentage points year-on-year, whilst the rate for European industry recovered slightly from 79% to 81%, up by 2 percentage points. In 2025, Navigator increased its order intake by 13% year-on-year in volume, marking our strongest performance since 2021, and surpassing even the peak levels achieved in 2022, a particularly strong year for uncoated woodfree. Nuno will now give some more market context on the pulp business. Nuno de Araújo Dos Santos: Thank you, Quirino. Turning to Slide 13. As Quirino just mentioned, in 2025, the pulp market came under severe pressure, most visibly through the sharp decline in pulp prices in China from April onwards with a clear spillover effects into Europe. This weak pricing environment was driven by several structural factors. First, global overcapacity increased significantly with major hardwood pulp expansions in both Latin America in '24 and China over the last 5 years as Chinese producers pursued upstream integrations. Second, China saw a rapid rise in the use of domestic wood by smaller and midsized mills, supported by very low cost CapEx, temporary availability of local wood diverted from the construction sector and strong state backing in areas such as financing, employment and energy. Third, overcapacity in paper production and weak domestic demand in China compressed paper prices and in turn pulp prices, with operating rates across many segments falling to and sustainably lower levels. At the same time, demand softened in Western markets, particularly in printing papers, contributing to a decline in European hardwood pulp consumption alongside slower growth in tissue and packaging. Finally, trade tensions, tariffs and geopolitical uncertainty increased volatility, shuffled trade volumes and accelerated the downward pressure on prices. Nevertheless, at the global level, demand for market hardwood pulp grew by 6% year-on-year. China remained the main growth engine with demand up 8% while the rest of the world grew by 7%. This contrasted with Europe where demand declined by 1% in line with weaker printing paper consumption. In United States, demand fell by 3% following heavy restocking in '24. The strongest mobile growth came from eucalyptus pulp, up 8% in '25 driven by a 10% increase in China, while Europe remained broadly stable. This trend continues to strengthen eucalyptus pulp share with the hardwood bleached chemical pulp market. Looking at tissue performance on Slide 14. European tissue demand grew by 1.2% following strong growth of 6.3% in '24. Navigator's tissue sale increased by 5% year-on-year, with turnover increasing by 6%. Our tissue business operates through 2 complementary models, an integrated Iberian operation, covering paper production and converting and the U.K. operation focused exclusively on converting while margins in the U.K. are structurally lower, this model enhances scale and market research. To strengthen our position as a leading paper tissue producer and enhance operational resilience, Navigator launched a strategic plan in '25 to consolidate its U.K. tissue rolls operations with completion planned for '26. Rolls and possibly wipe separations are being streamlined from 5 to 2 strategic hubs, the existing Leyland and the new site in Leicester, optimizing coverage of Northern and Southern England, improving proximity to key consumer markets and strengthening logistics efficiency. Operations at the new sites are expected to start in the first half of this year, and the main workforce transition has been successfully completed with an investment of approximately GBP 18 million, this project is expected to deliver cost efficiencies through the optimization of personnel expenses and operating costs, driven by the integration, centralization and increased scale of operations. These benefits are expected to be realized from '27 onwards, following the completion of the restructuring with an estimated improvement of 2 to 3 percentage points in converted EBITDA margins, positioning them above the industry average. Overall, acquisitions in Spain and the U.K. have improved our geographic balance and resilience with finished products accounting for 98% of tissue sales and a strong focus on the consumer segment, which now represents around 83% of volumes. Dorival will now comment on the main developments in packaging. Dorival de Almeida: Thank you, Nuno. Now turning to Slide 15. In 2025, the European market for machine glazed and machine finished kraft paper grew by 2.6%. Navigator's packaging business outperformed the market with sales of 8%, supported by 11% growth in tonnage and 17% increase in paper area sold, reflecting deeper penetration in light weight low grammage segments. The strongest performance came from flexible packaging, particularly low grammage, food and nonfood applications alongside release liners for family and hygiene and personal care. These priority segments benefit from the technical and cost advantages of eucalyptus fiber where Eucalyptus Globulus is a clear differentiator. This growth is fully driven by our own brand, kraft structured across 3 segments: bag, flex and box, where innovation based on eucalyptus fiber has been key to strong market acceptance and recognition. The packaging segment delivered a consistent performance over the year, supported by a gradual increase in sales. Today, 71% of our sales are in Europe, with the remaining 29% in overseas markets, mainly in the Americas and the MENA region. As part of this industrial transformation, we approved in 2025, the rebuild of #3 paper machine at the Setubal complex to produce low grammage flexible packaging. This EUR 30 million investment running from 2025 to 2027 equips the machine with state-of-the-art technology, enhancing flexibility, energy efficiency and product quality. The converted PM3 will produce around 90,000 to 100,000 tons per year, and it is expected to start up at the end of the third quarter of 2026 at a fraction of the cost, 5 to 7x lower than a greenfield project of approximately the same capacity. While we're still preserving our indusial flexibility to produce both uncoated woodfree and flexible packaging on the same machine. This conversion transforms PM3 from a mid-tier uncoated woodfree asset into a well-positioned first quartile competitive flexible packaging machine, leveraging our vertical integration and the cost advantages of eucalyptus fiber. As a result, Navigator will become the fourth largest producer of low grammage flexible packaging in Europe, strengthening our position in a market growing at 2.5% to 3% per year through 2035. Now I hand over to Antonio for a wrap-up of the full year results. Antonio Redondo: Thank you, Dorival. Let's please turn to Slide 16. As we said today, 2025 was the toughest year in decades for our industry. Yet, Navigator has emerged better positioned for growth. Our international footprint and diversified business model enables to capture opportunities, deliver higher volumes and continue expanding market share even in a highly challenging environment. At the same time, we have repositioned the group for future growth. Key initiatives include the consolidation of our U.K. tissue operations, the investment decision for the PM3 rebuilding packaging and the investment decision for the new tissue machine in Aveiro, each reinforcing efficiency, scale and resilience. Our diversification strategy is clearly delivering results and help to capture the impact of sharply falling price in pulp and uncoated woodfree paper. In packaging, sales benefited from the increase of our flexible packaging portfolio initiated in 2023. In tissue, we continue to scale operations and capture long-term synergies. And an execution plan is underway to consolidate U.K. operations and enhance efficiency. Alongside this, we remain further focused on our core operations, business transformation and innovation, delivering a meaningful reduction in future cost intensity. These investments in efficiency and environmental improvement aim to ensure the longevity and continued exceptional margin generation of our world-scale high-tech mills. This transition reflects a commitment to leveraging our core expertise while expanding into adjacent markets with high growth potential. All of this has been achieved while maintaining disciplined and conservative financial policies with net debt to EBITDA at a solid 1.87x. A brief note on capital allocation, specifically regarding dividends. Considering Navigator's performance in 2025, the Board of Directors will propose to the General Meeting of Shareholders the distribution of dividends totaling EUR 80 million. I will now hand over to Nuno and Dorival, who will comment on the investment decision for a new tissue machine. I will now hand over to Nuno and Dorival, who will comment on the investment decision for a new tissue machine? Nuno de Araújo Dos Santos: Thank you, Antonio. Let's move on to Slide 17. As part of our growth strategy in the tissue segment, we took an important step in '25 by launching a feasibility study for a new tissue paper machine. This project would add around 70,000 tons of annual capacity, specifically to support our U.K. operation acquired in '24. The U.K. business has strong converting capacity of around 130,000 tons per year, but currently relies entirely on external reels, making this investment a key enabler of integration, efficiency and resilience. The idea behind it is simple to create a more balanced vertically integrated operation. By producing our own reels, we reduced dependence on external suppliers, strengthening the sustainability of the process and improve overall efficiency. It also allows us to develop products that are even better aligned with the needs of our U.K. customers while leveraging the sustainability forestry base we have in Portugal. Dorival will now provide some color on the CapEx and investment details. Dorival de Almeida: Following this feasibility study, last week we moved ahead with the final investment decision. The new machine will be installed at our Aveiro industrial complex, which was designed from the beginning to accommodate a second tissue machine. This location brings several advantages, shared infrastructure, integrated pulp supply, lower drying and transportation costs and operational efficiency from being next to the first tissue machine, the TM1. To further strengthen efficiency and resilience, we are implementing a tailor-made logistics model at the port of [ Aveiro ] dedicated to shipping reels in mega containers, instead of breakbulk. This new model delivers significant logistics savings per ton driven by lower handling costs, fewer movements and reduced variable costs. Today, reels supply to our U.K. operations are shipped as breakbulk. Moving to this containerized solution will also bring qualitative benefits, including more efficient handling, lower loss rates and reduced environmental footprint through more efficient shipping. The investment totals around EUR 115 million spread across 2026, '27 and '28 with start-up planned for April 2028. The project will also benefit from support under the Portugal 2030 program. Antonio will now comment on the outlook. Antonio Redondo: Thank you, Dorival. Let me share our view on the current market environment and within the very limited visibility, our outlook for the coming months. Globally, risks persist, particularly around geopolitical instability in different regions across the world, protectionism, economic fragmentation and financial vulnerabilities in major economies remain a concern. While the recession does not appear imminent, growth is still relatively subdued and ongoing uncertainty continues to weigh on investment and international trends. Even with limited visibility, we remain cautiously optimistic about near-term market development. Looking ahead, pulp prices are expected to strengthen in the first half of 2026, supported by improving momentum both in China and Europe. In the second half, our downside scenario points to price stability rather than any significant deterioration. Demand in 2026 is expected to be broadly in line with 2025 with growth in China offset by flat outlook in Europe. On the supply side, new capacity additions will be limited. In contrast with 2025, no significant new capacity is expected to come online this year, considering that most of the 2.7 million tons of capacity in projects announced for 2026, including 1.3 million in China and 1.4 in Indonesia is due to start up only in the final part of the year, and this impact will essentially be felt in 2027. The project in Indonesia involves 2 lines, each with a capacity of about 1.4 million tons, of which around half is intended for the market. But only the first of these lines is expected to start at the end of the year, joined by the second some months later with an impact essentially in 2028. Finally, recent natural disasters in Indonesia have been linked by local authorities to continuous deforestation, leading to the revocation of forestry license. The Indonesian government have linked the scale of the disaster to the high level of deforestation in the past 2 decades, laying the blame on local industry and canceling the forestry licenses of some 22 companies, which supply wood to Indonesian's major exporters of cellulose pulp and coated woodfree paper and tissue, covering an area of more than 1 million hectares. The tragedy in Sumatra highlights the structural challenges faced by the Chinese, Indonesian producers operating in the country, including their inability to certify forests and under internationally recognized systems. It should also reinforce concerns among European authorities regarding Indonesia's risk profile for wood and wood products under the EUDR framework. This has tightened wood supply and supported prices while reinforcing the strategic importance of certification and compliance with EUDR requirements. In the paper segment, the first quarter of this year began with renewed optimism. Navigator led the market by announcing paper price increases, which were subsequently followed by other key players. In December last year, we announced a price increase in Europe of 5% to 8% and in overseas markets of 5% to 11%. The increase in overseas was already followed by a second increase of $30 per ton in February this year. We also announced price increases of 5% to 8% in the United States, effective from next March onwards. The impact of these global price increases in printing and writing paper will be felt mainly in the second half of this quarter. And as a result, we expect average prices in the first quarter to be above fourth quarter last year, with further increases anticipated in second quarter, subject, of course, to the evolution of pulp price. Despite this positive price momentum, the global environment remains challenging. The sector continues to face a structural decline in consumption and economic stagnation across key regions, partially offset by recent capacity closures in Europe and North America. In the states, following the reduction of 350,000 tons of annual capacity by an Asian producer, another uncoated woodfree closure was announced early this year, removing a further 320,000 tons of capacity. Combined with impact of import tariffs and U.S. markets heavy reliance on imports, we estimate the structural supply shortfall of approximately 1.2 million tons per year or about 25% of consumption. These import requirements will need to be met by the limited number of countries able to supply products that meet U.S. market specs, notably a small group of producers in Europe and Latin America. U.S. producers at the same time are likely to focus more on their domestic market, creating opportunities in their traditional export destinations. Looking ahead, the expected increases in pulp prices during 2026, should provide underlying support to paper prices. European import levels remain steady with no additional upward pressure on the market. While the sector continues to face a structural decline in consumption and a sharp economic slowdown across the regions, this has been partially offset by significant capacity closures, 430,000 tons in Europe last year and the combined close to 670,000 tons in North America across last year and this year. Within this context, the uncoated woodfree segment is showing renewed opportunities across different geographies, supported by supply discipline and Navigator's competitive position. In the tissue segment, demand continues at [ investment ] levels. The integration of Navigator's tissue chain is progressing well with stronger collaboration between local and Iberian teams driving cross-selling and a higher-margin portfolio. At the same time, we have launched an execution plan to consolidate U.K. operations in 2 core sites, Leyland and Leicester, integrated production and storage to boost efficiency, scalability and cost competitiveness, building on an already strong operational model. We have taken a final investment decision for a new tissue machine at Aveiro, a transformational project that will enhance efficiency and further strengthen the long-term resilience and competitors of our tissue segment. It's worth pointing out that we are now a quite different company from what we were. We boosted Europe's pulp and uncoated wood free business, which is a distinctive grade in printing and writing, in Europe at least. We globally can sell our pulp at low discounts with solid margins. Our tissue business outperforms, and we are building a diversified, innovative and growing packaging business. Packaging continues to perform strongly with growth in both volumes and price. At the same time, our PM3 conversion project is progressing as planned. Once completed, this investment will position Navigator as the fourth largest producer of low grammage flexible packaging in Europe, consolidating our presence in the segment with robust and growing demand. From late January this year, a set of raging storms, notably storm Kristin brought severe weather with strong winds and flash flooding to Portugal, particularly affecting the center of the country. Navigator responded proactively, working closely with impacted forestry producers and regions to support the sector's operational and economic recovery. The storm caused disruptions at Figueira da Foz and Vila Velha de Rodao Mills, due to external power and water outages and some impact on our forestry assets still under assessment. There was no material damage to essential mills equipment and production resumed normally within a few days once utilities were restored. All other industrial units kept operating as usual. However, adverse weather conditions associated with storms have disrupted forestry operations and hindered the transportation of wood to our mills. The relatively low stock levels at the start of the year, combined with the impact of the storms may require a temporary adjustment to sales volumes in the first quarter, which is still under assessment. Navigator's integrated business model, strong financial position and the ability to respond proactively across the value chain from forestry to a set of different finished products are enabling us to navigate current challenges with confidence. Ongoing diversification and continuous innovation in our core business will further strengthen Navigator's resilience and long-term value creation. Thank you. Ana Canha: Thank you, Antonio. This ends our presentation. We are now open for the Q&A session. Operator: [Operator Instructions]. The first question comes from Bruno Bessa from Caixa Bank. Bruno Bessa: I would focus on the new plant that you announced in Aveiro. Could you share any numbers on this new plant, mainly in terms of your expectations for EBITDA margin or even EBITDA contribution once it starts up, will be appreciated. And also regarding the investment that you announced, the EUR 115 million investment. One question about this. Would it be reasonable to assume that 20% of this investment could be in the form of nonreimbursable subsidies. So this will be the second question. The third question, just a bit of a more technical one. If you could just explain the changes in the fair value of biological assets because I saw that in Q4, you had relevant movement of around EUR 5 million contribution in the EBITDA, positive contribution. If you could just explain what are the dynamics behind this? And what should we expect from this for 2026? Antonio Redondo: Thank you, Bruno, for your questions. I'm going to try to repeat them. The second I was completely unable to understand. I'm going to repeat first and third, and I will ask you to be so kind to repeat second. So first, we would like to try to understand better the EBITDA margin impact of Aveiro new tissue machine once it starts up, correct? Bruno Bessa: Yes, that's correct. Antonio Redondo: The third one is about fair value of biological assets. You would like to understand a bit more how we see things in 2025 and going forward. Bruno Bessa: Yes. That's correct. Antonio Redondo: And the second one, are you so kind to repeat it, please? Bruno Bessa: Sure. The second one is about the EUR 115 million investment that you announced in Aveiro. You mentioned that this should have some subsidies from the government. My question here is, if it would be reasonable to assume that 20% of this investment could be then in the form of nonreimbursable subsidies? Antonio Redondo: Okay. I will give some introductory comments on the questions. I will pass to Nuno, the first one and to Fernando the second and the third. So the impact of the tissue machine is going to bring the Tissue UK operation closer to what is the EBITDA margin of our Iberian operations. As we have heard, we believe that with the reshuffling of the converting operations we are doing in U.K., this will add to the existing conversion 2 to 3 points in margin improvement. It will be more or less the same range, the integration of tissue -- new tissue machine. Regarding the second question, obviously, we do not share any specifics on our discussions with the Portuguese government. But I would expect the levels not to differ from similar projects that we deal with the government, of course, outside the [ NextGen EU, Innovation ] funds in previous investments. So it's not going to be materially different from that percentage-wise. Nuno, can you add something more on the first question, please? Nuno de Araújo Dos Santos: I can only comment and stress what you just said. I think overall, I think people attending the conference also have the benchmarks for what can be a tissue machine of this size. For us, we would expect on a long-term basis [indiscernible] that this should increase the EBITDA margin of tissue by 3%, something like that. And in fact, the EBITDA margin of Navigator by 1% because, as you know, tissue is already 1/3 of the EBITDA margin of the group. Antonio Redondo: Fernando? Jose de Araujo: Some mention related with the PM2 of tissue in Aveiro, the margin of support is around 20%. And we are talking about investment of EUR 115 million. In what concerns the biologic assets, it's -- we have an increase this year. It's mainly related with Mozambique. The way that we calculate the discount cash flow, it was on the basis that we will get and transport to Portugal. And fortunately, we found better ways to monetize these biologic assets in Mozambique. This means that we have less costs and we can have increase of return. For the near future, we are not expected to have huge amounts of variation on biologic assets, like we always do, we try to manage in a way that we do not foresee a big increase for the future. This particular year, it's because of this good news that we found ways to sell directly to local. Bruno Bessa: And just a follow-up. Could you please elaborate a little bit more on those alternatives that you have now for the wood produced in Mozambique. Are you exporting to Asia, what are those alternatives? Antonio Redondo: I will ask Joao to answer the question. Joao, please? João Cabete Gonçalves Lé: Yes, it's a good question. We -- in the last 2 years, we found out that we could sell wood locally mostly for furniture purposes. And -- but we sell it locally for Chinese operators, mainly but also from India. And we expect that with that these local sales we can monetize almost all the stocks, the wood stock that we have in the near future. Operator: The next question comes from Antonio Seladas from AS Independent Research. There are no further questions at this time at the conference call. Now we will go through the webcast. From the webcast, we have the first question. Thanks for the detailed presentation. Can you please provide us with some guidance on the possible margin uplift that the new tissue machine will bring now that you will become fully integrated in Tissue? Antonio Redondo: I think that question was also already answered in a very complete way. Operator: The next question comes from [ Michael Saido, ] a shareholder. What are the dividend relevant dates ex dividend and payment date as well as how much dividend will you propose to the AGM? Ana Canha: The general meeting will be held on May 22. And regarding dividends, we already gave the answer, EUR 80 million is the proposal from. Jose de Araujo: And normally, it's paid 8 days after the general assembly meeting. Ana Canha: Okay. Thank you. This concludes our session. Thank you for your time. Should you require any further clarification, please feel free to reach out through our usual channels, wishing you all a pleasant evening.
Operator: Good morning, everyone, and welcome to Blue Owl Technology Finance Corp.'s Fourth Quarter 2025 Earnings Call. As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Mike Mosticchio, Head of BDC Investor Relations. Please go ahead. Michael Mosticchio: Thank you, operator, and welcome to Blue Owl Technology Finance Corp.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. Yesterday, OTF issued its earnings release and posted an earnings presentation for the fourth quarter ended December 31, 2025. They should be reviewed in connection with the company's 10-K filed yesterday with the SEC. All materials referenced on today's call, including the earnings press release, earnings presentation and 10-K are available on the Investors section of the company's website at bluewltechnologyfinance.com. Joining us on the call today are Craig Packer, Chief Executive Officer; Erik Bissonnette, President; and Jonathan Lamm, Chief Financial Officer. I'd like to remind listeners that remarks made during today's call may contain forward-looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties that are outside of the company's control. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described in OTF's filings with the SEC. The company assumes no obligation to update any forward-looking statements. We'd also like to remind everyone that we'll refer to non-GAAP measures on this call, which are reconciled to GAAP figures in our earnings presentation available on the Events and Presentations section of our website. Certain information discussed on this call and in the company's earnings materials, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. The company makes no such representations or warranties with respect to this information. With that, I'll turn the call over to Craig. Craig Packer: Thanks, Mike. Good morning, everyone, and thank you all for joining us today. There has been a lot of investor attention on software over the past several weeks, particularly around what AI could mean for the sector. We understand the focus. What I want to underscore at the outset is that performance at OTF has been strong, and we expect that to continue. We are pleased to report another strong quarter for OTF, closing out a milestone year marked by our successful public listing on the New York Stock Exchange and continued progress in enhancing our long-term earnings power. In June 2025, OTF was listed and established as the largest publicly traded technology-focused BDC by total assets. In connection with the listing, we declared 5 quarterly special dividends of $0.05 per share through September 2026, in addition to our regular $0.35 per share dividend, supported by substantial spillover income generated prior to the listing. This distribution profile underscores our earnings potential as we ramp toward our target leverage, particularly during a period when many credit managers are navigating earnings compression. Since listing, we've been working our way through the lockup releases. And as of today, roughly 50% of shares are freely tradable. We used this increased float to opportunistically repurchase $65 million of OTF shares during the fourth quarter at an average price to book value of 0.82x. These repurchases were accretive to NAV per share and reflective of our conviction in the quality of our portfolio. With that, let me address the recent headlines around software and AI. We saw a broad sell-off in tech and SaaS names on concerns that AI could disrupt software business models, and that pressure ultimately impacted BDCs as well. We've always liked software, and it has been a significant contributor to our performance. We've built dedicated technology investing capabilities to match the opportunity and portfolio performance remains excellent. Our software borrowers are delivering low to mid-teens revenue and EBITDA growth on average, among the strongest across our direct lending strategy. Our technology strategy is supported by a dedicated team of over 40 technology investment professionals, part of our broader direct lending team of more than 120 investment professionals. The team is organized across 10 key subsectors, including cybersecurity, health care IT and fintech, giving us deep domain coverage and experience navigating ongoing technology shifts. They have evaluated AI risks and opportunities for many years. But given how quickly the technology is evolving, we proactively revisited our core thesis and reevaluated our portfolio with a forward-looking lens. Our analysis confirms the quality of our assets and gives us confidence that our portfolio remains aligned with where the market is going. As a reminder, we primarily lend to large-scale market-leading companies that provide mission-critical solutions with durable moats. We emphasize systems of record that are deeply embedded in customers' workflows, carry high switching costs and operate in environments where errors, downtime or security breaches cannot be tolerated. Combined with our defensively constructed portfolio of predominantly first lien senior secured loans to private equity sponsored borrowers with LTVs in the low 30s and significant equity cushions, we have a substantial buffer even in periods when equity valuations are pressured, which helps support downside protection and durable earnings. Our performance continues to validate our approach. In the fourth quarter, OTF delivered a nearly 11% return on adjusted net income. NAV increased 35 basis points in the quarter and is up nearly 16% since inception. Furthermore, OTF continues to maintain low levels of nonaccruals and has posted average annual net gains of 23 basis points since inception, underscoring our credit quality. While periods of rapid technological change will create disruption, they will also create opportunities and dispersion in performance. We believe that our deep domain expertise positions us to identify and capitalize on those opportunities. We are very pleased with our results and confident that we are well positioned to navigate ongoing changes in the sector. With that, I'll turn it over to Erik. Erik Bissonnette: Thanks, Craig. Good morning, everyone. Since inception, our investment strategy has been to invest in a broad range of established and high-growth technology companies. To date, software companies have presented the most attractive investment opportunities, and as a result, software comprises approximately 70% of our portfolio. The balance of the portfolio is made up of tech-enabled services, other technology sectors, life sciences and a small portion of nontechnology investments. We remain enthusiastic proponents of software. Software is an enabling technology that can serve every sector, end market and company in the world. It's not a monolith and neither is AI. Great software businesses provide mission-critical solutions that enhance productivity, drive efficiency and replace analog and error-prone ways of conducting business. The software industry has navigated significant shifts before. When the industry moved from on-premise license and maintenance models to cloud subscription-based pricing models, there were winners and losers, but the shift ultimately expanded markets and strengthened the category. Like the cloud transition, we expect Gen AI to drive significant long-term value through increased product utility, operating leverage and expanding enterprise software wallet share. Our underwriting thesis remains focused on sticky, mission-critical applications where AI serves as an additive layer rather than a replacement. We believe the most resilient winners will be incumbents to successfully integrate these capabilities to solve complex enterprise-grade challenges, thereby increasing switching costs and solidifying their status as essential corporate infrastructure. Given the heightened focus on software, it can be easy to think about it as a single homogenous sector. That isn't how we underwrite or manage our portfolio. Instead, we think about our software exposure across 3 core categories: applications, systems and infrastructure and fintech and payments, which together represent roughly 70% of the portfolio. I'll briefly walk through each one of these. First is application software, which represents about 50% of the portfolio and is the operating layer for core business functions, including ERPs, CRMs, supply chains and vertical-specific SaaS. We believe incumbents in these categories can be insulated because they control the proprietary data and complex workflows that AI needs to be useful in an enterprise context. As true systems of record, these platforms are extremely difficult to replace, and we believe will evolve into systems of action where AI increases product utility, deepens customer reliance and broadens opportunity to expand within their existing customer base. Second is systems and infrastructure software, about 20% of the portfolio, where cybersecurity is the largest component. This is the defense layer that protects enterprise data and networks to keep systems connected and operating reliably. We see this as structurally resilient and a beneficiary of the AI transition as businesses expand technology, services and complexity across the organization. Finally, fintech and payments is approximately 5% of the portfolio. These businesses provide the critical rails for the global movement of capital, a category we view as insulated from AI disruption. While AI can improve things like fraud detection and the customer interface, the core need for secure, regulated and reliable movement of funds remains unchanged and create significant moats for incumbents. The categories we prioritize each play a specific functional role that is difficult to bypass. Even as the technology landscape shifts, the need for auditability, control and data integrity remains constant. As such, we believe these companies are well positioned to remain as the foundational layer to which new AI-driven activity is governed and executed. While there will certainly be winners and losers as AI reshapes the landscape, we believe the market leaders we finance are using AI to stay on the winning side of that transition. We have navigated major technological shifts before, such as the transition to the cloud. However, AI feels fundamentally different because it is a daily presence. We interact with it personally. It's in our pockets, in our homes, which creates a unique sense of both its power and its potential risk. But as we move this technology into the enterprise, we must distinguish between personal utility and business-critical execution. The challenge with AI and current large language models is that while it is world-class at communicating, its underlying nature is probabilistic. It is a statistical engine designed to predict the next logical pattern. This is excellent for a personal assistant, but it is a problem for systems that need to be precisely accurate. A payroll calculation or bank transfer is either 100% correct or is a failure. And the corporate world almost right is completely wrong. This is why we believe established software leaders, the incumbents, occupy a much stronger position than the market currently discounts. These companies own the systems of record and the workflow. They have spent decades codifying the intricate rules of how a hospital operates or how a global supply chain moves. They don't just have the data, they have the operational context. We engage regularly with our nearly 200 portfolio companies and their sponsors. And what we're seeing is that AI isn't theoretical, it's already operational. Many of these businesses are backed by sophisticated private equity sponsors that are investing meaningful resources to embed AI into products and workflows in ways that strengthen their leadership positions. In our portfolio, the incumbents are using AI inside proven zero error frameworks, using AI to help with reasoning while relying on their proven deterministic software to execute. Importantly, that framing matters for us as lenders. A lot of the public debate right now is being expressed through equity market volatility, who wins the growth, who captures the upside and how valuations reset. Our returns don't rely on hyper growth. We underwrite for durability and downside protection first. The portfolio is predominantly senior secured, and we're typically sitting at low 30s LTVs, meaning that over 65% of the company's value would need to be impaired before our investment is impacted. There is inherently a margin of safety in our capital structure. And we're not taking loan bets. Our loans generally have an average duration of 3 to 5 years, which gives us a defined time horizon for how this evolution plays out. In addition, the portfolio turns over actively with about 1/4 of the book repaying each year, which means a large portion of today's portfolio has been underwritten in an AI world. Many of these businesses are built on multiyear contractual recurring revenue models, which supports stability through periods of change and we have contractual maturities, ultimately, we must be repaid. Underpinning all of this is our specialized dedicated technology investing team of over 40 professionals who have been continuously pressure testing our underwriting and portfolio as AI reshapes the landscape. With that, I'll jump into an overview of investment activity for the quarter. As we previewed on our last call, our pipeline was very strong. In the fourth quarter, we converted that backlog and meaningfully more, deploying $2.3 billion of new investment commitments, including $2 billion of new investment fundings, while repayments remained steady at $881 million. This activity drove a meaningful increase in net leverage over the period, which will translate into improving returns over time. And while we've been very active, make no mistake, the bar for new investments is higher than it has ever been as we factor in a rapidly evolving AI landscape. There are areas that were once investable several years ago that we are now passing on. Although we do not have full visibility into repayment activity, we have a meaningful backlog of approximately $900 million in transactions that we expect to fund next quarter, positioning us to continue deploying capital toward our portfolio growth targets. These investments remain subject to documentation and approvals, but our pro forma leverage based on these anticipated fundings and visible repayments would bring us to the bottom end of our target leverage range, slightly ahead of expectations at our listing. Looking ahead, we remain encouraged by the quality and momentum of our near-term pipeline, which continues to support disciplined portfolio growth through 2026. Now I'll turn the call over to Jonathan to discuss our financial results in more detail. Jonathan Lamm: Thank you, Erik. We delivered strong fourth quarter results driven by healthy deployment activity and the ongoing strength of our portfolio. We ended the quarter with total portfolio investments of over $14 billion, outstanding debt of $6 billion and total net assets of $8 billion. As of quarter end, our net asset value per share was $17.33, up $0.06 from the prior quarter, reflecting several write-ups of common and preferred equity positions, including SpaceX and Revolut, investments that exemplify our ability to proactively source and back innovative companies. For those newer to the story, we invested $27 million of equity in SpaceX in 2021, which has been written up over 7x as of December 31. Turning to the income statement. OTF reported adjusted net investment income of $0.30 per share in the fourth quarter. This reflected steady interest income from increased deployment, offset by onetime expenses and the timing of originations, which were weighted towards the end of the period, limiting the impact to earnings. Altogether, adjusted net income was strong at $0.47 per share, equating to a 10.9% adjusted net income ROE for the quarter. Our GAAP results include $0.03 per share of accrued capital gains incentive fees driven by the positive marks on certain equity investments. This incentive fee accrual underscores OTF's strong credit track record with net gains since inception. Earlier this week, our Board declared a first quarter regular dividend of $0.35 per share, consistent with our last quarterly distribution, which will be paid on or before April 15, 2026, to shareholders of record as of March 31, 2026. In addition to our regular dividend in connection with our listing in June, our Board declared 5 special dividends of $0.05 per share, each to be paid quarterly through September 2026. As a reminder, these dividends are being supported by the significant amount of spillover income OTF generated prior to listing, which totaled $0.40 as of quarter end. Moving to the balance sheet. We ended the quarter with net leverage at 0.75x, reflecting the pickup in new deals and steady add-ons. Given that deployments were weighted toward the end of the quarter, our average leverage was 0.66x. So the full impact of the higher leverage and recent deployments will materialize in future earnings. Alongside that, we took several steps to improve our funding flexibility and reduce costs by adding lower cost secured capacity through CLO and SPV activity and exiting higher cost legacy financings. Pro forma for this activity, we expect annual run rate interest savings of approximately $10 million. Additionally, in January, we further diversified our liabilities with a $400 million unsecured bond issuance, demonstrating continued access to the IG unsecured market. We ended the quarter with nearly $2.3 billion of total cash and capacity on our facilities. This provides more than ample unfunded capacity to support our future growth as we ramp towards our target leverage range of 0.9 to 1.25x. Turning to OTF stock float. As Craig mentioned earlier, roughly 50% of shares have been released, and our next lockup release is scheduled for tomorrow, February 20. We hope that additional lockup releases will continue to ease technical pressures, generate interest and diversify our ownership base over time. We've been using this period to thoughtfully deploy the tools available to us, such as our share repurchase program to drive value for our investors. As Craig mentioned, we repurchased $65 million of shares during the quarter, which added $0.03 per share to NAV. The Board of Directors has also authorized a new share repurchase program of up to $300 million, which will replace our current $200 million share repurchase plan. Longer-term, we remain confident that our share price will ultimately reflect the strength of our fundamentals. And now I'll hand it back to Craig to provide final thoughts for today's call. Craig Packer: Thanks, Jonathan. As we wrap up today's call, I want to take a step back and reflect on the current market environment and what it means for OTF. The world is changing quickly with the acceleration of AI. We have always underwritten our investments with technological change in mind, but the pace of that evolution and the uncertainty around where it will go next is higher today. That's why our investment teams are even more committed to being selective, particularly as it relates to underwriting AI risk and focusing our capital on the platforms we believe will remain durable through the transition. At the same time, periods like this tend to create supply-demand imbalances as some lenders pull back and that volatility can create opportunity. It can lead to better pricing, better structure and the ability to deploy capital into names we like on attractive terms. And importantly, OTF continues to stand out in the BDC universe for its capacity to invest in new opportunities while seeking to grow ROE. It also provides differentiated access to the innovative growth economy through select positions like SpaceX. We have significant capacity and ample liquidity, which positions us to take advantage of these opportunities as they emerge. In closing, I'd like to remind everyone that OTF's earnings trajectory is positioned differently than many BDC peers. We set our $0.35 base dividend in early 2025 using the forward curve at the time, so it was calibrated for a lower rate environment. As a result, we are not expecting to have to adjust our base dividend simply because rates have moved lower, unlike many other BDCs that set their dividends in a very different backdrop. Even excluding any special dividends, our $0.35 base dividend alone represents an approximately 11% yield at today's market value. As we look ahead, we're optimistic that this environment will create more opportunities to deploy capital in a disciplined way, continue to grow our earnings power and deliver compelling results for shareholders. Thank you for your continued support. Operator, please open the line for questions. Operator: [Operator Instructions] Today's first question is coming from Brian McKenna of Citizens. Brian Mckenna: Okay. So just looking at the portfolio, clearly underlevered today. There's meaningful capacity to invest. But given the evolving deployment environment here, how are you making sure you're investing into the right businesses in the current backdrop? And I asked this on the prior call, but are there any subsectors you're looking to lean into from a deployment perspective, specifically as it relates to the tech sector and then just some of the businesses in and around AI? Erik Bissonnette: Yes, sure. Thanks for the question. So we tried to lay out a pretty comprehensive framework of how we're thinking about the broader software universe in the prepared remarks, but I appreciate that it was probably somewhat dense. And as I said, we think that the market misunderstands or unappreciates that our existing companies and the opportunities that we're facing today are more than just simple bundles of code, right? These businesses are attractive and valuable and they're solving complex enterprise-grade challenges that's built upon a tremendous amount of knowledge in solving domain or vertically specific challenges. These are decades in the making, mastering these types of workflows. They leverage complicated rules and processes, combining that with proprietary data, sprawling integrations. And they also leverage the power of network effects into that specific area of expertise. And the last point is they really underpin zero fault tolerance operations. So it's the amalgam, Brian, of all of those things, and that can be represented differently in different categories, both in applications or payments or security or more specifically in different areas of the application universe. But we believe that just because the ability to write code is changing, the market seems to be pricing in a situation where code generation renders everything else around them. That's clearly not the case. All of our companies and the ones we're looking at it have an equal and unembedded access to the same models and the power of AI that everybody else does. And if your solution was a thin user interface wrapper over a back-end database, you're already in trouble, but that's never been where we focused simple feature differentiation was never the main differentiator. But also, as I alluded to, this continued evolution from systems of record to systems of action where data is stored, activity is tracked to where AI can manage workflows independently, all of that taken together is why we think the portfolio and the opportunity set and where we're going to continue to focus is much stronger than what the market might fear. Of course, there will be disruption, but we think the companies with the real moat will continue to leverage these tools and we will build faster and compound their leads. Brian Mckenna: That's great. And switching gears a little bit. Just in terms of the trajectory of ROEs from here, I know this will ebb and flow a little bit from quarter-to-quarter just as you manage prepayments and leverage is further optimized. But is there just an updated time line around ROEs kind of normalizing ROEs over time? And then should we still think about a normalized ROE longer-term of about 10%? Jonathan Lamm: Yes. So Brian, it's -- we made some significant progress in terms of deployments in the fourth quarter. Some of those deployments were back-ended. Therefore, average leverage was a bit lower than where we ended. We're still very, very much on track in terms of delivering the NIIs for the dividend that we've basically set by the end of this year, which is consistent with how we were portraying it when we -- back when we listed the company in the middle of last year. And so we're on track. We think that over the -- it will -- it should build over the course of the year. And so you saw a little bit of a decline in NII due to some bespoke items this quarter, but that momentum should pick up as we move across 2026. And we're not changing the time line, but some of it may be a little bit more back-ended to the second half of '26 in terms of reaching those targets. Operator: The next question is coming from Kenneth Lee of RBC Capital Markets. Kenneth Lee: Just one on the refreshed or new share repurchase program. Given the leverage capacity there, wondering how active OTF can be there in that area? Jonathan Lamm: Yes. So look, we're -- we've upsized and refreshed the repurchase program here from $200 million up to $300 million. We repurchased shares in the quarter. We're still releasing shares under lockups. We're approximately 50% released at this point in time with another 50% really coming -- the remainder coming out over the course of the balance of the first half of the year. And so liquidity in the stock is definitely picking up, but certainly prevents us from being as active in terms of the repurchase plan, but we plan to continue to use it, and that's why you saw us with the Board refresh it and upsize it. Craig Packer: Look, we're not afraid to use it. We think these levels don't make any sense, and we couldn't be clear with our confidence in the portfolio and the value of the assets. So if there's a world where we can sell our assets at par and buy our stock in the 70s, that's a world we're going to have to do that. It's attractive to shareholders. So we're not -- we used it. We used it in a big way in both funds in the fourth quarter. We used it more than any other firm, and we'll continue to use it. Kenneth Lee: Got you. Very helpful there. And just one follow-up, if I may. Just in terms of the spreads you're seeing, any drivers for the quarter-over-quarter movement in spreads on new investments? And what are your expectations going forward in this area? Erik Bissonnette: Yes. So look, a lot of the activity that you saw roll through the financials and the performance in the fourth quarter were deals that were negotiated, as I alluded to, in Q3 and in Q4, which is spreads have been persistently tight. You've heard it from us on this call and other calls. What I think -- I don't want to try to predict the future too dramatically here, but I think we are going to see, particularly in the software universe, a widening of spreads. I think there's going to be lesser participation, frankly. I don't want to speak on behalf of investor banks or any other firms, but I think it's going to be more challenging to underwrite these assets. It requires very unique and deep sophisticated sets of investors who do nothing but focus on this all day long. We have that team of 40 people. The opportunities that we're seeing today and in the first quarter are actually extremely attractive. We signed up some very large substantial assets at pretty attractive rates and very attractive LTVs. And I think we're going to continue to invest in very similar companies, as I articulated, but those spreads will probably continue to widen, I hope, for some period of time. Operator: The next question is coming from Arren Cyganovich of Truist Securities. Arren Cyganovich: I appreciate all the comments. Clearly, you're still very confident in software. With the $900 million backlog that you've mentioned, is there a big component of software in there? And when you're talking to sponsors as you're kind of moving through this in real time, what are you hearing from the sponsors in terms of their continued commitment to investing in the space? Erik Bissonnette: Yes. I think it's pretty consistent with what we've looked at historically. There's some -- it's probably a pretty comparable mix in terms of overall software mix between applications and some security opportunities. In our conversations with our portfolio companies and sponsors, they're doing exactly the same thing that we're doing. Everyone is reevaluating everything they own and looking at how they are going to consider to move forward and invest against the lens of exactly what we're seeing today. So everyone is really re-underwriting and refocusing on what we think are the most important things, right? So enterprise-grade complexity, as I said, data gravity, workflow modes, proprietary assets, network effects, understanding tech debt and pricing durability, fault tolerance, regulatory infrastructure, all of these other factors as we think about what is the most attractive areas to invest in the new world of AI. And we continue to see new opportunities, businesses that are compounding their leads and compounding their moats, leveraging these tools that are democratic and everyone has access to, and we feel that the incumbency position in which they're in, will continue to help them continue to grow. And we're very confident. Over time, we will -- there are areas, as I said earlier, particularly some areas that were in scope of in applications, maybe parts of managing the development life cycle and pipeline for software developers or passive repositories of information with lightweight user interfaces, there are narrow point solutions that are not particularly embedded and those are at risk. And frankly, we haven't really been focused on those before. So the application aperture might tighten just a little bit, and you might see a little less in applications, but I still think there's going to be some tremendous opportunities there. So we're pretty excited about the thesis, and it's going to take some time to prove out, but I think we'll be happy and you'll be happy with the results. Operator: The next question is coming from Casey Alexander of Compass Point. Casey Alexander: The private equity sector is pretty reactive to what it sees as market sentiment. And seeing this -- I mean, you guys are pretty underlevered. Is your pipeline shifting and are private equity firms shifting their activity away from software at least until there's more certainty? And does that create more challenges for you to get to a more fully levered position? Erik Bissonnette: I think that answer might depend on with whom you're talking about in the private equity universe. I think if you were to talk to some of the larger players, the technology-focused investors, they largely share the thesis that we have, and they are out talking and evangelizing about what we see and what they see and where the opportunity sets might lie. And frankly, particularly in the public markets, there might be some really attractive opportunities that have been created by somewhat of a dislocation. This is kind of similar to what we saw in 2022, where coming off of the peak multiples in ' 20 and '21 in the ZIRP environment, there were a meaningfully large amount of, I think, over 20 go-private tech transactions at pretty good valuations and really attractive rates of return from our perspective. That isn't to say that for us or for others that we are exclusively software. As I said in the prepared remarks, we really like software, and we will continue to focus on areas of software that we think are the most defensible over time, but there are other areas of tech that we have been invested in. There are other areas of business services. There are other areas of life sciences that we continue to focus on. So I think the aperture that we have is appropriately wide and it doesn't particularly give me concerned about the overall opportunity set to get to our target. Craig Packer: I might just add, I actually don't think the private equity firms are reactive. I think they take a long view. And I think they're extremely well versed in the space. And they're not making investment decisions based on the headlines of today. They're deep into these companies. And I think that they -- I would expect that they will be able to discern businesses that are going to do well, and they're going to view this as an opportunity to buy them cheap. We've seen this for 30 years. This is the history of private equity. I would also say that without in any way minimizing the disruption of AI, we think it helps us as a direct lender to see the public loan markets get dislocated and helps us. That's a competing source of capital -- so those investors don't have the ability to do deep dive due diligence. They don't have 40-person investment teams that get to know their companies and get detailed financial information. They're just trading on headlines. And so that's an opportunity for us. So I'm completely confident that we're going to be able to get OTF to its target leverage. We're not hell bent on all that being in software. But if there are great software investments, we'll do them. But the fund has a broad mandate, as Erik said. And in this environment, I expect others to pull back their lending capacity, and I think we're going to benefit from that for the select deals that we do. Operator: Our next question is coming from Sean Paul Adams of B. Riley Securities. Sean-Paul Adams: You guys talked a little bit about selling off some assets at par, especially given the fact that you guys are kind of trading at a 30% discount to NAV. But later in the call, you additionally touched on the fact that there's additional opportunities, especially in the open market for new investments, especially in a couple of other sectors. Can you provide a little bit more color on just that bifurcation that you're going to be looking at in terms of either repurchasing the stocks or reinvesting into other sectors? It just seems like there's kind of a competing viewpoint right there. Craig Packer: Sure. I appreciate the question. It's a good one. Look, this is what we do, and this is how we've been doing it for 10 years. We're always evaluating the incremental investment opportunity versus potentially buying our stock. We're in an environment where both OBDC, OTF stock prices are severely depressed on a net asset value. It's not specific to Blue Owl. It's the case of most of the industry. And so we will compare the incremental dollar that we can deploy and get returns from buying our stock in the 70s or 80s versus making additional loans. There's a lot of value to having permanent capital. We don't take that lightly. But by the same token, buying stock can be very accretive to shareholders. So obviously limits to how much stock we can buy. We're mindful of our leverage, our liquidity. Our main business is lending. That's the investors are investing in this fund, so we'll make loans. But we'll do both. I think the fourth quarter speaks for itself in terms of not just talking about buying stock. We bought stock. So I think it's very instructive. And I think we'll be very open-minded and front-footed about buying stock as well. It just depends on the relative returns of those 2 parameters. Just as a reminder, I think maybe this is obvious, but I'll say it, we have to follow various regulatory restrictions when you're buying back stock, there are windows where we can buy or not buy depending upon where we are in the quarter. So -- and that's no different than any other company out there. So we don't have unfettered ability to buy stock every day with volume restrictions and the like. But within those bounds, we're an active buyer in the fourth quarter, and we'll continue to evaluate that. OTF is in an extremely strong position because it's underlevered. So we can do both. So we will do both. Operator: The next question is coming from Brian McKenna with Citizens. Brian Mckenna: Sorry if I missed this, but if you were to mark-to-market your portfolio for current public market valuations and multiples, what is the average LTV of the portfolio look like? And then just an unrelated question on your SpaceX investment, what valuation was this position marked at, at the end of the year? Erik Bissonnette: Sure. So I'll answer the second one first. So when we see observed marks, in this case, it was a tender offer in the period, we typically take a discount to the tender. So it's roughly 10% of the tender offer, which was $800 billion. So I believe it's marked at around $720 billion or so today. That obviously does not contemplate the merger of SpaceX and xAI, which was consummated in Q1 at a $1.25 trillion value. I keep stumbling over that word because it's such a staggeringly large number. So we would obviously expect to see some meaningful -- expect to see a meaningful uptick in that position in Q1 as well. Look, we're going through -- we're obviously going through always and looking at what's going on in the public markets and evaluating what we think the prevailing values are there and how accurate they are for what actually occurs in private transactions. I think the first point that I would make is looking at private equity deals that we're doing now and what we're seeing in Q1, there's a meaningful disconnect between prevailing control values in private markets versus what we're observing in public markets. That said, we don't ignore those marks. But if you take our portfolio and just say you're 30% LTV across the entire portfolio, if you had a 50% adjustment to enterprise value, obviously, the LTVs would go up by 16% or 17%. So would I be -- I don't love going up to 46% to 47% or 48% LTV, but that's obviously still a tremendous margin of safety from our perspective. So we have a lot of ability to absorb any amount of degradation in terminal multiples for our software companies given where we attach. Operator: The next question is coming from Paul Johnson of KBW. Paul Johnson: I'm just curious in the decade or so or near decade that you guys have been investing in the space, the software space and direct lending broadly. But how many software defaults have the Blue Owl platform worked through in the total aggregate of investments that you've made in that space? Erik Bissonnette: Yes. I mean the answer to that is one. And that one company was a publicly visible name that we work through and we eventually took over that company. We still own that company. It's still on the SOI, and we're still trying to see where we can take that business. But that's across -- I don't have the precise number of the total investments in software since inception, but it's 300-plus names, obviously. So a tremendous number. The number of defaults are almost nonexistent and really troubled situations are very small. And I think that's a function of 2 things. Number one, it's a function of the strength of the overall business model, but also our asset selection. I mean after 10 years, at some point, it's a pretty real and observable track record over a long enough period of time. Paul Johnson: Very helpful. And then on -- I'm just curious maybe your observations of the ARR structures within the portfolio. I honestly can't remember if you've disclosed how much of the portfolio is ARR, but any sort of observations and trends there in terms of conversions or payoffs this quarter and your thoughts on the performance there? Erik Bissonnette: Yes. The ARR percentage has been coming down pretty dramatically over the past few years. It's probably sitting today somewhere in the low teens. And that drop-off has been a function of most of the class of 2022 and some of 2023 converting early or being refinanced into alternative markets. So they've met their growth goals. They've generated a meaningful amount of EBITDA, and we've either converted them into regular rate cash flow transactions or they've been executed in alternative environments. So we think that there's still really good businesses that could be underwritten on that basis. I think, obviously, the bar for that type of underwriting has always been exceptionally high, and I think it will continue to be exceptionally high, particularly in a world where we're evaluating potential evolutions of revenue models. So it's a pretty low percentage. It's the absolute lowest percentage it's been, frankly, since inception right now, and we'll continue to monitor that going forward. Paul Johnson: Once again, also very helpful. And the last question I had, just bigger picture, I'd like to get your thoughts maybe just broadly for software, even kind of pre AI disruption fears. What are your thoughts in terms of the economics or the unit economics for a typical SaaS deal? Have you seen any sort of softening there in terms of the KPIs that you look at for the industry? Or do they remain as strong as ever? And I ask just because we've heard from a few of your competitors that, that may be the case, but I just like to get your opinion on that. Erik Bissonnette: Well, it depends on what unit economics you're referring to. If you look at the -- just the overall ASPs that we're seeing in our portfolios for new bookings, they continue to be very strong. I think what you've seen both in public companies as well as private companies, which I think you're alluding to has been a degradation in net new retention statistics, which means the companies are just growing at an absolutely slower pace than they were 4 or 5 years ago, which is true. And if you look at the efficiency scores across many of these companies, they're okay in the 0.5x, 0.6x range. But across our portfolio, we've seen NRR come down from, call it, 115 to 108, which certainly is a slowdown in the absolute growth rate of those businesses, and that absolutely will have an impact on the terminal value of that asset. But we certainly haven't seen, broadly speaking, and I'm not going to go into the 25 different components of KPIs and unit economics and quality of revenue that we talk about, a deterioration that would suggest there's some major issue. So I've read similar things that you have. And I think that if you point to one specific statistic, I think you might be somewhat misled by what's going on in the aggregate. Operator: Thank you. That brings us to the end of the question-and-answer session. I will now turn the floor back over to management for closing comments. Craig Packer: Okay. Thanks all for joining us. If you have any follow-up questions, we're here and we welcome engaging with you on OTF or OBDC. Have a great afternoon. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines to log off the webcast at this time, and enjoy the rest of your day.
Operator: Greetings, and welcome to Life Time Group Holdings, Inc. Q4 and Full Year 2025 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Connor Wienberg, SVP of Treasury and IR. Thank you, Connor. You may begin. Connor Wienberg: Good morning. Thank you for joining us for the fourth quarter and full year 2025 Life Time Group Holdings Earnings Conference Call. With me today are Bahram Akradi, Founder, Chairman and CEO, and Erik Weaver, Executive Vice President and CFO. During the call, we will make forward-looking statements, which involve a number of risks and uncertainties that may cause actual results to differ materially from those forward-looking statements made today. There is a comprehensive discussion of risk factors in the company's SEC filings, which you are encouraged to review. The company will also discuss certain non-GAAP financial measures, including adjusted net income, adjusted EBITDA, adjusted diluted EPS, net debt to adjusted EBITDA or what we refer to as net debt leverage ratio and free cash flow. This information, along with the reconciliations to the most directly comparable GAAP measures are included when applicable, in the company's earnings release issued this morning, our 8-K filed with the SEC and on the Investor Relations section of our website. With that, I'll turn the call over to Erik. Erik Weaver: Thank you, Connor, and good morning, everyone. As always, we appreciate you joining us for our business and financial update. Starting with our fourth quarter results. Total revenue increased 12.3% to $745 million, driven by continued execution in our centers, including higher average dues and utilization of our in-center businesses. Average monthly dues were $223, up approximately 10.8% from the fourth quarter of last year, and average revenue per center membership was $882, up 10.8% from the prior year quarter. Comparable center revenue grew 9.9% and was in line with our expectations, reflecting strength in our membership dues and in-center business performance. We ended the year with over 822,000 center memberships. Including on-hold memberships, total memberships reached approximately 873,000. Net income for the quarter was $123 million, an increase of 231%. Fourth quarter net income benefited from approximately $45.6 million of net tax affected items that are excluded from adjusted net income, as they are not reflective of our ongoing operations. These adjustments primarily included proceeds we received in partial satisfaction of legal claims and employee retention credits as well as adjustments for net gains on sale leaseback transactions and share-based compensation. Adjusted net income, which excludes the tax-affected impact of these items was $77 million, up 28.4% year-over-year. Adjusted EBITDA was $203 million an increase of 14.5% over the prior year quarter, and our adjusted EBITDA margin improved by 50 basis points to 27.2%. Net cash provided by operating activities increased to $240 million, approximately 47% higher compared to the prior year quarter. This included $59 million of nonrecurring proceeds from partial satisfaction of legal claims and employee retention credits. For the full year 2025, total revenue increased 14.3% to $2.995 billion, driven by a 13.9% increase in membership dues and enrollment fees and a 15.1% increase in-center revenue. Comparable center revenue grew 11.1%. Relative to our initial guidance in 2025, the outperformance was driven primarily by our mature clubs, which in aggregate, reached and exceeded our expected levels of performance faster than we had anticipated. We believe this outperformance from our mature clubs is largely complete coming into 2026. In 2026, we expect full year comparable center revenue growth of approximately 6.3% to 7.3%. We expect a continuation of the quarterly trends we saw throughout 2025, starting the year at a higher comparable center growth rate and gliding downward as the year progresses. Average revenue per center membership was $3,531, up 11.7% from the prior year. Net income increased 139% to $374 million and adjusted net income increased 62.3% to $326 million. Adjusted diluted earnings per share increased 51.6% to $1.44 compared to $0.95 per share from the prior year. Adjusted EBITDA increased 21.9% to $825 million and adjusted EBITDA margin increased 170 basis points to 27.5%. Net cash provided by operating activities increased to $871 million, approximately 51% higher compared to prior year. This included $94 million of nonrecurring proceeds from partial satisfaction of legal claims and employee retention credits. Total capital expenditures, net of construction reimbursements were $892 million for 2025, this included $657 million for growth capital expenditures. Looking forward to 2026, we expect to invest between $875 million to $915 million of growth capital. It is critical to underscore that over half of our growth CapEx in 2026 will be for clubs opening in 2027 and beyond as we have been accelerating the number of new clubs versus prior years. This increased investment in growth CapEx is driven by both the greater number of club openings this year and the next few years compared to 2025 and 2024 as well as the increased size of our clubs. We are nearly doubling the amount of square footage we are opening in 2026 as compared to 2025 and 2024. Of our 2026 clubs, we have opened 1 and the remaining 13 are under construction. As these owned clubs open and begin to ramp, we expect to recycle the invested capital through sale-leasebacks over time. In addition to growth CapEx, we anticipate $140 million to $150 million of maintenance capital expenditures and $130 million to $140 million for modernization of existing clubs, technology and corporate investments. We anticipate funding our CapEx through cash from operations, sale-leaseback proceeds and cash on hand. For 2026, we expect to do a minimum of $300 million of sale leasebacks. One final note. With our increased growth capital spending, a larger portion of our interest expense will be capitalized this year as compared to 2025. For 2026, we expect to capitalize between $33 million and $35 million of interest expense. With that, I will pass the call to Bahram. Bahram? Bahram Akradi: Thank you, Erik. Good morning, everyone, and thank you for joining us. First, I want to recognize and thank all of our team members for their continued passionate execution of our strategies. 2025 was another great year of achieving our objectives and exceeding our financial goals. Many of our centers operated at or near optimal levels with average of 12.5 monthly visits per membership for the year, 4.8% higher than in 2024, and approximately 122 million visits in aggregate, 7% higher than in 2024, with revenue per center membership up 11.7% year-over-year. We generated substantial cash from our operations, and we exceeded our margin objectives. In 2025, we achieved a 27.5% adjusted EBITDA margin, 130 basis points above the midpoint of our initial guidance set in January of last year. We also exceeded our balance sheet objectives. We ended 2025 at 1.6x net leverage well below our 2x target. These milestones were instrumental in achieving another year of record revenue and adjusted EBITDA and a BB credit rating, which helped reduce our cost of capital. Reflecting on the current status of the company, in aggregate, our mature clubs are operating at optimal levels. Our new and ramping clubs continue to perform extremely well. Together, clubs are generating substantial cash flow from operation. The sale-leaseback market is robustly open, and we have a very strong balance sheet. As a result, we have a step into 2026 with exceptional financial flexibility. Currently, we expect to open up to 28 clubs across 2026 and 2027 to be funded primarily through operating cash flow and a robust sale leaseback market. Next, we are very excited to announce a $500 million share repurchase program, which has just been approved by our Board of Directors. We intend to utilize this program opportunistically while diligently managing our leverage ratio to stay at or below our 2x net leverage target. This is a significant milestone for Life Time. Our repurchase program reflects our confidence in the predictability of our business model and our ability to generate cash, invest in our future growth and drive shareholder value. Before I close my remarks, I would like to emphasize that the success of our company has been the result of unwavering focus on our member point of view. We remain committed to optimizing a member experience, revenue and EBITDA on a club-by-club basis. This is what has delivered our success to date and what will ensure our future success. With that, we will open the call for questions. Operator: [Operator Instructions] Our first questions come from the line of Brian Nagel with Oppenheimer. Brian Nagel: Congratulations on another nice quarter, nice year. Bahram Akradi: Thank you so much, Brian. Brian Nagel: So the question I want to ask, as we look into '26 now, there's been a lot of success with for a while now what you're doing inside the centers with the programming and such. What do you see the biggest opportunities as we go in '26? I know we've talked in the past about some of the changes you've made in the cafe or in some of the training programs. But really, what do we think -- what's the biggest opportunities here? Bahram Akradi: Yes. So Brian, this is Bahram. Our business is always evolving. The customer is the more affluent, more in tune with health and wellness customer, who is basically a pro at utilization of this type of services. They're looking for the new proven methods for being healthier and engage in the clubs in whatever is the current way that people get involved in health and wellness. We are always focused on modernizing, updating, evolving the facilities to make sure Life Time is always the best provider of all things people are looking for at the highest level of our customer experience. So we're constantly working on developing new formats, changing the floor in a way that the members are now wanting to use the facilities. And then we are working on all different aspects, from our cafes to spa, personal training, small group training. Again, the introduction and rollout of MIORA, we're basically constantly adapting. And that's what it takes for any company to continue to basically build the revenue and EBITDA and continue in their journey of basically being the place that people want to go to. We have tons of things we're working on right now. Lots of opportunities to do things better. And we have just launched this year that sort of a work on the cafes to try to improve the speed and the quality of what people want. And a lot of great progress early on is sort of happening, and we expect this all to continue. Personal training is doing great. Pickleball is doing great. Our new MIORA locations are launching pretty strong. So we just have a whole host of things we're working on. But the -- in big picture, everything is working exceptionally well. Members are using the club at the highest level we have ever seen. Clubs are packed. They're operating at near-optimal levels of utilization per day or per month based -- or per year as you look at how much visits a club can take and deliver great quality. So we're as happy as we can be. Brian Nagel: That's very helpful, Bahram. My follow-up question, just with respect to the new center opening. So I guess I'll ask it this way. You opened a number of centers later in '25. So maybe if you could just comment upon the initial performance of those? And as we're looking at these '26 openings and realize, I think you said one is open, but obviously, there's still a lot more to come. Is there anything you've gleaned so far from anything you're doing with the presale activity? Bahram Akradi: Yes. All I can say to you is our clubs are now opening stronger than ever and ramping faster than ever. Some clubs reach literally contribution margin positive, the first full month of the club operation, which is pretty incredible. We're very, very happy. As a result, we are opening as many clubs as we can as both Erik and I mentioned in our remarks and in the earlier. This year we'll open more square footage of clubs that we opened in '24 and '25 and '27 should be no different than '26. So we're really, really excited. We have an amazing pipeline of more dynamic, exciting locations that are going to come in the future years after '27, '28 and beyond. So we couldn't be more pleased with the way things are going right now. Operator: Our next questions come from the line of Arpine Kocharyan with UBS. Arpine Kocharyan: I was hoping you could give a little bit more detail on the unit economics of the new clubs you're opening this year. Obviously, much larger square footage with expanded amenities. As we think about revenue per member trends as well as kind of member mix as we go into the back half of the year, do you expect any changes to the typical seasonality of the business in terms of quarter-to-quarter member growth? And I apologize, it seems like I blended 2 questions in one. But first, I want to ask about sort of the unit economics of the new clubs. And then any help on the mix of members that we are looking at for the back half of the year? Bahram Akradi: Yes. What you should expect is as we are opening new clubs, A, these clubs don't have any discounted program available in them. So there is no discounted membership in them. The membership prices are higher. The model for the new clubs are significantly lower members -- number of members using the club is significantly more, and they're paying a much higher rack rate. This model is actually way more efficient than what we used to do in the very, very past, and we've been adjusting the older clubs gradually to match the performance of the new clubs. And so the memberships are expected to grow altogether because we're opening all the new clubs. However, again, they're performing extremely well. And while we don't see any specific ups and downs for the seasonality other than the fact that we are basically getting more members using the club more often. They are paying higher dues in average and using the club more. So it's exactly the model we're looking for. It's an engaged -- it's a super engaged membership model instead of a non-used membership model. And we are basically operating at optimal levels of that right now. Erik Weaver: Yes. If I could just add some quantitative there. When you look at our kind of existing clubs, if you just take an average membership per club it's $4,500, $4,600. So when you talk about our new clubs that we're planning those at membership levels, $3,700 to $4,000. So we are building those with fewer memberships because, again, we're assuming a better mix there. So but seasonality to your question, no changes in expectations around seasonality. Arpine Kocharyan: That's super helpful. And then just a quick follow-up. Could you remind us the rack rates you currently have and what's running through the system? Sort of what that delta looks like, just a refresher. Bahram Akradi: What was the question again? Erik Weaver: Can you say that again? Arpine Kocharyan: The rack rate you have? And what's running through the system and what that difference looks like today? Erik Weaver: You're talking about like the delta between the rack rate. Was that your question? Arpine Kocharyan: Exactly. Yes. Bahram Akradi: That's only increasing. We are -- as I -- what I want to -- this is a good question I want to do it for benefit of everybody listening. Our clubs are operating at incredibly optimal levels. Parking lots are packed, people are coming in, they're using the club in every place and all parts of the club. So what now we are reaching with so many clubs are at that level, we basically want to optimize the membership so that we are making sure the customer experience in no shape or form deteriorates. As we do that, we are basically getting a higher realization of the membership, higher use and we are allowing basically fewer memberships in the club. When the visits to the club are basically at the saturation level and the members you have are paying more, right, then you -- definitely are using the club more. That makes it that you can have maybe a fewer less members for that optimal deal. Therefore, the only way you can do that is really raise the membership prices. And we are doing that really to protect the customer experience. It's just where we need to do it. It's not across the whole system. It's club-by-club strategy. And we are raising market-by-market, club-by-club. And as we take those rack rates up, then it basically increases the amount of dollars, this is between the legacy customer and that. And as we raise the legacy customer prices, that reduces it. But I think right now, it's still relatively in that 17 million to 20 million. Erik Weaver: Yes, it's 19.5 million exactly. Bahram Akradi: Yes. Exactly. And that hasn't really changed, because the last few years, as we have kind of done both, we've been raising the rack rates. At the same time, we've been getting some of the members getting some legacy price increases. So that number has kind of stayed between that 17 million and 20 million per month. Operator: Our next questions come from the line of John Heinbockel with Guggenheim Partners. John Heinbockel: Bahram, I want to get your thoughts on 2 topics. One, onetime initiatives right? Because I think you've only got those in a handful of clubs. Do you think the experience merits that? And if so, and how broad could you apply that? And then secondly, DPT has grown, the sessions have grown 18% the last 2 years. How sustainable is that? Because I think the penetration rate is still very low. So is that -- the -- can the penetration improve? Can you keep growing DPT almost 20%? Bahram Akradi: Yes I want to give credit to our team across the corporate who leads that category as well as our folks in the clubs. We have a very, very robust plan for DPT this year as well, there are plans that they presented to us is very, very robust. Yes, we expect DPT to continue to grow. And in some clubs, the revenues are, by far, the biggest revenues and margins we have ever seen in the history of the company. And in some other markets, we still have the opportunity to add team members, add leaders into those facilities to kind of get those going. But we are super, super happy with where it's at and with its potential and the game plan that we have on hand for continuing to improve the personal training program throughout the year. John Heinbockel: Okay. And maybe just as a quick follow-up for either you or Erik. When you think about the openings in '27, what does the composition look like in terms of the ground-ups? It looks like that's going to be pretty heavy. And if we look at that, the CapEx budget, all in or growth, either one. Is this an elevated year? Or are we going to be -- as we roll forward kind of at a new higher level but we're also going to have $300 million, $400 million of sale leasebacks a year. Bahram Akradi: All right. It's a great question. We have a significant number of ground-ups in 2026 and 2027. So those are basically -- we are investing substantial amount of CapEx that is for '27 and beyond clubs. And so -- but then I am super comfortable with that because our -- as always, our ground-up clubs perform, I mean, so predictably above expectation that they ramp fast, and they are ready to go to the sale leaseback market, allowing us to kind of pair the new clubs with the older clubs that they have too much that the carried book value is really low. So the tax value is low so we can adjust those and not pay taxes on the gain and loss. It kind of try to even it out. So it allows a significant opportunity for having more sale leasebacks. So those are all great. Now when you look into '28 and beyond, we are working on a host of -- the real estate team is working on a host of super exciting facilities, but they -- a lot of those sort of really big facilities for the markets, the urban markets they're going into, that basically are landlord basic -- paying the bulk of the way and we are putting some leasehold improvement in there. But it really works itself out because we are now dramatically increasing the amount of owned assets in terms of dollars, which we can take those 2 sale-leaseback and/or we're doing big beautiful clubs in high-rise buildings or sort of the urban markets that they come in a lease form to begin with. So I don't believe we will have any issue generating enough cash to pay for things, take it to sell leaseback, recycle that, and then we're also having the extra capital available for share buyback as well. Operator: Our next questions come from the line of Kate McShane with Goldman Sachs. Katharine McShane: We wanted to focus on the expense side a little bit. You've done a really great job in managing both the inflation, I think we've seen across labor, but also with other expenses such as health care costs, which we're seeing other companies struggle with a little bit here over the last couple of quarters. Could you maybe talk a little bit about your expectations for '26 when it comes to these couple of line items and how you continue to manage it? Bahram Akradi: I'll take it and then Erik will add on to this. We are fully aware of the headwinds that it comes from payroll increases and supply increases. And we have had those completely in mind and in our plan in a very comfortable fashion in the numbers that we put forward for the guidance of this year. I'm going to turn it over to Erik, but we are continuing to work on managing those best way we can. Yet, I want to be totally in terms of like repeating myself, customer experience, member experience has been the #1 driver of building a brand that is completely and entirely loved by people who have been -- I run into people who have been a member, they moved, and all they say, how they miss their Life Time, they missed their Life Time. They want to go somewhere near the Life Time. So -- we don't want that to change. So we're focused on delivering that quality, but we have thought through these challenges and I'm going to turn it to Erik. Erik Weaver: Yes, absolutely. On the labor side, I think we've done a nice job. We've talked about the increases we've seen 2.5% to 3%, pretty consistent with what others are seeing. I think like everybody else, we've seen supplies and some of those expenses. We've seen some of those increase, but I think we've also done a nice job of working with our suppliers to mitigate and offset a lot of that. So hats off to our procurement team. And then on the health care cost side, we've done some nice things around managing that risk through our captive. And generally speaking, we've got a pretty healthy employee base. And so as we look as our health care costs, they've been actually very -- we've managed those very well. So all to say, we're seeing some of those same pressures, but we've done, I think, a nice job of mitigating... Bahram Akradi: And again, it's in the numbers. Look, we have anticipated these increases coming. So when we're establishing the budget, right, we basically put all of those at a level that we feel comfortable we can deliver. Operator: Our next questions come from the line of Eric Des Lauriers with Craig Hallum. Eric Des Lauriers: Congrats on another strong quarter here. Wondering first, if you could expand on your comments around optimizing membership mix. Just curious what levers you have to pull? And how we should think about the potential impact in '26 versus some of the out years here? Erik Weaver: Yes. I mean some opportunities we have on -- we kind of talked about it in the beginning of our comments, just the clubs is being busy, and the traffic. So it's an opportunity for us to continue to manage the member experience, right? So just optimizing -- especially in clubs where we have very, very high traffic. We've talked about discounted memberships and continuing to optimize there. So a lot of our clubs we continue to have the ability to do that. And so we're going to continue to run that play through 2026. Bahram Akradi: And as you -- our expectation is the number of members on the sort of the discounted third-party pay will decrease as we will have a more direct membership activity. And we feel that, that's the best way to manage the experience and make sure that we get more revenue and more EBITDA out of the clubs at the same time. So the 3 things that we juggle with is member experience, improving our revenue, improving our EBITDA, and we have a clear path on how we can continue to do that. Eric Des Lauriers: All right. That's very helpful. And then a clarifying question for me. So you mentioned new clubs have been ramping more quickly contributing to profitability more quickly. You also have a greater number of large format centers opening up in '26. Should we think about this sort of faster ramp as applying to large format centers as well? Is there anything to kind of call out with respect to the ramp with the large mix of large-format centers here? Bahram Akradi: Look, the message there should be taken like this. Every club we're opening right now, we're seeing incredible success with those clubs. That gives us the sort of a super confidence to continue to expand on our development plan. So that's fantastic. As far as the -- to caution that I would give you guys on -- last year, I remember having this conversation and I told you guys don't go beyond 25% EBITDA margin because we want to invest, we want to continue to invest in the member experience and upholding our membership experience as well as the brand that has been the major, major part of the company's success. I have no qualms about our just guiding you guys again that the EBITDA margin we're giving you is phenomenal in my opinion, it is not to be taken lightly at these levels. And we want to make sure people don't get ahead of themselves in terms of keep wanting to push that number and then expecting us to deliver more. We have 0 desire to disappoint you guys or The Street or anybody else. So our goal is to make sure we -- but we also don't want to disappoint our member at the expense of a shareholder or a shareholder at expense of the members. So that's a balancing act that we have to do and we are on it every day. But the clubs are ramping faster, they just get to that saturation point sooner. That's all there is to it. But everything is performing extremely well. Operator: Our next questions come from the line of Molly Baum with Morgan Stanley. Molly Baum: I guess, I have one near-term question and one longer-term question. So for the first one, the near-term question, can you speak to maybe trends you saw in January and maybe year-to-date from like a new member churn and member engagement perspective? Did you see any impact from weather or any nuances that you'd call out from member behavior so far this year? Bahram Akradi: You are so clever, but I am more clever than you. I told you guys, don't ask middle of the quarter questions. That's just inappropriate for us to answer. Molly Baum: Understood. No problem at all. Bahram Akradi: But all things are going really good. It's no problem. Molly Baum: All right. So then maybe shifting to the longer-term question. I know last quarter, you had talked about expectations to see, I think, up to 3 million digital members to start 2026. So I guess my question there is, are you seeing opportunities to increase conversion of those members into full paying members or any other monetization opportunities from retail, Life Time Nutrition. Can you just comment on maybe the digital and retail landscape and what opportunities you see there in them? Bahram Akradi: That's a great question. That number is roughly about 3.3 million subscribers now. So it's continually growing. We have adjusted our strategy on the LT Digital. And the focus is significantly more on using LAIC to enhance the actual member experience, kind of dues-paying member. The subscribers will now get access to the same pretty much app, less reduced than the past for -- they get similar experiences as the regular member gets with the fact that they just can't get into the clubs with it. But this allows them when they want to come as a guest or something, they can see the schedule. And then it makes it easier for us, just like you asked to take that membership one step closer for them to deciding to sign up. And yes, we are seeing improvements in that strategy. Operator: Our next question is come from the line of John Baumgartner with Mizuho Securities. John Baumgartner: Maybe, Bahram, first off, I wanted to ask about programming opportunities and in-center revenue. I think over the past 12, 24 months, we've really seen consumer spending very resilient for kids and children. And based on the industry data that we've seen, club memberships for children, or I guess minors, they're also among the highest price that are out there. So I'm curious, aside from the swim programs, how underutilized do you think your model is for monetizing kids' programs? Whether it's sports-specific training, [ infer ] to weightlifting, what's the opportunity to ramp that contribution as you plan your next phase of investment? Bahram Akradi: Yes. Look, I think having been involved in doing this for as long as we have, we have obviously tried and tested all types of things. And we continually see opportunity to engage parents and kids into more programs. And that business has been a nice growth opportunity for us and a great engagement, great retention sort of the program in the business. As far as the expanding into additional services, we've tried -- and there are pros and cons with those a lot of times. This is basically challenge of what space you use at what time. And do you have other programs? So we are -- we are doing that fine tuning what we can do to maximize the space that we have being used for a variety of different things as much as possible. So it's not the only category that we can grow the in-center. We have opportunities to grow in-centers on all fronts from a spa to cafe to training, et cetera, and we're doing all of that and including kids, we're always looking to see how we can get them more involved, more engaged and give them real value in what they perceive, is what they're getting. John Baumgartner: And just a follow-up on the EBITDA margin. The approach there is very clear, under promise, over deliver. And I'm not so much curious about how high margins can go. But if we think about the Investor Day in 2024, the algo was more of a kind of a low to mid-20% margin. It's migrated up the last couple of years. I guess, I'm more curious, relative to plan, what's sort of broken positively for you? Is it more modest incremental expenses? Is it upsize for mix or larger utilization of the in-center offerings? Just trying to get more of a sense of your confidence in the margin floor and its sustainability there? Bahram Akradi: So you're correct. We suggested 23.5% to 24.5%, if my memory is correct, on the Investor Day. And then I told you guys don't go beyond 25%. And we have outperformed the clubs -- the clubs matured faster. So remember, at the time, we had a lot of our clubs in a re-ramp stage, similar to ramping. Today, majority of the clubs are fully, fully re-ramped. I don't -- I mean, in aggregate, I'd say, consider it fully re-ramped. So now we have new clubs opening. And those new clubs have to ramp. They're ramping nicely. They're ramping better than our expectation. But all in all, I think there is a limit to how much you want to push the margin. Now it may -- and here's what I want to say. It may be a quarter we give you more than 27.5%. I just don't want that to become the standard of the model because I do not want to have the pressure on this company to do things that will damage the company on a long term. So we want to guide you guys conservatively. And we want to make sure we guide to something we don't disappoint. But I think 27.5% EBITDA margin is an incredible margin, and I would build as many clubs as I possibly could build when I have a model that produces that. So do I want to take risk of damaging our experience with the customer? The answer is, no. Operator: Our next questions come from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Congrats on another great quarter and year. Can you update us maybe on how -- what you're thinking about how MIORA is performing? How many clubs are you currently operating in? Member adoption? Visits? Anything you could update with us there? And maybe the ramp throughout '26 and '27? Bahram Akradi: Erik, go ahead. Erik Weaver: Yes. I was going to say, yes, MIORA, last year, we had 2 site -- 2 locations opened. We've got now 7 or 8 locations open. And so again, for us, just rolling those out this year, we wanted to make sure that we had really kind of nailed that operating model. And -- so we've opened those new locations in great markets. We're super excited about them, and they are ramping at our expectations. Bahram Akradi: Yes. We are -- and to be fair on that, we've had obviously some challenges with some of those openings with some knick-knack things left over on construction or permits or something like that. But the ones that they have opened fully with no hiccups as such, they are ramping faster than our original models, and the rest of them will catch up. As we are designing spaces for the future clubs, we are always kind of planning the place we're going to execute MIORA in, which basically is the queue that this is the one program that we have tested, and I believe it's going to work extremely well and it's expected to be in every single market, not necessarily every single club, but accessible to every single customer within a club that they're in or a club or something else to close enough to them. It is a very, very well-performing versus the plan business that we're rolling out. I'm confident it's here to stay as long as it's done correctly, and we're working on all aspects of that. Owen Rickert: Awesome. And then maybe secondly for me, how is LT Health performing, the supplement business across both in club and digital channels? And maybe what should we be monitoring there for 2026? Bahram Akradi: Yes. For 2026, I think the growth strategy is in clubs, mostly. We are rolling out a more robust plan on how to make sure our club members have better visibility to the LTH than the superiority of the quality of that product versus other products being marketed and sold. And then use that as a platform to take it outside of the lifetime walls in '27 and beyond. So right now, it's working extremely well against the strategy we are currently driving. As far as the digital space, it's mediocre. It's so-so. It's not -- it requires more education for people, more direct education, understanding why LTH products are more superior because once again, we're not cutting any corners on what needs to be put together, the testing everything that needs to go into a product you can trust and actually works. And so it takes a little more work in terms of educating the customer and that's why, done through our professionals in the club, the PTs and the group fitness people, cafe folks, it's -- we're getting great success out of growing that very nicely year-on-year. Operator: Our next question comes from the line of Logan Reich with RBC Capital Markets. Logan Reich: I just had 2. The first one is on the rack rate versus the average member dues. I know you guys are talking about that. Delta has been relatively consistent. Just strategically in longer term, is there a level for that delta you have in mind that the business should run at? Or should that delta converge over time? And then second question is just on the '26 guidance on the same-store sales. Can you just help us think about how the composition of member growth versus pricing versus in-center growth contemplates into the guidance? Bahram Akradi: All right. Let's start with your -- the latter part of your question. We want to go with the rack rate. Look, for right now, we are basically analyzing on a club-by-club basis, where we need to set the price in that club and then consequently in that market in order to maximize the experience and make sure the brand stays in the exact position, which is a top brand in the market. When we are doing that sometimes you just basically almost are forced to take the price of $10, $20, whatever you have to. And that's what we exercise we're going through. When does that end? I don't know. It's not ending right now. We're still reaching those type of clubs where we have to raise that rate. When we raise that rate, we'll get the gap. And then when we -- like I said, when we do the legacy price increase, then that gap gets closer. My expectation is sometime in the future, that number will shrink, should shrink because it's not our expectation that the rack rates will continue to go up at the level they have been going. But right now, we're not seeing any immediate change in those numbers. On the second question, I'm going to turn it over to Erik, and then I'll add on to it. Erik Weaver: Yes. I mean you kind of touched on it in terms of the delta and what that ultimately when it closes. It's really a tough question to answer because it's really dependent on the pace you increase your rack rate. But you have to remember, part of -- when we lump things or call things pricing, part of it is when a member turns out at a lower rate, you're getting the benefit of that arbitrage. So it's not like necessarily a direct pricing increase, if you will. So when you think about that, you have to kind of break it up into those 2 pieces. Legacy will continue to be part of our pricing strategy as we go forward. It's just hard to definitively say when that gap closes. I don't see a world where it's ever closed. I mean, that's part of the kind of the retention play, having members pay under the rack rate. And so that will continue. Does that help? Logan Reich: Super helpful. And then just on the '26 guide, just how to think about composition of comp between member growth, pricing -- how you guys define it and then in-center growth? Bahram Akradi: So revenue per membership is going to increase. That's part of that growth. The membership count, we've guided to roughly... Erik Weaver: Membership growth, we haven't given a membership guide. But we will see growth that exceeds 2025. Again, we're not guiding directly to it. Bahram Akradi: Directly. But we're going to see an increase in that number from '25. And then the rest of it will become part of the in-center growth. The rack -- the increase in revenue per member broken into dues as well as in-centers. So again, we are continually focusing on optimizing the revenue and EBITDA of the club, which comes through optimizing the membership experience. Operator: Our next questions come from the line of Chris Woronka with Deutsche Bank. Chris Woronka: Congratulations on the year. Just one question for me today, Bahram. There's been a lot of focus I think, in the industry around you guys have a higher-end consumer, higher-end product service offering. There's been some issues at the lower end. So my question is, do you think about potentially leaning into even the higher end of the market? And we've heard that high-end consumers are still looking to spend their money. So is there any thought or any plans or kind of any kind of white glove type service? And I don't know if that -- what that might include in terms of transportation or special things. Is there any thoughts to try to tap into even the highest end of your customer? Bahram Akradi: Absolutely, yes. We have been working on bundling more programming, yet just sort of more to come on that. But yes, we have been seeing that there is a certain number of memberships that they are wanting to spend more at a more -- to your point, white glove service, more bundled approach, easier for them to transact. That's correct. Operator: [Operator Instructions] Ladies and gentlemen, thank you. This does now conclude our question-and-answer session. And with that, I would like to turn the call back over to Connor Wienberg for closing comments. Connor Wienberg: Yes. Thank you, everyone. Thank you, operator, for joining us this morning. We look forward to speaking with you all again next quarter. Operator: Thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time, and enjoy the rest of your day.
Ariana Pereira: Good morning and welcome to Gerdau's Fourth Quarter 2025 results presentation. I am [ Ariana Pereira ], specialist with Investor Relations, and it's a pleasure for me to be joined by CEO, Gustavo Werneck; and CFO, Rafael Japur. Please note that this call is being simultaneously translated in english and you can choose your preferred language by clicking on the globe icon at the bottom of the screen. [Operator Instructions] It is worth noting that the forward-looking statements contained herein are based on the company's beliefs and assumptions based on information currently available. Forward-looking statements are not guarantee of future performance and are subject to risks and uncertainties that may or may not occur. I will now turn the floor over to Gustavo to begin the presentation. Gustavo Werneck: Hello. Good afternoon, everyone. I hope you're all well, and thank you for joining us again for another earnings release presentation. We will briefly comment on the highlights of the last quarter and also the year 2025 as well as the outlook for our operations, and then we will move on to the Q&A session. The year of '25 was marked by distinct scenarios in the main regions where we operate, North America and Brazil. In light of this, I would like to emphasize that Gerdau has greatly benefited from its business model based on geographic diversification and productivity -- and production flexibility. Moreover, I would like to highlight the resilience of the North American market, which has seen strong steel consumption and the reduction in import levels as well as the robust operating performance of our operations in the region. Even in the fourth quarter, when there is a typical year-end seasonality, we achieved solid results. In December 2025, we even posted record shipments in North America. Meanwhile, in Brazil, the market reached a new record for steel imports in 2025 with a 7.5% increase in shipments year-on-year, despite important advances in trade defense measures such as the recent inclusion of new NCMs in the list of products covered by the 25% import tariff and the implementation of antidumping tariffs on cold-rolled steel. This unfair import scenario has impacted the profitability of our operations in the Brazilian market. On the other hand, I would like to highlight the progress of our new sustainable mining platform in Miguel Burnier in the city of Ouro Preto. In Minas Gerais, the project is about to go into operation and will contribute to a significant reduction in production costs at our Ouro Branco unit. I will now turn the floor to Japur, who will elaborate on the financial highlights and the impacts of this current scenario on our results. Rafael Japur: Thank you, Gustavo. Hello, and good morning, everyone. It's also a great pleasure to be here with you in the presentation of the fourth quarter of 2025. We ended 2025 with EBITDA of BRL 10.1 billion, down 7% when compared to 2024 results, mainly reflecting a still challenging environment in Brazil marked by increased competition. On the other hand, our operations in North America continued to gain relevance, supported by resilient demand and excellent operating performance, significantly contributing to the group's consolidated results and the overall results of Gerdau. Having said that, I would like to highlight four points related to this quarter's results. First, in the fourth quarter, our net income was impacted by nonrecurring items related to impairment losses in Brazil units in the amount of BRL 2 billion. It's also important to note that these write-offs have no cash effect. Excluding these effects, Gerdau's adjusted net income in 2025, in our view, that accurately reflects the operating performance for the period; stood at BRL 3.4 billion, down 21% when compared to the previous year. Secondly, regarding Gerdau's investments, we carried out CapEx in 2025 of BRL 6.1 billion. Now for 2026, as already disclosed, our guidance is BRL 4.7 billion, representing an important reduction of BRL 1.4 billion. And we understand that this will bring more flexibility to our free cash flow generation in 2026. I mean this is the third topic, by the way, that I would like to highlight. Even with a very strong pace of investments in Miguel Burnier with our expansion mining project, even then, in this fourth quarter, we achieved a very strong free cash flow generation of BRL 1.4 billion. And as a result, the annual cash flow generation for the last 12 months, which was negative until then, is now positive and stood at BRL 394 million in 2025. Part of this cash generation was earmarked for reducing our debt. And as a result, we ended the year with leverage of 0.76x net debt over EBITDA, a level that we consider to be extremely sound. Our resilient business model continue to be very, very resilient, combined with caution in capital allocation. And all of that allowed us to grow significantly without sacrificing shareholders' return. As evidence of this, throughout 2025, we paid out BRL 2.4 billion in dividends and share buybacks. And finally, in addition to completing our buyback program initiated in December 2025, which we already announced last December, yesterday, we announced the launch of a new program for Gerdau S.A. It will be for approximately 2.9% of outstanding shares of the company. And if we think about today's numbers of the last exchange floor, this will be the equivalent to BRL 1.2 billion. So I'll end here, and I'll join Gustavo for the Q&A session. Gustavo Werneck: Thank you, Japur. And still speaking about Brazil, we expect moderate growth in demand in 2026, even despite the excessive influx of imported steel in the local market. I would like to point out that we are more optimistic about the progress of the trade defense measures recently announced by the federal government to combat unfair competition from imported materials and as well as the transparent and ongoing dialogue that the steel industry has maintained with pertinent agencies. Meanwhile, in North America, we continue to see stable steel consumption at high levels with order backlogs above historical averages. The outlook for steel demand from sectors such as solar energy, data centers and infrastructure remains positive. I'll now hand over to Ariana. And Japur and I will be available to answer your questions. Ariana Pereira: Our first question comes from Daniel Sasson with Itau BBA. Daniel Sasson: My first question has to do with the outlook of the Brazil business margins. You spoke about some stability expected for Q1 of 2026. I'd like to have your view about the trajectory over the years, starting with a somewhat weaker base. But with Miguel Burnier ramping up in the second half of the year, could we expect a different trend? Normally, we have a worse seasonality in the end of the year. And do you think you can end 2026 with an EBITDA margin being double digit? Although perhaps double digit for Brazil would be too optimistic. It depends on more aggressive measures regarding price, et cetera. My second question is about impairment. For more than 5 years, you didn't have a very relevant or substantial write-offs. So could you give us more detail on the more conservative assumptions you used to project the cash flow of some assets? What made the difference here, level of usage, price level, perhaps lower growth expectations for the coming years? And in Brazil, some of your competitors may ramp up their own capacity. Will Gerdau consider closing down more capacity in addition to what you have done in the last few years when you adjusted your footprint? Rafael Japur: Excellent to start the call. Addressing the elephant in the room, which is the outlook for the first quarter, we realized, we got some comments in the market that people were kind of surprised with the expectation we see now of maintaining margins in the first half. There are some points here. First, we have a year with fewer business days compared to other years because there are many holidays, there's the FIFA World Cup and so on and so forth. And that has an impact on our economic activity; plus rainfall, which was stronger in the Southeast, particularly in Minas Gerais, stronger rainfall, heavier rainfall compared to prior years. Also, considering consumption sectors as the automotive industry, we have ANFAVEA data, for example. In January, they started with a level 12% lower for vehicle manufacturing compared to January of 2025. And that matches the high level of inventory that there is in Brazil of imported vehicles. And that matches of the data published last night of consumption of long steel and flat steel sales in the domestic market that were lower in January 2026 compared to January 2025. So a stronger resumption of volume is something that we are not seeing in terms of volume. And as regards to our costs and margin, although we see prices that on average are better than we had in Q4 '25, there are still some cost pressures that we see in the long -- in the short term that may get a chunk of the margin that we would have with the more competitive prices. And here, we have coal, the coal theme. We are not so exposed to coal as other companies listed in Brazil. Most of them are integrated, but half of our operation in Brazil rounding up is the Ouro Branco unit. And when we get our modeling, about 20% of our Brazilian costs have a relationship with the cost of coal, and we see that coal costs from Q4 to Q1 increased substantially. It is true that we have a long lead time between 90 and 180 days between the price of coal increasing and this being passed through to our results. But we see that this will cause some level of pressure on our variable cost. Now you put it all together. We understand that we will have an environment of better prices but perhaps costs under a little bit of pressure and at the same time, volumes that are not increasing significantly to improve the operating leverage. I don't know whether Gustavo would like to add anything about the Brazilian outlook. Go ahead, if you have anything. Gustavo Werneck: If I have anything to add, I'll do it in the end. Rafael Japur: As regards to impairment, it has something to do with the Brazil conditions. When we run our annual tests in our accounting policy and recovery of PP&E, et cetera, we run a number of tests considering the future cash flow for our business operations, taking into account foreign exchange assumptions, profitability of the businesses and utilization of our capacity. When we compare the set of the assets in the Brazilian business, it justifies some of the assets that we have in our balance sheet. Some plants were hibernating. They were depreciating slowly because we didn't have a definition of not returning these units. Some other units that were not operating at full capacity, they were far -- you can see that our utilization capacity is below 60% in terms of the melt shop operating lower than 75%. So clearly, we see a high level of idle capacity. Except if we have a significant increase in demand and the level of profitability, we don't see any reason why we would maintain part of these assets. It's a small amount of the total PP&E that Gerdau has in terms of premium prices, well, we had something around BRL 350 million, BRL 400 million. But we understand that with a more challenging foreign exchange, with a more challenging market, with a more challenging macro scenario; it's a moment for us to reflect these results in our accounting. That's why we had the impairments. Gustavo Werneck: Rafa, perfect. Still on the margins, on the first question, is it reasonable to imagine that everything constant in the second half, we should see an improvement in the margins, at least in the part of costs with Miguel Burnier? Absolutely, absolutely. And to answer the second part of your question, again, we are talking about stability of a margin of around 7%. We don't think it's unreasonable to have a second half, perhaps a year-to-date -- a full year with a 2-digit margin. It's not unthinkable. It depends on our ability to deliver the Miguel Burnier project. And if we have the trade defense mechanisms and market dynamics not deteriorating, things can happen. I'd like to remind you that this is a presidential election. It's an election year. There might be some volatility in some of our target markets, but it's something that we're going to be monitoring over the year. And Daniel, you also mentioned a possible closing down of further capacity. When Japur was talking about a lower usage, we were -- it was possible to think about closing down more operations. But the thing is we have such a variety of products manufactured at these mills that if we remove capacity now, we will not be supplying the market in some of those segments. So our 2026 plan does not include closing down any more capacity. What we had to do, we did last year. Of course, over the next few years, depending on how things progress in Brazil, there's always space. And technically, it is possible to change these assets, we can make investments, particularly in the rolling mills to make them more flexible. But looking at the short term, in 2026, we are not thinking and we're not considering closing down any more capacity. So our expectation of cost reduction and optimizing our Brazilian operations that will not come by closing down mills, okay? Ariana Pereira: Next question from Rafael Barcellos with Bradesco. Rafael Barcellos: My first question, we have seen the United States posting very strong results, kind of contrasting with Brazil, but this has been discussed here. And in this quarter, South America was a negative surprise. You talked a lot about Brazil. You gave us a guidance. And I would like to know more about South America and how you're seeing the expectation for the year, for the quarter. What can you tell us to help us understand the future results? And my second question is about the United States, which is indeed what is impressing all the investors. We're seeing very, very strong results. We are following metal spreads, and it seems that we are going to see even greater margins in Q1. But in talking with some local players, they tend to be less optimistic, which is only natural because margins and prices increased. But also there's parity of some products, which is kind of stretched in the region. So if you could speak about the United States, what you're seeing about the sustainability of the U.S. profitability and comment on the main drivers? And since this is a segment that is really standing out, some investors consider a possible listing of the operation. If you can comment on that, we would appreciate it. Rafael Japur: Rafael, starting with South America. In this specific quarter, we had a specific team in Argentina to maintain the level of utilization of our unit. We had a greater volume of exports, which ended up increasing our cost because we have a greater logistics cost that goes into our cost line item, and that impacted profitability. We don't expect that we will maintain the same level of exports from Argentina this year. So we're expecting a normal conversion, a recovery of our margins in our South America operations already in the first half of this year and continuing in the second half of the year. Something in the mid-teens would make more sense to the South America operation, as was the case of what happened in the year of 2024, on average, what happened in 2025. Now moving to the North America operation. We have a number of different situations that are worth highlighting. The situation in Canada is different than the situation in the United States. And in the United States, special steels, longs and rebar have different dynamics. It is true that we had an expansion of spreads because of our beams that had some price adjustment at the end of the year. And that didn't have the same level of recovery in decrease of prices of scrap, but that does not account for our whole portfolio. We have other lines of manufacturing such as special steel in the automotive industry of the United States. They are not recovering at the same level of production and sales that we would like to see to drive our SBQ operation in the region. So I guess that, overall, we don't see anything making us think that there will be a substantial reduction in the profitability of our North America segment in the short term. We continue with our order book being very strong, remaining at very high levels. I think that we're actually now a little above the level of the end of the quarter. We are close to 90 days rather than 80 days. So that gives us good confidence that this is not the effect of just 1 or 2 months of results, but rather, it's something more recurrent. Would you like to add anything, Gustavo? Gustavo Werneck: Yes. Rafael, when we speak about North America, when we look at this in more detail, when we look at Gerdau results divided by business operations since 1990, plotting the results and looking at them with attention, there were many moments when the results in Brazil were much better than those in North America. Other times, North America overperforming. Rarely, both were doing poorly and very rarely, both were very good. And when we look at this in more detail, after we published the results, I get bothered with a number of things about Gerdau. One thing that does not bother me that much is that we see this discrepancy between the United States and Brazil. I would say that this worries me less than you do. I was more concerned in 2017, '18 when our Brazil results were very, very strong. And our results in a solid economy like the U.S. economy were kind of poor. And why? Why do I feel that way? Because I don't see any signaling of deterioration of our margins in North America in the coming quarters for a number of reasons. When we compare the soundness of our operation of our assets in 2017 to now, we have been operating quite well. 8 years ago, the comparison of our operating performance vis-a-vis our competitors, we had a number of $30 per tonne, and that was my judgment, my analysis regarding our performance gap vis-a-vis the competitors. But in the last 8 years, we worked hard in the U.S. Not only did we close this gap, but the public indicators and indicators we have access to clearly show that we have an operation from scrap to industrial with very good results and a more robust operation than our main competitors. So we're doing very well in terms of the operation, in terms of raw materials. We learned to use only obsolescence scrap, so scrap that we have access to, that has easier access to. And from the commercial standpoint, our decision to leave those products where we see greater penetration of imported steel was a good one. When we look at the main category of products, the main structural beams, that's a product that is very difficult to import, given the size, the weight, the different gauges. So I would say that we're very well positioned. In a way, we are very well protected in our business when we look forward. The health of our backlog in terms of infrastructure, in terms of solar power, data centers; that gives me some peace of mind that we will continue to have solid and sound results in North America in the coming quarters. As we solve -- and we will solve the competitive issues that we have in Brazil. So I don't really worry about these points. Well, I read some of the comments made in general by the market, and this don't really worry me. And as regards to Brazil, this has happened previously. Of course, if we have an antidumping of HRC, as we're expecting, there will be some improvement. And there's a lot happening in the coming quarters. Ouro Branco mill operating in a very solid way. Testimonial of that is the quality of our coke plant, the quality of our blast furnaces. And we have been delaying and postponing the stoppage. I would say that our Ouro Branco mill is very differentiated. We have the new sustainable mining platform of Miguel Boni that will increase our competitiveness. So I am fully convinced that we have adequate timing or sufficient time to improve margins in Brazil. And we are far from a deterioration of margins in North America. I just wanted to stress this point. Most of the times, I agree with the comments that are made by the investors and the analysts. But right now, I kind of disagree with some of the analysis that kind of penalize our results because there's a significant difference in margin when we compare the U.S. operation, the Brazilian operation, okay? So I have a slightly different opinion on that regard. Rafael Barcellos: Just as a follow-up question. Given everything you said in the relevance that the U.S. operation acquired in the Gerdau business and the difference in between the regions, that's always questioned by investors. Are you evolving with the listing possibility? How do you see this? Are you maturing in this discussion at the company? Can you comment on that? Rafael Japur: Of course. Overall, themes regarding company restructuring, tax impacts and ways to unlock value. Well, these are always things that we are looking at internally. But we haven't got any tangible study or action plan being executed or about to be executed regarding the listing of the company. We are monitoring some cases. We are monitoring some companies that did follow that path. They are reaping some fruit, but with some difficulty as we are monitoring them. And we will continue to look into that if the management of the company concludes that this is going to unlock value for the shareholders, it's something that we might explore. Ariana Pereira: Our next question comes from Caio Greiner with UBS. Caio Greiner: I have two questions. I would also like to revisit something you briefly mentioned during your last answer, and that refers to antidumping and how this is impacting the company's view. And this has been a very frequent discussion point. And if I recall, I think this is one of the points that you mentioned in the past, this lack of protectionism or even this unfair competition coming from imported steel that is being dumped into the country. And this is what led you to think about the putting some brakes on the CapEx investment. But now we are seeing some approvals, not only in regards to the antidumping issue, but the 25% tariff. So I think somehow we see some movements on the part of the government in that direction. Certainly, the impact in terms of your products, I mean, it's there, but it's minimal. It's very small. But your products should be still impacted in the next coming decisions. Just like what you said before, you already envisioned some preliminary approval. But the question is, how do you see protectionism expanding in the steel milling industry in Brazil? And how does that change this relationship with your Brazil unit. Are you more comfortable today to resume investing in the region or even maybe going in the opposite direction? Maybe you could start thinking about, I mean, reopening some of your units. And I would also like to revisit one of your comments. Maybe you could start thinking about investing in some rolling mills going forward. So I would just like to hear your views about how this is impacting the company vis-a-vis the Brazilian market after the approval of the protection measures. And my second question is about asset divestments. This has been an ongoing topic among your peers. Maybe you should start looking at some noncore assets, and I think there -- you still -- you already have a lot of things in the company. I would just like to understand where this is something that you are discussing today in the company. And if the answer is yes, whether you could give me more details if you're looking at some assets that you think about selling, what the assets are? And what do you see going forward? Gustavo Werneck: Okay. Thank you. Thank you, Caio. I will start and then Rafa will follow through. Well, one of the main reasons that led me to be more optimistic about the trade defense measures is the fact that it's no longer a political thing, but it's becoming more technical. There are countries that right after the election, they -- some countries made a political decision to introduce these defense mechanisms. I'm very careful when I use the word protection because I never use this word when I am in Brazilia. I would rather use the word defense because we don't need to be protected by anyone. I think the industry has to be defended against some fair competition. Therefore, for political reasons, in the last few years, we didn't see any expedited decisions in the steel industry as we did see in the U.S. market. I mean, Section 232 is very important because it promotes reindustrialization and it also promotes the growth of steel milling industries. I mean when we are there, we see that reindustrialization is now taking place. So I believe that in the future, we will see better and clearer indicators. The issue is, and I will say that in a way, I'm a bit frustrated because technical trade defense could happen faster. I understand the difficulties that we have today, especially in the federal government because there, we don't see a large number of experts like we had in the past. Some functional structures are being revisited. But I still believe that it could have been faster than what we saw. But now when we look at HRC and a temporary measure being put in place, this shows a transition from a political measure to a technical measure. I think it's very difficult for any government to make a decision that is not aligned to clear proof of damage to the domestic industry. Therefore, I'm very confident that this HRC antidumping should become a definite measure come June and July. And this could be really a significant landmark in our trade defense measure. This will not change our internal decision to allocate capital or our CapEx decision. I didn't talk about it extensively, but I am of the opinion that we should continue to allocate capital in Brazil to improve our competitiveness. There are relevant alternatives in the future that indicate that we should bring our cost level to a level that would allow us to compete on equal footing with any other company, even with those that practice some fair competition. We are not going to change our CapEx for this year of BRL 4.8 billion. And my future belief is that we will continue to invest in Brazil. Probably, we might continue to translate allocated capacities for exports in the domestic market. There is still some game, maybe some rolling mill or some production capacity that we believe will make sense for the future if it is to replace any additional capacity that we have in terms of exports. But our main CapEx focus for Brazil will be aligned with what we are about to ramp up in Miguel Burnier, which is to bring our cost equation and competitiveness to a new level. And I think I covered all your questions, but if you have any additional questions, let me know. But now I will turn the floor to Japur because he's the one leading the subject of noncore assets. So he has more details on that subject than me. And so over to you, Japur. Rafael Japur: I don't want to make anyone nervous, that guidance is 4.7, not BRL 4.8 million. Okay. I don't want anyone to be nervous with the number. Now going back to your question in terms of noncore assets, I think here, we have two main sources. I think we are speaking to investors as they approach us with the subject. The first front regards our forest assets and farms that we have in Brazil. And we have those assets because of our coal production to produce iron ore -- to produce the iron we need. And today, we have excess capacity, both in terms of land and forest. So certainly, this has some value, and this has to be justified in our P&L. I mean it's nice to have assets, but they have also to generate value. So we understand that then if we have more clarity, and we are now working to validate that. So in fact, it's important that we have an important amount of forests and farms that can be monetized throughout time. Another front of noncore assets has to do with real estate. Gerdau, both in Brazil and abroad, we grew a lot through acquisitions. And these acquisitions, sometimes, they come with some property, with some real estate attached; and sometimes due to operating aspects and the way we operate and the way we are organized. I mean, at the end, we end up keeping these properties, and we use them sometimes in full, sometimes not in full. But now we are beginning to revisit some of our units and take a look at Comercial Gerdau in Brazil. We say, okay, this property was very well located, but this is not the case nowadays anymore. And this -- I mean this asset, I mean, changed in terms of its location and the surroundings. So it's not so important to us anymore. Therefore, this asset portfolio, which is very fragmented, we are talking not about 1 or 2, but hundreds of properties; we understand that some of them have still a lot of value. We are trying to understand now how much it is worth and what will be the best way to extract value in the timeline. Having said that, it's important to make a distinction. In time, I mean, along many years, Gerdau made an important effort to deleverage its balance sheet. And we are keeping a very robust and sound balance sheet so that we can continue to invest in our growth, paying off our shareholders without taking up unnecessary risks in such a cyclical industry like steel and commodities. Therefore, any divestment of noncore assets will certainly be subordinate to value generation for the company. We don't feel the need to make any sale. And of course, I'm not against those who are doing it. What we want, I mean, at the end of the day is to create value and not simply just carry it out an operation just to take it out of our balance sheet because what we want is to indeed evaluate our asset portfolio and determine what will be the best location for every asset. And when we realize that we are no longer the natural owners of the assets, be it a farm or any particular property, we will try to create value through that. I think this is the main idea behind it. We don't have any guidance, we don't have any concrete plan. But as we move forward, we will certainly inform the market. So I'll go back to you, Ariana. Ariana Pereira: The next question is from Carlos De Alba with Morgan Stanley. Carlos de Alba: Just maybe following up a little bit to recent discussions, how is the company and maybe the Board of Directors to the extent that you can share their views thinking about the return to shareholders of any excess cash that the company generates? We definitely acknowledge and took a very positive notice of the yet another share buyback after concluding the one successfully that you had implemented in the past. But despite the very strong cash flow generation in the fourth quarter, dividends came a little bit below expectations from the sell side. So I wanted to understand how are you waiting or the Board is thinking about shareholder returns to -- in terms of cash, excess cash between these two alternatives. And maybe just complementing this one before I go to my second question is if you do execute the company does execute these noncore asset sales, would the company return the proceeds from those to shareholders? Or would it keep it as part of the cash balance of the company? And then just my second question has to do a little bit with the CapEx, the view on the -- maybe not guidance, but just broadly speaking, how does the company see CapEx beyond 2026. Do you think that it will be closer to BRL 4.5 billion or maybe moving back closer to BRL 6 billion that we saw in the past? Gustavo Werneck: Thank you, Carlos, very much for your three questions. I will try to answer each one at a time, starting with shareholders' return and noncore assets. And then I will talk a little bit more about CapEx, right? Carlos, it's good to see you again. As we already said in the past, we've been maintaining the dividend payout slightly above our policy. And this has been so in a very consistent way. And the average has been 45% to 50% payout, which has been the case in the past. And taking into account the value of our shares today, we still believe that it is below the intrinsic value of how much they should be worth it, taking into account the cash generation level, I mean, in North America, our profitability in that geography and the moment where we find ourselves in the CapEx cycle as we start to decreasing our investments in CapEx and then we start generating more free cash flow to our shareholders. In time, we understand that in the long run, we want to return more value to our shareholders. So not only the amount that we are paying now above the mandatory level, we want to add some more with the buyback program. In terms of capital allocation, taking into account the current status of our shares, but we must also look at taxes because this may impact our foreign shareholders because now they will be subject to withhold taxes over dividends. And the buyback is not subject to that tax. And that's why when we take into account the shareholders' base of Gerdau S.A. and considering that more than half of that base consists of foreign shareholders, it is important that we bear that in mind. I mean, the effective return of how much money we place in the hands of shareholders, not necessarily how much cash leaves the company. Now about the question on proceeds from noncore assets, I don't see any reason why other liquidity of things that we may have through our assets, of course, this should be returned to our shareholders. Throughout last year, if we look at the history of all the quarters, we basically saw an increase in net debt of BRL 2.4 billion, and we paid out BRL 2.4 million to our shareholders. Therefore, we experienced higher leverage throughout the year. So quarter after quarter, we continue to remunerate our shareholders. This last quarter, when there was a significant release of cash, we thought that this would be the adequate moment to reduce our net debt, and therefore, we would have more breadth space and flexibility going forward in this current environment. So I think this can throw some light. I mean, I look at your report, you expected BRL 0.13. And I think you have now a better explanation of what led today. About CapEx, Carlos, I don't have any guidance or any detailed information about guidance for 2027 onwards. And as Japur put it well, CapEx disbursement for this year is BRL 4.7 billion, not BRL 8 billion, right, BRL 4.7 billion. What I can tell you, Carlos, is that we will be really diligent and we will not disburse CapEx that is not aligned with our capacity to generate cash. Therefore, in the future, we don't want to commit the financial health of our balance sheet or the levels of debt just to increase CapEx. I mean we have strong beliefs. Therefore, we will not discuss any changes regarding these limits in the next coming years. But as any other companies, we have a wish list, which is full of projects. What we noticed today is that the wish list, in terms of investments in the future, this list is more populated by reinvestments to seek for further competitiveness, cost reductions rather than investments that will allow us to grow in capacity. Certainly, in the future, we may make investments just to replace some capacity or exports of semi-finished goods or high added value just to serve the domestic market or maybe some marginal increase in capacity in one of our plants that may be directly related to the development of a new product or any product that may add up to our product mix of products. But going forward, I believe we will invest in things that will allow us to promote cost reductions or to increase competitiveness. But I also want you to bear in mind that at some point in the next 10 years, we will have to invest in our Ouro Branco Mill. That mill has been operating at a very intense pace in terms of our blast furnaces and the coke production unit and shutdowns for maintenance. But at some time, we will have to deal with the lifespan of the equipment. Therefore, this may require some more relevant investment in Ouro Branco. But obviously, if the need arises, this will be compensated by a CapEx reduction in other areas of Gerdau in order to maintain a disciplined balance sheet, which has been the case in the past. Ariana Pereira: Next question from Caio Ribeiro with Bank of America. Caio Ribeiro: My first question is regarding avenues for growth in the U.S. segment. The company has the Midlothian operation that aims to be more competitive and increase its footprint in the U.S. market. But I would like to explore two related things. Firstly, how do you see the option of growing through micro mills, considering the products where you operate the most in the United States? And on that same topic, other than organic growth options, would you consider M&A inorganic growth mainly via smaller players in the U.S. market? My second question is about the project that you were looking into in Mexico. Could you give us more color on how a possible renegotiation of the USMCA could lead to an increase in tariffs of the United States? Could this impact your decision to go through with this investment or not? Gustavo Werneck: Sorry, my mic was muted. Well, looking forward, we don't have any great wish or great ambition to significantly grow our production capacity. Growing for the sake of growing for many years now has not been part of our life. So I would say that overall, what we expect for the coming years is organic growth, where we can add some capacity for higher added value products and products that may bring value, not just for Gerdau, but for our customers. So when we look at these micro mills, in our view, they make more sense or they will make more sense to reduce our production costs rather than adding capacity. We see that this is a very modern and smart solution in terms of joining hot rolling with a melt shop. So we won't need to reheat the billets. So it's interesting. But in our view, if this is included in Gerdau's plans, the goal would be to replace some existing production capacity, which is more inefficient from the cost standpoint. And as regards to mergers and acquisitions or any such growth, of course, we are always attentive as we have always been. I take the opportunity to congratulate our team because if in the future, we can find an opportunity for M&A. This is the result of our discipline in the past few years of having a company with a very sound balance sheet. We see in the market some companies that are facing difficulties, a lot of difficulties. We have seen them in difficulty for quite a while now. And we were very disciplined in our actions to have the company's balance sheet at a certain level that will allow us to think about M&A in the future. But we are very down to earth. It doesn't make sense to make an acquisition that will not add value for the company in the long run. Of course, there are always things that can complement our business. We can always seek some synergies when we analyze a possible acquisition. We're always keeping our ears and eyes open for an acquisition that will help us get to the Gerdau that we want, a smaller Gerdau, but one which is more profitable, more well prepared to face the coming years. And the Mexico investment has to do with that. We have a business case that is ready. But Mexico, regardless of USMCA, is going through a very substantial change. I see in Brazil, a growing debate on reducing the working hour A few weeks ago, they approved a reduction in their working hours. So Mexico as a country has been losing competitiveness at the industry level. So these are always relevant elements that we have to take into account in our business case. In the USMCA, the new USMCA that will be debated as of June of this year will be a very relevant point for us to review our business case and make a decision whether it's worthwhile -- whether it's worth investing in this new mill of special steel. It is an opportunity. We understand that the U.S. market, whether it's ups and downs with heavy and light vehicle market, remains an opportunity for us, but we will be very diligent in allocating significant CapEx for greenfield mill in Mexico, considering the debates involving Canada, U.S. and Mexico. Okay? Rafael Japur: Let me just add a couple of points to your question about growth. We have been doing some important things to improve our profitability in North America. In recent years, we opened 2 downstream segments in Midlothian thermal treatment and solar piles. And when we look at our quarterly report in the year-to-date, the different lines of products we see that the downstream line item in the North America segment increased 39% compared to 2024. into 2025. These are high added value products that are less susceptible to competitive imports and the ones in which we have greater differential or competitive edges. And I think that this matches what Gustavo said, we are very cautious and very prudent in allocating capital for growth in North America. In addition, we're growing with smaller acquisitions and upstream investments, which is the case of scrap producers that happened last year that increased our scrap potential and our ability to process scrap in a cheap way. So that's more the kind of growth that we're thinking of rather than a major acquisition as we have seen in some cases in North America. Ariana Pereira: Next question from Igor Guedes from [ Genial ]. Igor Guedes: Looking at the level of exports, 370,000 tonnes growing quarter-on-quarter and year-on-year, we saw a level of BRL 140 million in the consolidated EBITDA compared to BRL 80 million in Q3 and only BRL 24 million in Q4 '24. So given that you export a large amount of semi-finished steel coming from you in Brazil, even to other regions in South America, you mean cut, bend, hot rolling; this higher level of eliminations, would it be related with intercompany transactions? Or was it due to other reasons? And second question, you mentioned that part of the CapEx in Q4 that was BRL 1.5 billion was allocated to restructuring and improvement in the [ Seara ] unit, [ Maracanau ], about BRL 100 million. However, in one, this was one of the 2 mills that you hibernated together with Barao de Cocais. So I'd like to explore that. Could you share with us what kind of changes have you made to these mills? And how does this fit now in the footprint of the company? Will you reactivate the mill with more efficiency than before? If you could comment on that, it would be interesting. Rafael Japur: Okay. It's always good to see you. You made some interesting questions. Let me start with the eliminations regarding imports, exports and eliminations. In eliminations, in all -- we have eliminations of all possible businesses between the reportable segments. Since we have little exports from North America to South America. What we have is more business between the Brazil segment and the South America segment. I think in the previous question, we mentioned we had a large volume of exports of billets from Argentina to some of our Gerdau units in Brazil and in South America, Peru. And that kind of increased the amount of eliminations that we had. It was a lot because of that, because of this greater volume of exports from Argentina, which typically is not a country that exports a lot and all the time. So that increased the atypical volume that we had in the line item of eliminations. To your second question about [ Maracanau ], that's a very good question. Back in 2024, when we had the hibernations, we also [ hibernated ] the [ Maracanau ] mill in [ Sierra ]. And we said that it was going to go through a modernization project and the program. What was the goal of that modernization program? Today, the [ Maracanau ] unit operates integrated with our rolling mill that we also have in [ Sierra ] that we acquired from [indiscernible] when we acquired it in 2019. That's a rolling mill, state-of-the-art rolling mill that we have, very modern. And the melt shop -- I'll be a little technical here. The melt shop made smaller billets, relatively small billets, about 6 meters long. When we rolled it and put it in the rolling furnace and started rolling it in a more robust rolling mill, a more modern rolling mill, the rolling mill of Silat, we didn't have a level of optimal cost and yield because oftentimes, I had to be feeding that furnace with smaller billets. So the project we had was to adapt the size of the billets manufactured at the [ Maracanau ] melt shop to 12 meters. They are closer to the ideal size to be consumed in the Silat rolling mill. With that, we can increase our competitiveness in the Northeast operation. And again, as Gustavo has highlighted before, a good part of our portfolio of projects at Gerdau has been focusing on increasing our level of competitiveness, our ability to be cost efficient to compete with any competitor anywhere in the world. And this is an example of this goal. We are not making a new mill. We are modernizing an existing mill and thinking about how to better integrate these two assets that we have in the state of [ Serra ]. So that's basically the rationale behind this project to modernize the [ Maracanau ] mill. Igor Guedes: Just a follow-up question, Japur. In terms of integrating the mill to the footprint one more time, would that entail any cost increase, perhaps a one-off cost increase that we should be paying attention to? Or would it be like a smooth transition? Just to have an idea? Rafael Japur: No, no. It's basically the melt shop that will start operating again, supplying billets for the Silat rolling mill. There will be no one-off cost increase, no additional cost. It's basically allocating billets, also imported billets that we get to Silat and that now we will be supplying to a neighboring mill in the state of [ Seara ]. Ariana Pereira: Our next question from Ricardo from Safra. Ricardo Monegaglia Neto: I have just two very quick questions, but they were very important in the discussions we had yesterday. First, looking at your cash flow, I would just like to understand what is your outlook? You have 2 lines, mainly working capital. There was a significant release of working capital. How much of that is structural and how much of that can be reverted in the short run? And the second line is the cash financial expenses. There was a significant drop of almost BRL 4 billion. But I just want to understand, how much more reduction you anticipate in this line or whether we could review like more expensive debt being paid out and the balance paid at a lower interest rate? And my second question is that I would like some help to build a double-digit margin for Brazil in 2026 because Japur, I think you said that if there were not for the deterioration of market conditions, we could probably reach double digits throughout the year or even year-to-date, including Miguel Burnier. I just want to understand if in your number, are we starting with a weaker margin and this will improve in the second quarter and maybe getting even better in the second half? Or probably there is some room for getting a better margin quarter-on-quarter. And with that, you will create a bigger buffer. Therefore, throughout the second half, you will be able to deliver a double-digit margin. Rafael Japur: Ricardo, so working capital, your first question. Yes, we believe that there will be a use of working capital even because of the strong results that we posted in our North America operation, we saw increase in volumes, increased shipments. And also, there was an increase in the average of our product mix, and this will require some additional working capital in addition to the resumption of our operations, especially considering our operations in Brazil because of seasonality. So there should be a certain level of working capital use, but we will not go back to everything that we were able to build because especially when you look at the inventory line, we posted important gains of efficiencies, not really thinking about working capital, but cash conversion cycle, days of working capital. This quarter, since we had the settlement of our make-whole call, we had to pay interest that had been accrued until the make-whole date. So there was an increase of what was expected in terms of cash interest because not only I had to pay for what we already anticipated in terms of payments in the due date, but also there was a make-whole of the bonus that was settled in full. So that interest account was a bit bigger. But if you break down our P&L, you look at the fact that we break down the debt per currency and type of debt. And this is very clear in our P&L. So you could have WCD in U.S. dollars and reals. And then looking forward, you can have an estimate of that interest account. But in terms of cash flow, all you have to do is pay more attention to the maturity date of the bonds because they follow dates that are more concentrated between -- in April and then October. These are the 2 months that concentrate the bulk of the interest. Now finally, about the Brazil operation. I'll start with the end of your question. Significant improvement in Brazil in terms of margins, I think this is a bit far-fetched looking at the current situation. But again, if we hadn't seen this very strong move of over 20% in coal increase that we saw from the fourth quarter onwards, probably we could have seen a more consistent improvement in the first quarter of the Brazil operation despite the fact that the market is not growing so much. So maybe the data could have been worse in January. So I don't think it's so far fetched yet to think about a 2-digit margin, considering that in the second half of the year, we will already post concrete benefits related to our Miguel Burnier ramp-up, the mining project. So a bit of this construction, I would say, is like a first quarter, very close to the margin we have today, which is high single digits and maybe other coming quarters with a gradual improvement. If you look at the combined numbers, if everything else remains constant, so we may say that by year-end, if you look at the combined numbers of the year, the EBITDA margin, everything combined would be around 2 digits. Ricardo Monegaglia Neto: Perfect. Just to confirm, so Miguel Burnier's EBITDA will be around BRL 400 million a year? Rafael Japur: It will certainly depend on our capacity to deliver the Miguel Burnier project in due time and at the stability level that we want to imprint in the project. It's important to mention that this is not an existing mill because something that is new and starts ramping up every month from the end of the year that I eliminate, I have to do the math accordingly. And this affects the calculation. We don't have any number in terms of what will be the ramp-up result of the Miguel Burnier operation. But as soon as we have more information available and the project is in its integrated test phase, so as soon as we have additional information, we will soon share that information with you. So this is very important to achieve the competitive level that we expect to have. Ariana Pereira: Our last question from Emerson Vieira with Goldman Sachs. Emerson Vieira: I would like to review the U.S. profitability level. It's very clear what you said that you will maintain the levels in the short run. But my question, especially if I look at cost and the scrap prices, the pricing have not recovered in a way that it would make sense, given the rebar price level because this is growing in the U.S. But so -- looking towards the second half, do you think that there will be a more relevant scrap prices or the current scenario -- I mean, or this scenario is very unlikely. And it will be more likely for us to see the same scenario that we have today. And the second question is about what is your view regarding the potential impact of the antidumping measures related to steel exports coming from Vietnam and Algeria and whether this should lead to some marginal share gain or this is not really impacting the company in the U.S. Gustavo Werneck: Well, let me share the answer with Japur because I don't want him to answer everything by himself. I mean it's very difficult for us to project scrap prices in the U.S., I mean, looking at prices 2, 3 quarters ahead. But we believe that with this level of semi-finished produced in the world, produced based on coal and iron ore coming from China, this will probably take some share of scrap coming from the U.S. Therefore, the trend going forward will be for scrap prices to be more stable. And reinstating what I said before, this lead us to believe that the metal spread will be very similar to the levels we are seeing now. And this is another reason in addition to all the reasons that I mentioned before, this is one of the reasons that lead us to be more certain about the stability of our results coming from the North America when you look at the entire year of 2026. Now I will turn to Japur to talk about antidumping. Rafael Japur: The point is that when we look at the product portfolio, rebar is a product that is a feeder of our line. Like I have the full rolling mirror with the products that I want to produce, then I dilute my fixed cost by producing rebars. It's not something that it's a very significant portion of our business. I mean it accounts for about 10% to 15% today because beans and others have a strong price. So rebars account for about 10% of our price. But what happens, Anderson, is that at times when there are producers that make merchant bars and rebars. When profitability increases, on the rebar side, and they have modern assets or micro mills that are location for the production of rebars, so their appetite increase to use -- I mean, in terms of using scrap for merchant bars because not necessarily this has to do with the antidumping measures when you look at our own rebar producers. But this would be a secondary effect to improve merchant bar prices and producers have to look at a trade-off because they can at times produce rebars and at times produce merchant bars. Ariana Pereira: Very well, our Q&A session is now closed. I would like to take this opportunity to invite you to our next earnings conference call. It will take place on April 28. Werneck, you have the floor for your final comments. Gustavo Werneck: Well, before we disconnect, I would like to send my very best to Mari. She's not here with us today. She's living a very special moment. She had a baby called Pedro Antonio. So I would like to send her all the best and wish all the best for baby and mother. And I would like to thank Ariana that you called Ari during this call. I'd like to congratulate her on how well she conducted this call today. This only reinforces Gerdau's commitment and culture to have excellent teams onboard. On my own behalf, on Japur's behalf, I'd like to close this call, wishing you all the very best. And I am sure that I will see you in April when we discuss our Q1 earnings results. Thank you very much. I will see you then.
Jonathan Mason: Okay. Well, good morning, everybody, and welcome to ConvaTec's 2025 Financial Results Presentation. Press harder. Usual disclaimers apply. So I'm going to start with an overview of 2025 and a little bit of what to expect 2026. Fiona will present the financial results and guidance, and then I'll come back and talk about where we are on our strategic journey and what to expect next. And then we'll be very happy to take any questions you've got at the end. 2025 was a year of strong delivery. It was the fifth consecutive year that we delivered organic revenue sales growth within our target range. That was supported by 8 new product launches that we've got underway at the moment. It was the fourth consecutive year of margin expansion, and it was the second year we grew EPS growth by double digit, and there's more to come on that. And the strong cash we generated enabled us to invest more to grow for the future and also to do some return to shareholders. So the growth is starting to compound. The flywheel is turning, and we are well set for the future. In 2025, there were some headwinds, and we delivered despite them, which demonstrated the resilience of this business. As set out on the chart, we're in 4 chronic care categories. These markets are growing structurally independent of the economic cycle, and that provides a broad base for growth. There's a high proportion of recurring revenues, especially where we deliver excellent customer retention, loyalty, satisfaction based on the service we provide. And we have strong market positions, which gives stability to the earnings. We make differentiated products and solutions. We're innovating to satisfy unmet customer needs. We're investing in the fastest-growing segments of our categories. And we've got the richest product pipeline in our history, which benchmarks pretty well with the industry. The growth is broad-based. We're not dependent on any one category or product or geography for our growth. And there are reimbursement dynamics in this sector. There always have been, there will continue to be, but we build in an expectation of those in our plans, and we grow through them. New product launches help us to overcome reimbursement pressures, and they help us to grow consistently ahead of the markets, strengthening in the results and the delivery. The increased cash we're generating is enabling us to invest more in CapEx steadily throughout the FISBE strategy period. And the operating margin, we've delivered consistently 4 years in a row of margin expansion. EPS growth was double digit for the second year in a row, and there's more of that to come. You can see starting from the bottom, operational cash flow -- excuse me, operational CapEx has been consistent at about 2.5% of sales. Last year, growth CapEx increased significantly, and we have a real opportunity here to invest to meet the strong demand. Dividend grew slower at the start of the period until profits caught up. Now that profits are growing faster, we are in our target payout range, and you can expect dividend to grow in line with profits going forward. On M&A, we've invested over $500 million over the period. Last year was a bit smaller. We will continue to be disciplined in acquiring only bolt-on investments, which increase our competitive strength in our focus areas. But this remains a priority area for us, and you should expect to see more investment here to increase growth going forward. And then last year, we managed to return $300 million by way of share buyback within our prudent leverage target of 2x EBITDA. So to summarize this introduction, what I'll say is we are consistently delivering against the targets we've set in the FISBE strategy and the targets we set 3 years ago at our last Capital Markets Day. The turnaround of the business from the poor state it was in when Karim arrived in 2019 has been delivered, and we're now ready to accelerate. With the rich pipeline of new product launches we've got underway and coming, supported by higher investment to grow the pipeline and capacity, we're increasing our target growth rate to 6% to 8% per annum from 2027. And we're looking forward to explaining how we're going to do that at the Capital Markets Day in 6 weeks' time. Thanks very much. I'll hand over to Fiona and to talk about the financial results and see you again shortly. Fiona Ryder: Well, thank you, Jonny, and good morning, everybody. While I haven't -- while I have met many of you here today, for those who I haven't, I'm Fiona Ryder. I've been the CFO for about 6 months, and I've been at ConvaTec for about 4 years, working closely with Karim and Jonny on the delivery of our strategy. I'm delighted to be here today to present a summary of our 2025 financial performance plus our outlook for 2026 before handing back to Jonny for the strategic review and Q&A. We are pleased to report another strong financial performance for 2025. Organic revenue growth was broad-based across all 4 categories. Excluding InnovaMatrix, which I'll talk about shortly, revenue growth was 6.4%. Operating margin expanded by 110 basis points to 22.3%, taking our cumulative margin expansion over 4 years to 460 basis points. We delivered double-digit EPS growth at 16%. Our cash flow was strong with free cash to equity conversion of 101% under our new definition, which I will come back to later. This strong cash flow enabled us to increase investment for growth and for return to shareholders. Growth CapEx more than doubled, a 13% increase in dividend, a $300 million share buyback while delivering our net debt-to-EBITDA at target of 2x. These strong results demonstrate our track record under the FISBE strategy and are further evidence of our ability to deliver sustainable, profitable growth. In ConvaTec, we are really proud of this slide that shows our turnaround. Excluding InnovaMatrix, it's 5 consecutive years of organic revenue growth above 5% and 3 years above 6%. Margin is continuing to expand, accelerating EPS growth and strong cash conversion. In 2025, sales growth was broad-based across all 4 categories as this chart demonstrates, Infusion Care was the standout performer. On the right, you can see the impact of the significant market uncertainty in skin substitutes with InnovaMatrix sales down around $30 million year-on-year. Now let's look at sales by category, starting with Advanced Wound Care, where sales were up 4.1%, excluding InnovaMatrix or flat including. We saw good growth in North America and Latin America with an improving performance in Europe in H2. Our flagship brand, Aquacel Ag+ Extra delivered another good year, and we are very pleased with the launch of ConvaFoam, which is gaining share. InnovaMatrix sales decreased $30 million to $69 million, with H1 down about 13% and H2 down about 44%. As you know, from the 1st of January 2026, CMS has included -- has introduced a price rate of $127 per square centimeter, which represented about an 80% reduction for InnovaMatrix. As previously guided, this equates to a headwind in 2026 of around 2% of group revenue. As a result of the estimated impact on future forecasts, we have recorded a noncash accounting impairment of $72 million for our InnovaMatrix platform, equating to about 20% of the acquisition consideration. We still believe that InnovaMatrix is a highly effective product. beneficial for patients and trusted by HCPs. We look forward to it returning to growth in 2027. In Ostomy Care, organic growth was 4.5%. The highlight of the year was the performance of Esteem Body, our 1-piece soft convex pouch, which grew ahead of expectations and where we anticipate further strong growth in 2026. Growth was also supported by our updated Esenta accessories range. We were also delighted to secure our first group purchasing organization win in the U.S. in 5 years, and we followed this up with a further GPO win post year-end. Good U.S. growth was supported by continued new patient starts from our Home Services Group. Growth in Europe increased during the year and Latin America performing really well. In Continence Care, organic growth of 6.6% was driven by further volume increases in the U.S.A., backed by our outstanding customer service and our broadening product portfolio. We saw faster growth in sales of ConvaTec product relative to other manufacturers, which is now 59% of our sales mix given our improved product -- portfolio of products and faster growth of hydrophilic product, which was again over 60% of our revenue. We grew strongly outside the U.S.A. from a low base and international again contributed over 1 percentage point to the category growth rate. And then Infusion Care, where organic growth was double digit at 12.5%. Growth was faster in H1 as expected. There was continued strong demand in diabetes across both long-standing and newer customers as the penetration of automated insulin delivery over multiple daily injections is increasing. Outside diabetes, growth was excellent, led by infusion sets for AbbVie's Parkinson's disease treatment. Other therapies now represent 15% of our Infusion Care revenue, up from about 10% in 2024 with scope to grow further as a share of the category. We have a strong position in Infusion Care with increasing diversity across customers and products. We are confident that 2026 will see another strong year with high single-digit growth. Moving on to profitability. 2025 was another year of improvement. Operating margin expanded by 110 basis points or 100 basis points in constant currency, in line with progress over the last few years, where margin has increased 460 basis points since 2021. The strong growth in Infusion Care and the reduction in InnovaMatrix contribution results in movements in margin mix and OpEx, which broadly offset each other. Price and productivity contributed 30 and 130 basis points, respectively. Inflation was around 3% as expected, a headwind to margin of 110 basis points, and I would expect a similar level of inflation in 2026. We saw further material cost benefits from our simplification and productivity programs. G&A was down a further 50 basis points to stand at 6.8% of sales. This slide shows how we have delivered mid-teens growth in earnings per share. With operating profit up 12%, finance costs were down about $2 million, and our tax rate was steady at 24%, leading to a 15% increase in net profit, which with a reduction in shares led to 16% increase in earnings per share. Turning to cash. We had a strong year with free cash flow to equity of $362 million and a conversion of 101%. We have redefined cash flow to equity to better reflect the free cash available for capital allocation. We have separated operational and growth CapEx, increasing disclosure transparency, and we've adjusted for some small noncash items. Using our previous definition, free cash flow to equity was 61%. The main points to highlight are: EBITDA increased 12% from our improved operational performance. Working capital increased by about $40 million, in part due to the fourth quarter being our highest sales quarter. As this unwinds, we expect working capital growth to be lower than revenue growth in 2026. Operational cash payments of $64 million were unchanged year-on-year and cash adjusting items of $16 million were slightly below our guide of $20 million. Growth CapEx of $121 million more than doubled year-on-year as we identified compelling organic investment opportunities at high returns given strong demand for our products and our exciting product pipeline. We paid dividends of $140 million, and we completed a $300 million buyback in the second half. Net debt increased by $272 million with leverage landing at our target of 2x. Here is our outlook for 2026, reiterating our early guidance from November. We continue to expect 5% to 7% organic growth in group revenue, excluding InnovaMatrix. Group revenue will be second half weighted as product launches build. Following the significant CMS price reduction, we expect InnovaMatrix sales of around $20 million for the full year, strongly H2 weighted. On operating margin, we expect further progress in 2026 to reach at least 23%, irrespective of InnovaMatrix headwinds. This will be further underpinned by simplification and productivity improvements across operations, commercial and G&A. On profit phasing through 2026, I expect us to make modest margin improvements H1 '26 on H1 '25 and greater margin progress in the second half. This sales growth and margin improvement, coupled with largely unchanged finance and tax costs and the reduction in our average share count from our buyback translates to another year of double-digit EPS growth. Cash generation will be strong, targeting around 100% of free cash flow to equity conversion. Operational CapEx will continue to be around 2.5% of sales with growth CapEx increasing to drive organic growth. To wrap up, 2025 was a year of strong financial delivery. We hit our targets across sales, margin and EPS. 2026 will be another year of double-digit EPS growth as well as significant investments to accelerate future growth. From 2027, we are set to sustainably deliver 6% to 8% per annum organic growth, a mid-20s operating margin and double digit in EPS and free cash flow to equity. Our financial results are starting to compound. Thank you. And I'll now hand back to Jonny. Jonathan Mason: Right. Thanks, Fiona. So we've said that ConvaTec is delivering against the FISBE strategy and that now is the time to evolve that strategy. We're not going to get into the details of the strategy evolution today. That will be at the Capital Markets Day. But I'll just spend the next few minutes expanding on the delivery to date and why now is the right time to evolve. This is a slide which Fiona just showed. It's known internally as my favorite slide. I'm not going to go through each metric, but just to show how the momentum is building. On sales, on margin, on EPS, on cash, momentum is building. We are becoming a stronger business with more to invest, and that sets us up really well for the future. And we've also shown before how that growth is broad-based. All 4 categories are contributing to the growth, as you can see from the chart, 4 strong categories working together, and that's despite the reimbursement headwinds that they have faced along the way. That growth is supported by new product launches into each category, as you can see from the colors on this chart. We've got 8 products in the market now launching underway, and we've got 8 more to come across 2026 and 2027. And then at the end of 2027, guess what, we're not going to stop. There's more to come. There's more in the plans, and we will be describing what that is at the Capital Markets Day. So let me just take a moment to reflect on where we are now. ConvaTec is a strong and growing business. We've got strong leadership positions in markets that are fundamentally growing with high levels of recurring revenue. And that makes us very resilient as a business. And we've established a track record for delivering on what our targets were. But -- it isn't always right first time. It hasn't been as smooth as it could be. Growth last year was good. It was strong. But if we had executed seamlessly, it could have been even stronger, and that's what gives us confidence that we can grow faster in the future. We are learning as we go. This intensity of new product launches and this faster growth, these are new muscles for ConvaTec. The FDA letter that we received just recently was very disappointing. It relates to the management of our complaints handling and our corrective and preventative actions. We're working on that, but the FDA said it's not good enough. And we agree. So this is now top priority. We've got our best internal team working intensively on it. We're working with the FDA, with our customers and with external advisers because we're determined to become best-in-class in this area as quickly as possible. And our execution is improving. I mentioned that just now. Last year, as I said, growth was strong. It could have been even stronger. And the opportunity ahead of us is substantial. We're in these 4 categories that we are experts in. They benefit from a common set of technologies across operations and research and development. They are synergistic together. And the demand out there in the market is very strong. Our new product launches are working and they're winning share. And that's what gives us confidence that now is the time to be accelerating those sales growth targets. So going forward, based on this rich pipeline of new products and strong demand, we're going to be executing smoother, sharper, simpler, faster. And we're going to be backing our growth with investment in more pipeline and in more capacity in order to drive that faster growth. So let's look at that by category, starting with Wound Care. So in 2026, we expect mid-single-digit growth for Wound Care, apart from InnovaMatrix, which Fiona has talked about, and that's a special case. Mid-single digits is based on continued growth of our market-leading strong brand, Aquacel Ag Extra. Strong market share still growing very nicely. ConvaFoam is winning share now in Europe and in North America, and that will scale up. And we'll be launching through 2026, ConvaNiox, ConvaFiber and ConvaVac. And we'll be repositioning InnovaMatrix to win in the years ahead. In addition to those product launches, generating and disseminating clinical evidence is becoming a bigger feature of our product launch pipeline, and we'll be doing that for all of these products through 2026. And then from 2027, the growth is going to accelerate because all of these new product launches will be scaling up and InnovaMatrix will return to growth. If we look at Ostomy Care, in 2026, we're targeting mid-single-digit growth. Esteem Body is proving to be a really successful product launch, our one-piece soft convex new ostomy bag product growing very nicely. And in addition to that scaling up in Europe, U.S.A. and other markets. We'll be launching Flexi-Seal Air, our new fecal management product, and we'll be continuing to improve commercial execution across the continuum of care. That's where we've been really successful over the last couple of years. That's what's led to the winning of GPO contracts for the first time for a long time. Folks are saying, as regards ostomy, ConvaTec is back. And we're very proud of that. And in 2026, we'll start to build on those GPO contract wins. And then going into 2027, growth will accelerate because we'll win some more contracts Esteem Body will keep scaling up. We'll be growing our Esenta accessories portfolio. And very importantly, we'll be launching Natura Body. This is the 2-piece equivalent of Esteem body important for the U.S. market, which is more of a 2-piece market. We'll be very happy to see Natura Body launched, expect it to be just as successful as Esteem Body, and that will support our faster growth going forward. In Continence Care, in 2026, we're expecting mid-single-digit growth there, too. This business, we're very big in the U.S. As we've said before, this is based on excellent service. Our Home Services Group has customer satisfaction scores, which are really world-class, high customer retention, high customer loyalty, and we continue to grow share to grow volume despite being clearly the market leader. Through that growth, the proportion of ConvaTec products that we sell is increasing because our product portfolio is improving. We launched GC Air for women a while ago. It's growing. We're going to be launching GC Air Pocket, which is for men and GCS Air Set, which is Unisex in 2026 in Europe first and then 2027 in the U.S. and we'll also be launching Cure Aqua, which is starting in the U.S. So new product launches coming in Continence Care, which will underpin that growth. And then it will accelerate from 2027 as these new products build and as we expand the excellent customer service model outside the U.S., where it is still very small. And then Infusion Care. We're targeting high single-digit growth in Infusion Care in 2026, which is consistent with what we've been targeting over the last few years, although we have delivered a bit higher than that, but the plan is high single digits for the year ahead. It's going to continue with further diversification of products and customers. The technology in this area is evolving. Our customers' technology in pumps is evolving very quickly, and our infusion sets can service the whole spectrum of pumps across the industry. It's strong demand out there. And whilst we grow through 2026, and as I've just referenced with regards to the FDA's observations, we'll be improving our system for complaints validation and for corrective and preventive actions, following up on those customer observations. And then from 2027, we will be accelerating growth in Infusion Care. We'll be investing significantly in more capacity, and that will be in Inset Guard to service the diabetes sector. And in Neria Guard, for the other therapies, principally Parkinson's. But there are other therapies in addition to Parkinson's that we will be developing as well. So very strong demand for Infusion Care, strong growth to come. So let me conclude then by saying that ConvaTec is delivering. This -- we've described a resilient business model, which is delivering through the headwinds, and that growth is sustainable going forward. The simplification and productivity agenda that we have been running for the past few years has got further to run. That's what will lead us to be able to expand operating margin further in operations, in commercial and in G&A to get to our target of mid-20s, which we're still focused on. And growth is starting to compound. Double-digit growth in EPS is what you should expect going forward. And that will be based on an acceleration of the top line. So really pleasing that this rich pipeline of products that we're launching into the market, they are working. They're gaining share. And this pipeline is the richest we've ever had. And we think, as I've said, it benchmarks very well against anyone else in the industry. And as we learn with all of these products, as we grow faster, our execution is strengthening. And that plus the CapEx that we will commit to supporting more pipeline and more capacity is what will underpin our faster growth rate. So we're increasing our target growth rate from 2027 to be 6% to 8% per annum. And we'll tell you more about how we're going to deliver that at Capital Markets Day on the 9th of April, and I hope to see you all there. Thanks very much for your attention. We'll be happy to take any questions you got. Unknown Executive: Jonny, just we'll take questions from the room. Then there's 65 people on the call. We gather there's been some issues with the website streaming. We apologize for that, but the call is live. So we'll go room, then call and then website. First question, Hassan. Hassan Al-Wakeel: Hassan Al-Wakeel from Barclays. A couple, please. So firstly, on Ostomy Care, can you talk about how you're seeing new patient capture and share dynamics in the U.S. and how you see some of these GPO wins to change that in '26 and then Natura in '27? And then secondly, on the margin, you expect to lose around $50 million of InnovaMatrix revenue in '26, a 2% headwind versus the 1% to 2% expectation that you talked about. Can you talk about some of the offsets to this loss of revenue and your confidence in the building blocks in being able to drive that at least 70 basis points of margin expansion in '26? Jonathan Mason: Sure. Ostomy development in the U.S. is building nicely. We were declining for some years until our new leadership took over and our commercial execution improved. In the last few years, our new patient starts have been stable, and we've been building share through an improved product pipeline. That's been helped by the improvements to the Esenta accessories range and now most lately by the launch of Esteem Body. But it's the improvement in commercial execution, the education offer to health care providers, the me+ service support to patients, which has been leading our relationships to strengthen and to us gaining those GPO contract wins. We expect this to build further going forward. We expect to be gaining share, gaining share in new patient starts as well and for that to accelerate when Natura Body is launched in 2027. But it's a steady build. We've said mid-single-digit growth for Ostomy Care in 2026. That's what we are confident of delivering, and then it will accelerate after that for those reasons described. Do you want to talk about? Fiona Ryder: Yes. Thank you, Hassan. So we are guiding in 2026 to at least 23% operating margin. We have delivered 460 basis points over the last 4 years. And our top line will be growing, excluding InnovaMatrix, 5% to 7%. That, coupled with the simplification and productivity programs that we continue to drive will underpin the margin expansion. We have a track record there. Sebastien Jantet: It's Sebastien Jantet from Panmure Liberum. Two questions, if I may. So first of all, just on the medium-term margin kind of guidance of between 24% and 26%. We're kind of in the early months of '26. That's not that far away now as we look into '27. So I'm wondering what are the things that make it land towards the top end of that guidance versus the bottom end of that guidance? And then the second question is just you've talked about factoring in reimbursement headwinds in your guidance. You've upped your revenue guidance. Perhaps give us a sense of what are you factoring in for reimbursement headwinds within that revenue guidance? Jonathan Mason: Do you want to take the first one? Fiona Ryder: Yes. So we are guiding or have guided to mid-20s by '26 or '27, and we still hold to that. Now it's likely to be at the lower end of that. In '27, it will be closer to 24%. I think we've said that a number of times. And we think mid-20s is the right place for our margin. We think that benchmarks well. It allows us to continue to invest in top line growth. Jonathan Mason: Yes. And as regards to the detail of the reimbursement headwinds, I don't want to get into the specifics product by product. Over many years, the headwind has been quantified as roughly 1 point of headwind. And we've used a point of headwind per year across all the categories. Now it varies depending where different countries at different times. We've had different examples of where that's come from. The intensity of it in the U.S. has been more than normal over the last couple of years, and the headwind has been a bit higher than that. But before that, we had tenders in the NHS. We've had the French hospitals reducing the quantum of products that they have issued. We've had German pressure on silver reimbursement. So there's always been something with the new product launches and with the pricing COE that we have introduced and has been delivering now for a few years, we've managed to counteract these reimbursement headwinds. And in our targets of 5% to 7%, we include the headwinds in there and that we will deliver through them. And likewise, for our accelerated growth, 6% to 8%, that is after absorbing whatever the reimbursement headwinds will be in the future. Kane Slutzkin: It's Kane Slutzkin from Deutsche. Just guys, on the growth side, I'm just wondering, are you being a bit conservative on the Infusion Care guide? I mean you've sort of been beating it for a while. On Ostomy, just following up from Hassan, just you were sort of saying you're going to accelerate from '27. You've got obviously another GPO win. Are we looking at sort of a mid- to high single-digit grower in time? Is that kind of what you're implying? And then just on the M&A story, how is that pipeline looking? And in the absence of anything, are you -- I mean, would you be considering further buybacks? Or do you have enough on your hands in terms of the increased CapEx? Jonathan Mason: So are we being conservative on Infusion Care? It's quite interesting to compare 2 years ago when GLP-1s came out, although stories were around, everyone thought the Infusion Care business was in trouble. Far from it, really strong demand. Our products, as I mentioned in the presentation, are able to service all sorts of different pump technologies and the prevalence of pump technologies in the market is increasing significantly, both the penetration of pumps in diabetes compared to multiple daily injections. That's growing nicely, but also in Parkinson's therapy and in other therapies, too. So strong demand pipeline going forward. we have delivered more than high single digits over the last couple of years, just about in Infusion Care. The customer orders are predictable, but not uniform, right? They are a bit lumpy, but we know what they are because we talk very closely, work very closely with our customers. And as we look out into 2026, we think it will be high single-digit growth. So I don't think we're being unduly prudent there. I think that's the best basis to plan on. Thereafter, we do think there's an opportunity to accelerate because we'll have more capacity coming on stream and the therapy application areas will be growing. And then you asked about Ostomy Care. Look, yes, I think that is a reasonable expectation. It's mid-single digits in 2026, and we think we will accelerate growth thereafter when we have the full portfolio of products with which to compete in the markets in U.S. and in Europe. So I think you can expect a bit stronger growth than that going forward from 2027. Fiona Ryder: And then I'll pick up the question, sorry, on M&A. So we have really clear capital allocation priorities, invest organically in the business, pay the dividend, which we are in the middle of our range for this year. M&A opportunities when they are attractive and accretive to growth and returning excess capital to shareholders. So every year, we go through the process of looking for the right M&A opportunities. We look at the opportunity to invest organically. For 2026, we see great opportunities to invest organically in the business, as we have said, with the increased growth CapEx. And if we don't find any M&A opportunities, we will return capital as we did in 2025, but we continue to look. Jack Reynolds-Clark: Jack Reynolds-Clark From RBC. The first is on the midterm guidance. So what are your expectations for the kind of the phasing of that new revenue or updated revenue guidance beyond 2026? And Fiona, you mentioned that you still see mid-20s is the fair level of margin for the business. I guess, would you expect it to trend towards the upper end of that range over the next few years? What are your expectations for margins in a few years' time for the business? And then my next question was on ConvaNiox. You mentioned the slow launch in Europe initially ahead of a more accelerated launch later on. Kind of what feedback are you getting? How is the launch progressing versus your expectations? And what pricing are you able to take there? Jonathan Mason: Do you want to take the... Fiona Ryder: Start with the first. So midterm guidance, well, we're upgrading that today to 6% to 8%. I'm not going to guide any more specifically about what that will look like in those years. You asked about the margin being at mid-20s. Yes, we think that margin at mid-20s is about right for us. So we're guiding to at least 23% for 2026. You can expect that to increase a little more over the next couple of years. But then we think staying in the mid-20s would be right for us. And then on ConvaNiox? Jonathan Mason: Yes. Yes, prioritizing investment in growth going forward. Once we get to mid-20s, then there's plenty of things to invest in. ConvaNiox, yes, it is going really well. We've got a few hundred patients now who have been treated. We are deliberately taking that slow and building evidence. We're working with key opinion leaders, and we'll build the network of health care professionals from there. Everything we've seen so far reconfirms the strong performance of the dressing. We believe this is a dressing that does things that nothing else in the market does. It's that combination of antimicrobial action and also accelerating the wound healing. We've got one RCT, as I'm sure you've seen from a while ago in the U.K., which showed twice as fast healing rates and 3x as fast wound surface reduction as standard of care. We're now running another RCT in the U.S. to build further evidence. But don't expect material sales in 2026. It's about building that evidence base and then sales will grow thereafter. I think -- and we don't want to talk about reimbursement levels at this stage. Graham Doyle: It's Graham from UBS. Can I just ask 2? One on Infusion Care, to the point on the CapEx expansion. And obviously, the -- you alluded to the acceleration potential. Is it reasonable to say, given historically, you've had these minimum volume contracts that it's very visible as in this CapEx is for something very tangible and visible that you can see in the next few years, and that's the inflection. And then on that, could you maybe talk to the return on invested capital expectation for that CapEx as well, please? Jonathan Mason: Yes. Well, let me start. I think what you might be asking in terms of visibility is, yes, we work closely with our big customers in expansion plans and have got with them long-term contracts. And so -- and in particular, that contract base has been strengthening as the demand in the market increases. So we're very sure that we'll be getting good returns on this CapEx that we're committing on the basis of those long-term contracts. Fiona, do you want to... Fiona Ryder: Picked up the returns. Yes, we assess all of our projects and ensure that the returns are accretive to our group returns. So yes, these Infusion Care ones certainly fit that criteria. Graham Doyle: And maybe a really quick one. On the -- you mentioned earlier, if the execution is better, the growth would have been better. What wasn't like super hard? What's like the key learning point from last year? Jonathan Mason: Look, as I said, we're learning as we go. And I think the main area is handoffs between different functions within the organization. We've got a really great team of scientists doing R&D. We've got a great team of operations executives running our factories. We've got great teams in commercial out in the markets themselves. The handoffs, it's a bit like a relay race, handing that baton over wasn't as smooth as it could have been in all cases. We ended up with a few isolated back orders here or there, which if we hadn't had, we'd have sold even more. So I don't want to make this a big deal, but it's just to say we grew strongly despite learning. Now we are learning and we're getting better, we'll grow even faster. Beatrice Fairbairn: Beatrice Fairbairn with Berenberg. So I had a few on InnovaMatrix. So firstly, what level of confidence do you have in reaching the $20 million in sales guided for 2026? Also in the release, you noted that you are reorganizing your sales team. Just to clarify, has this now been completed? And could you provide some color on what changes have been made and how you expect it to impact? And then kind of finally, how do you see InnovaMatrix sales in inpatient channel developing in the midterm given the changes we have seen in the outpatient setting? Jonathan Mason: Yes, let me take that. So it's obviously a highly uncertain situation in the market as regards to all skin substitutes. InnovaMatrix is a great product, and we are pleased to be able to report that volumes are strong still. Our volumes are, despite the uncertainty, as strong as they were last year and have been, if anything, building a bit since Q4. So the sales have come down a lot because of the price, of course, they have, but we are still getting strong response from health care professionals and patients really like the impact of these dressings. We have finished the reorganization of the sales force. That was an unfortunate necessity. We've always said there was a very high level of variable cost in this sector of the market. And in particular, some of the commercial execution was very expensive. So we've resized that to be appropriate to the target markets going forward. We've got national coverage now, which is a bonus for the InnovaMatrix. And so our sales force is spreading out further across the U.S. to sell where we can. Last year, we started to sell beyond the indications of venous leg ulcers and diabetic foot ulcers. Those are still the 2 biggest, but sales are starting to grow outside of that area, too. We're still primarily focused in physicians' offices. But I think one of your questions might have been about hospital channels. That's an area we will get to, but it's still quite small. Unknown Executive: Thank you. I think that is the questions in the room. I know we have, certainly Veronika has a question online. Jonathan Mason: Okay. Unknown Executive: So if you could go to that, please. As a reminder, if anybody would like to ask a question on the phone line, the moderator will inform them how to. Jonathan Mason: Can we go to the telephone questions now, please? Operator: [Operator Instructions] Our first question comes from Veronika Dubajova from Citi. Veronika Dubajova: I'm going to try to sneak in 3, if I can. The first one is just trying to reconcile the InnovaMatrix guidance for $20 million. Just if you can help us understand the price versus volume expectations that you have. I think just simplistically on my math, if price is down 80%, you'd be assuming volumes are up 50%. Obviously, I appreciate, Jonny, you said you feel like the volumes are maybe picking up a little bit versus where they were in November and December, but that would be a pretty substantial pickup that's necessary through the rest of the year. So if you can just kind of help us through the building blocks of that, that would be super helpful. Then my second question is just on Wound Care. Obviously a bit surprised by where the growth rate ex-InnovaMatrix came in, in the back half of the year. I think there was maybe some hope of some acceleration moving from H1 to H2 instead we sort of ended up at sub-4% stripping out InnovaMatrix on an organic basis. Kind of what gives you confidence that you can accelerate that growth rate there? And I guess, especially if foam is performing well, can you talk through the things that are not and your ability to kind of influence that growth and drive some improvement there that's clearly important to your midterm ambitions? And then my final one, obviously, I appreciate that tariffs today might not be the same as they were tomorrow. But as we head closer to the end of the Section 232 investigation, I'm just curious what your thoughts are on what's the most likely outcome there? And what you would be able to do should the Nairobi Protocol not hold? Jonathan Mason: Okay. Quite a range there, Veronika. Thank you. Look, let me start and then maybe you'll see if you want to add, Fiona. On InnovaMatrix, first of all, $20 million of sales, yes, that does anticipate that our volumes grow significantly later in the year. And you've done the math, price down around 80%, sales down less. Where the volume growth is going to come from later in the year. And as we've just said, we have already reorganized the sales force is, I guess, 3 areas. First of all, we have a wider geographic scope now that we're covered for the whole country. That's one part of the growth. We're growing in other indications outside VLU and DFU as well. That's another part of the growth. And we are anticipating that some of the competition is going to fall away as the year goes by. Now we haven't seen that yet in any material way. People still have inventory. People are still running legal challenges to the price change that was made. But we are planning on the fact that, that price change will stick. And when it is confirmed as sticking, some of the operators in the human tissue area who have higher cost of sales than us, significantly higher, they will fall away, and that will provide a volume growth opportunity. So that's how we're planning on InnovaMatrix. And it does mean, I think as Fiona referred to before, that we see the InnovaMatrix sales as being stronger in the second half than the first for those reasons. On Wound Care, Volume, it was hard to catch exactly the question. But I think it was how are you going to accelerate wound care from where it delivered in 2026? I think that seems obvious to us anyway. We're launching 3 new products. So Aquacel is still growing. ConvaFoam is building and gaining share nicely now. It took a while to get started, but it's gaining share nicely now in Europe and in North America. And then we've got ConvaFiber coming. ConvaFoam and ConvaNiox are going to be very small in 2026, but they will start to build through 2027. So that's where we see the accelerated growth in Wound Care coming from over the next few years? Do you want to talk about tariffs? Fiona Ryder: Sure. Thank you, Veronika. So yes, tariffs are a moving piece at the moment, but we do expect the Nairobi Protocol to hold for our products that are currently covered by it. The Nairobi protocol has held since the 1970s, I believe. So I think it is unlikely to be challenged. If it is, we would be in a similar position as our peer group, and we would deal with it then. But as I say, we are expecting the Nairobi Protocol to hold. Unknown Executive: Any more questions on the phone? I think there's 2 more. Operator: Our next question comes from Susannah Ludwig from Bernstein. Susannah Ludwig: I have 2, please. And I guess apologies in advance if you've already addressed them as I was on the webcast and as I highlighted, there is a disruption. But first, would be on Infusion Care, which was the fastest-growing category. Could you quantify what percent of Infusion Care growth in 2025 was driven by nondiabetes versus diabetes? And how should the mix between diabetes and nondiabetes evolve over the medium term? And how as nondiabetes grows, does that impact margins from that business? And then second, on the FDA warning letter, in the press release, you highlighted that there was not an issue related to product safety. However, the warning letter does cite 5,000 complaints related to leakage and potential under-delivered -- insulin. What makes you comfortable that there is not a leakage problem with some of your infusion sets? Fiona Ryder: Thanks, Susannah. So I'll take the first question, then I'll hand to Jonny for the question about the FDA. So look, we're really pleased that the share of nondiabetes product in our Infusion Care category continues to grow. It was 10% in 2024. It was 15% of the category in 2025. And we expect it to continue to grow as a proportion of the category. And you're right, the margins for nondiabetes are slightly higher than those in diabetes. And so it will continue to support our margin growth for the group. Jonathan Mason: On the FDA commentary, leakage can be caused by lots of different things, including inappropriate application, reasons that are not to do with product inadequacies. What the FDA commented on was that we were not pursuing rigorously enough these observations from customers to be sure that it wasn't any product-related weakness. So -- and look, we are -- we agree with their observations. We are pursuing more vigorously chasing down every bit of information we can. It's more complicated in this category because any comments from customers -- any comments, excuse me, from people using the devices go to our customers. They don't come to us. And it's through that interface that we have to be more rigorous in making sure that we've chased down every possible piece of information and every bit of learning. We've done some investigations before and -- but more importantly, since then, a lot of evaluations, and we haven't found any deficiencies in products. And as I say, the FDA didn't point to that either. What they said was you're not managing the information flow tightly enough, and we will get better at that. Unknown Executive: I think there's one more online -- one more telephone question. Operator: Our final telephone question is from David Adlington from JPMorgan. David Adlington: So firstly, I just wanted to more specific in terms of the -- what you've assumed in terms of CBP in terms of pricing pressure in 2027. You sort of answered in the around in terms of pricing pressure, but maybe just specifically on CBP, what your assumptions there are? And just on InnovaMatrix and the write-down, I think, again, apologies because the webcast wasn't great, but I think you've written down about 20% of that $72 million. So that leaves about $280 million left. But obviously -- yes, fairly significantly as you're now valuing the asset at 14x sales. I just wondered why you only write it down by 20%. Jonathan Mason: So I take the first one? So CBP, our assumption hasn't changed from what we described last summer, which is that we think if it's implemented, in both Ostomy and Continence categories, then the headwind will be between 1% and 2% of our group revenue. Now 2% is based on the fact that 7% of our group revenue is exposed to the CBP being the Medicare revenue in those 2 areas and that 30% is the average of CBP impacts over the full extent of the CBP process with CMS and also that there isn't any more profit in the industry. We don't think a price reduction of more than that is possible to push through. And then -- so that would give you a headwind of 2%. We think we're in a strong position to gain volume. The CMS has expressed a preference for there being 7 or 8 distributors in each sector compared to the thousands that there are now. Granted some of these thousands are pretty small. But as some of those smaller distributors decide not to participate and wouldn't win anyway because they can't fulfill the national supply objective, which has been required or expressed as a condition for the CBP, there's going to be market share gain opportunities for stronger players like ourselves. So that's why we've expressed a range between 2 and 1. Let's see how it develops. Fiona Ryder: I would just add to that, that the CMS has said that the CBP, if implemented, would be in 2028, not 2027. And then I'll take your second question, David, which I think was -- I was struggling to hear you a little bit, but why did we write down $72 million of our InnovaMatrix assets? Well, we have followed a really clear approach here. We have taken prudent and risk-adjusted forecasts and the impairment that has fallen out is $72 million. As Jonny said, we are still selling the product. The product is selling well. Volumes are increasing, and we believe that we're holding it at the right value at the moment. Jonathan Mason: Any more, David? Unknown Executive: I think that's all the questions. So thank you, everybody, for coming. Jonathan Mason: Okay. Thanks very much indeed. We look forward to seeing you in about 6 weeks' time when we'll have more to share. Thanks for your questions today.
Operator: Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company's 2025 Fourth Quarter and Full Year Results Earnings Conference Call. This call is being recorded. [Operator Instructions] Thank you for participating in Tennant Company's 2025 Fourth Quarter and Full Year Results Earnings Conference Call. Beginning today's meeting is Mr. Lorenzo Bassi, Vice President, Finance and Investor Relations for Tennant Company. Mr. Bassi, you may begin. Lorenzo Bassi: Good morning, everyone, and welcome to Tennant Company's Fourth Quarter and Full Year 2025 Earnings Conference Call. I'm Lorenzo Bassi, Vice President, Finance and Investor Relations. Joining me on the call today are Dave Huml, President and CEO; and Fay West, Senior Vice President and CFO. Today, we will review our fourth quarter and full year performance for 2025. Dave will discuss our results and enterprise strategy, and Fay will cover our financials. After our prepared remarks, we will open the call to questions. Our earnings press release and slide presentation that accompany this conference call are available on our Investor Relations website. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we file with the Securities and Exchange Commission. We encourage you to review those documents, particularly our safe harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items. Our 2025 fourth quarter and full year earnings release and presentation include the comparable GAAP measures and reconciliations of these non-GAAP measures to our GAAP results. I'll now turn the call over to Dave. David Huml: Thank you, Lorenzo, and good morning, everyone, and thank you for joining our Q4 and full year 2025 earnings call. As we reported today, our Q4 and full year 2025 results were materially impacted by the North America go-live of our new ERP system during the first week of November of 2025. I will be devoting a significant portion of my overall remarks to the North America ERP go-live. I want to address upfront the impacts, including operationally, financially and for our customers, where we stand today and the path forward. Let's talk about what happened. Despite a successful go-live in the APAC region in September and extensive preparation in North America, the cutover of the ERP system in the first week of November introduced severe system functionality issues that limited our ability to enter orders, ship products and service our customers. Core functionality required for processing orders, particularly for our highly configurable machines did not perform as intended. As these issues emerged, our teams, together with our implementation partners, mobilized extensive stopgap procedures to offset system limitations that prevented normal order entry, production sequencing and shipping. These actions allowed us to process limited activity, but they were highly labor-intensive, inefficient and not an adequate substitute for fully functioning workflows. Despite these sustained efforts to diagnose, remediate and recover, the underlying problems proved far more complex and persistent than we anticipated based on our stress tests. We expected a short-lived productivity dip similar to APAC, where operations normalized within a week. Instead, in North America, we lost 3 full weeks of machine order entry and parts shipping capability. In essence, the system could not be stabilized as quickly as anticipated, prolonging the disruption and amplifying the operational impact, irrespective of the significant investment we made in recovery actions. So what do we have planned? And why did it not operate as expected? We moved into the go-live based on the results of our testing and the confidence we had in the readiness of the environment, including sign-off from both the business readiness team and our implementation partners. We also had clear mitigation plans that included safety stock and manual contingencies. These were designed to offset anticipated potential inefficiencies, not an unexpected fundamental inability to transact for a prolonged period. We also relied heavily on our APAC implementation experience as a proxy for North America. While we believe that experience would guide our North America transition, the complexity and scale of the North American business created unique challenges. Let's talk about the operational and customer impacts. Our operations were significantly disrupted, particularly from the cutover date through November across all 3 U.S. production and distribution facilities. To keep plants running, we incurred additional overtime, freight and other direct operating costs from the cutover date and into December as we worked to maintain production and distribution. The customer impact was equally severe. During November, starting on the cutover date, we were unable to fulfill many orders and could not provide reliable visibility into shipment timing. Our parts and consumables and service businesses were especially affected as we were unable to ship parts for most of the month. Our inability to operate at scale drove an extended backlog and limited our ability to provide reliable shipment dates. We take great pride in our customer relationships and recognize how much trust our partners place in us. Our teams communicated frequently throughout the disruption and many of our customers showed patience in the early days. We are appreciative of that, and we sincerely apologize for the strain this has caused. Let's shift to the financial impact. The operational constraints had clear implications for both fourth quarter and full year performance. Orders were reduced by approximately $15 million as the challenges we experienced in parts and consumables and in equipment directly affected demand. These dynamics, combined with our limited ability to operate plants at normal capacity, resulted in an estimated $30 million impact on net sales. Roughly half of this shortfall reflects the lower order intake and the other half represents activity that moved into backlog. Gross margin was also pressured. Roughly $13.5 million of the impact came from the sales shortfall and another $8.5 million was tied to operational inefficiencies and higher labor and freight costs, along with deleverage. As a result of this gross margin impact, adjusted EBITDA was negatively affected. The ERP implementation challenges reduced fourth quarter adjusted EBITDA by an estimated $22 million. In addition to the operational effect, I would like to update you on how our ERP project costs are tracking relative to expectations. To date, since 2023, we have invested approximately $98 million in the program. For 2025, our spending remained broadly in line with plan. However, the fourth quarter challenges required incremental stabilization and support resources that were not originally contemplated. As a result, we now expect ERP-related spending in 2026 to exceed the roughly $5 million initially planned and likely reach more than $20 million as we complete remediation, maintain hypercare support and advance the next stages of our ERP modernization program. We believe these investments are appropriate to achieve the long-term benefits of our ERP modernization. So where are we now? The short answer is that we have solved the critical issues we faced starting on the cutover date in the first week of November. We remain in hypercare in North America. And while teams are identifying and fixing issues daily, the system is becoming more reliable and improving each week. In fact, core workflows, including order management, production scheduling and fulfillment have improved. We are working toward achieving system stability by the end of Q1 2026, with efficiency improvements continuing into Q2. How are we planning for the last regional go-live in EMEA? The experience in North America is reshaping our approach to the remaining ERP phases in EMEA, which initially was supposed to begin and complete in Q1 2026. We have paused the EMEA time line, not to set a new date, but to focus the entire organization on North America recovery as our 100% priority. Despite the disruption, our strategic direction remains intact. At the end of the day, everything we are working through now reinforces the long-term value of our ERP transformation, including better data, greater scalability and ultimately, a more efficient and capable enterprise, all with the goal of serving our customers that much more efficiently and effectively. Despite these challenges in the second half of the fourth quarter, the fundamentals of the business remained strong. Our international teams delivered solid execution throughout the year and the momentum we saw outside North America in the fourth quarter highlights the breadth and durability of our global footprint. EMEA grew 5.1% year-over-year, supported by price realization, foreign exchange and steady commercial execution across multiple markets. APAC returned to improved performance late in the year as growth in Australia and India offset softer demands in parts of East Asia. These results reinforce the strength of our global portfolio and our team's ability to perform in dynamic market conditions. From an innovation and growth standpoint, 2025 marked important progress on several of our strategic fronts. We launched 4 major new products during the year and continue to see increased customer adoption of our robotics portfolio, which delivered roughly $85 million in AMR sales, inclusive of recurring autonomy fees. We also maintained disciplined capital allocation throughout the year. In 2025, we repurchased approximately 1.1 million shares for $88 million, reducing outstanding shares by about 6%. This was an intentional and meaningful deployment of capital, consistent with our long-standing strategy. We were able to do this while continuing our commitment to returning capital through dividends, including the company's 54th consecutive annual dividend increase. Our balance sheet remains strong and with low leverage and solid liquidity, we have the capacity to invest in innovation, operations and strategic priorities while still returning capital to shareholders. The actions we took in 2025 reflect our stated capital allocation priorities, and that is how we will continue to approach capital allocation in 2026. We remain committed to growing our business, investing organically and pursuing strategic acquisition opportunities. We will also continue to use our share repurchase authorization when it represents the best use of capital. That discipline, combined with the strength of our balance sheet positions us well as we move into next year. Let me shift and talk about the launch of our dedicated TNC Robotics group. A major milestone in the quarter was the launch of a dedicated organization focused on accelerating the adoption and scaling of our autonomous robotic cleaning solutions. This new structure brings together expertise spanning product design and engineering, production, commercial strategy, marketing, business development and customer support. The intent is to create a unified and focused team responsible for advancing our autonomous product road map, expanding production capacity and supporting customers throughout the deployment and operational life cycle of these solutions. The formation of this group directly aligns with our enterprise growth pillars. The team will accelerate our product road map, strengthen our commercial focus and enhance customer engagement throughout the adoption journey. By unifying these capabilities, we are better positioned to drive awareness, increase demand, build the right channels and deliver a consistent customer experience as autonomous solutions scale globally. The AMR market continues to expand, driven by persistent labor shortages, rapidly advancing technologies and declining costs. At the same time, the landscape is becoming more competitive as new entrants move into the space. Establishing a dedicated AMR organization positions us to move faster, innovate more efficiently and provide the support needed for consistent in-field performance. This is a meaningful step forward in advancing our enterprise strategy and capturing the significant opportunity emerging in autonomous cleaning. With this renewed focus and increased investment, we are elevating our long-term ambition. We expect our AMR revenue to reach approximately $250 million by 2028, reflecting our confidence in the technology, the strength of our portfolio and our ability to lead the ongoing transformation of this industry. Looking ahead to 2026, our primary focus is on restoring full operating capability in North America and driving steady improvement in efficiency as our system performance strengthens. We expect the challenges associated with the ERP transition to ease through the first half of the year as we expect reliability improvements, phase out of manual workarounds and teams to transition from stabilization to a focus on productivity. At the same time, we are encouraged by the momentum in our autonomous and robotic solutions. The dedicated cross-functional organization we established is positioned to accelerate both development and commercialization, and we expect to build on the strong demand we generated in 2025. We will continue to scale our autonomous portfolio through new product introductions to serve a broader array of vertical market and customer applications. Our efforts also include strategies designed to help customers adopt autonomous solutions more quickly and with greater confidence, which we believe will support higher value mix and improved margin contribution as adoption grows. We expect resilient demand across our markets to support performance. Our backlog remains healthy and commercial activity across global regions continues to show stability. With this foundation, we believe we are well positioned to capture demand and drive growth through new product innovations, strategic pricing and go-to-market sales and service actions. Based on these drivers, we expect to deliver our 2026 full year guidance with results weighted toward the back half of the year as we expect efficiency and throughput to steadily recover. Fay will provide detailed guidance and the full financial outlook in her remarks. So with that, I'll turn the call over to Fay. Fay West: Thank you, Dave, and good morning, everyone. I'll begin by addressing the North American ERP transition. We estimate that the ERP disruption reduced fourth quarter net sales by approximately $30 million. This impact was distributed with roughly 1/3 affecting service and parts and consumables and 2/3 impacting equipment sales. We project that half of these sales are unrecoverable, while the remaining portion represents unfulfilled orders that have been added to our backlog. Furthermore, the disruption decreased adjusted EBITDA by approximately $22 million. Incremental costs due to the recovery actions Dave mentioned earlier, combined with reduced operating leverage disproportionately affected our cost of goods sold and adjusted EBITDA, resulting in the $22 million impact on adjusted EBITDA. The corresponding impact on EPS was approximately $0.91. With that context, I'll now turn to our fourth quarter and full year financial performance. In the fourth quarter of 2025, Tennant reported a GAAP net loss of $4.4 million compared to $6.6 million of net income in the prior year period. Full year 2025 GAAP net income was $43.8 million, down from $83.7 million in 2024. For the full year, net income was primarily impacted by a 6.5% decrease in net sales and a contraction in gross margin. These results reflect a combination of factors, including a decrease in volumes, partly attributable to the comparison against the prior year's significant backlog reduction benefit as well as margin pressures stemming from product mix, higher material costs and unanticipated challenges associated with our ERP transition that outpaced our pricing and cost reduction initiatives and lower operating expenses. Operating expenses decreased year-over-year due to lower compensation-related costs and reductions in certain legal, integration and restructuring expenses. This was partially offset by higher ERP spending and an increase in bad debt expense. On a full year basis, interest expense and our average interest rates, net of hedging were comparable year-over-year. Interest expense was higher in the fourth quarter due to higher average debt balances. Our effective tax rate for the full year was 24.3%, up from 20.1% in 2024. This increase was primarily due to the nonrecurrence of certain noncash discrete items from 2024. Looking at adjusted EPS, excluding non-GAAP costs, adjusted EPS for the fourth quarter was $0.48 per diluted share, down from $1.52 per diluted share in 2024. For the full year 2025, adjusted EPS was $4.57 per diluted share, down from $6.57 in 2024. I'll provide more detail on these non-GAAP costs. Our ERP modernization program in 2025 involved both planned investment and unforeseen operational impact. We invested a total of $59.1 million, comprising of $30.6 million capitalized and $28.5 million expense as we advanced our new ERP platform. As we shared, the North American go-live in the first week of November led to unexpected stabilization costs. These costs are distinct from our ongoing ERP modernization investment and contributed to the fourth quarter margin pressure. Separately, we recorded $6.4 million of restructuring charges associated with our global workforce reorganization and expect approximately $10 million of annual savings benefits beginning in 2026. Our 2025 results also reflect an updated legal contingency for the OWT intellectual property dispute. In September of 2025, a post-trial ruling increased damages by 30%, raising the total judgment to approximately $20.2 million. Consequently, we recorded an incremental accrued expense of $6 million in 2025. We have appealed aspects of this ruling, and this development does not impact our ability to sell any of our products and is not expected to affect our long-term financial performance. Let's now look at our quarterly results in more detail. For the fourth quarter of 2025, consolidated net sales totaled $291.6 million, an 11.3% decrease compared to $328.9 million in the fourth quarter of 2024. On a constant currency basis, organic sales declined 13.9%. This decrease was primarily driven by a 22.3% organic sales decline in the Americas, mainly due to the North America ERP implementation impact of $30 million on net sales as well as volume declines in Latin America across equipment, parts and consumables. These North American challenges were compounded by softer underlying demand in the industrial and aftermarket businesses. Despite these pressures in the Americas, the decline was partially offset by a 3% increase in organic sales in EMEA, driven by equipment volume growth in France, the U.K. and Spain and an 11% increase in organic sales in APAC, fueled by volume growth in Australia, China, South Korea and India across both industrial and commercial equipment. Continued price realization in the Americas also provided a partial offset. Although December showed improvement as recovery efforts took hold, we were unable to fully recover the impact of the November disruptions. Adjusted EBITDA for the fourth quarter of 2025 was $25.6 million, a decrease of $21.8 million from the prior year period and includes the approximately $22 million negative impact from the ERP implementation. Gross margin in the fourth quarter came under pressure from several key areas. The most significant factor was the ERP transition, which resulted in an estimated $13.5 million volume impact and approximately $8.5 million in incremental cost and deleverage. We also faced additional headwinds from higher material costs due to unmitigated tariff costs and other inflationary pressures, particularly affecting our LIFO reserve. This was further compounded by roughly $4.5 million in other charges for the quarter, including inventory write-downs. These pressures were partially mitigated by positive contributions from price realization and favorable foreign exchange. Adjusted SG&A expense was $10.4 million lower in the quarter, primarily due to lower compensation-related costs. As a percentage of net sales, adjusted SG&A improved slightly to 27.3% from 27.4% in the prior year period. Moving on to full year results. For the full year 2025, consolidated net sales were $1,203.5 billion, a 6.5% decrease compared to the $1,286.7 billion in 2024. On a constant currency basis, organic sales declined 7.3% -- this decline was primarily driven by lower North American volumes, influenced by the lapping of the prior year's significant backlog reduction and softer industrial demand in the second half, alongside the late year impact of the ERP transition. Net sales in the Americas consequently decreased 10.9% or 10.5% on an organic basis. In contrast, net sales in EMEA increased 5.1%, benefiting from a favorable foreign currency exchange impact and modest organic growth of 0.5%, driven by price realization. The Asia Pacific region experienced a 3.5% decrease in net sales or 2.2% on an organic basis, predominantly due to pricing actions and softer underlying demand in China, Japan and South Korea, though partially offset by volume growth in Australia and India. Across all revenue components, service grew 4.7%. Parts and consumables were modestly higher, while equipment sales declined 11.6% year-over-year. These factors were partially offset by continued price realization, particularly in the Americas and EMEA. Adjusted EBITDA for the full year 2025 was $167.4 million, a decrease of $41.4 million from the prior year, primarily due to decreased operating performance in the fourth quarter. Adjusted EBITDA margin was 13.9% in 2025, a 230 basis point decrease from the prior year period. Full year 2025 gross margin decreased to 40.2%, a 250 basis point decline compared to 2024. The decline was primarily driven by lower volume and unfavorable mix. It also reflects the cumulative impact of the fourth quarter factors that I just discussed. Collectively, these significant headwinds more than offset the benefits derived from our pricing actions and our cost-out initiatives. Adjusted S&A expense of $330 million decreased $22.1 million from 2024, primarily due to lower compensation-related costs and by the impact of the cost reduction initiatives implemented at the beginning of the year, partially offset by the effect of foreign currency and increased bad debt expense. Adjusted S&A expense as a percentage of net sales increased 30 basis points to 27.7% in 2025, which was primarily due to net sales deleverage. Turning now to capital deployment. In 2025, Tennant generated $65 million in cash flow from operations compared to $89.7 million in 2024. The decrease was primarily driven by lower operating performance, increased ERP expenditures and higher working capital consumption. Despite these factors, we delivered $43.3 million in free cash flow, including the $59.1 million investment in the ERP project. Excluding these ERP-related cash flows, our performance translated into a 157% conversion of net income to free cash flow in 2025. Our liquidity remains strong with $106.4 million in cash and cash equivalents at the end of 2025, complemented by $374.3 million of unused borrowing capacity under our revolving credit facility. We remain committed to our disciplined capital allocation strategy, which balances strategic investments in our business with a strong focus on returning capital to shareholders. In 2025, we invested $21.7 million in capital expenditures to support our operational needs. Most notably, we returned a substantial $110.4 million to our shareholders. This includes $21.9 million in dividends and a significant $88.5 million in share repurchases, representing approximately 6% of our outstanding stock. This aggressive share repurchase program underscores our commitment to enhancing shareholder value. Our net leverage ratio stands at 1x adjusted EBITDA, which is within our targeted range of 1 to 2x. We continue to evaluate and pursue M&A opportunities to enhance shareholder value. However, if there are no significant and imminent M&A opportunities, our priority is to return capital to shareholders through ongoing share repurchases and dividends. Moving to guidance. As we look ahead to 2026, we expect the overall macroeconomic backdrop and demand environment to remain broadly consistent with the conditions experienced in 2025. That being said, our guidance was formulated prior to last week's news regarding the Supreme Court's ruling on tariffs. As a result, we will need time to digest how the news may impact our contemplated guidance. We are confident in our ability to manage near-term uncertainties while also capitalizing on the opportunities ahead. As we have additional updates here to share, we will do so in due course. In North America, ERP-related operational challenges that arose in the fourth quarter of 2025 are expected to continue early in the year. As part of our recovery efforts, we conducted a comprehensive physical inventory that required a 2-week shutdown of our manufacturing and distribution facilities in early January, which will significantly affect first quarter sales and costs. Furthermore, we expect to operate below optimal efficiency as the new system stabilizes, leading to elevated costs and compressed margins, most notably in the first quarter. We project a return to a more normalized and efficient operating rhythm by midyear, underpinned by ongoing process refinement and productivity initiatives. At the same time, we expect continued gross margin pressure from the tariffs implemented during the second half of 2025. We have implemented targeted cost-out initiatives across both our supply chain and commercial pricing processes to help mitigate these impacts. Against this backdrop, we expect margin performance to improve gradually through the year, beginning with a first quarter that is generally aligned with the run rate levels we saw in the fourth quarter of 2025, followed by progressive expansion as operational momentum builds. For 2026, Tennant provides the following guidance. We project net sales to be in the range of $1.24 billion to $1.28 billion, reflecting organic sales growth of 3% to 6.5%. At the midpoint of this range, we anticipate sales growth will be driven by approximately 25% pricing actions and approximately 75% by volume increases. Notably, our volume forecast accounts for the first quarter impact from lost sales due to the physical inventory shutdown, which we expect to be partially offset by a drawdown of our existing backlog. We anticipate an increase in sales performance from the first half to the second half of the year, and we expect to see mid-single-digit growth in each of our geographies. We also expect our robotics and autonomous solutions to remain a source of momentum. For 2026, we project adjusted EBITDA in the range of $175 million to $190 million, with an adjusted EBITDA margin between 14.1% and 14.8%. This outlook is based on a year-over-year increase in net sales and an anticipated improvement in gross margin. The gross margin expansion is expected to result from a more normalized return to our favorable product mix, balancing industrial and commercial products with parts and consumables as well as an optimized customer mix. These factors, coupled with ongoing cost savings initiatives and strategic pricing actions are expected to drive profitability. Our guidance also reflects the full year impact of known tariffs at this time. Our guidance does include an increase in absolute spending for S&A and R&D and include flowing incremental resources towards accelerating our robotics growth and advancing other critical strategic initiatives. We anticipate that S&A and R&D as a percentage of sales will be comparable to 2025 percentages. Additionally, we are guiding to an adjusted EPS of $4.70 to $5.30 per diluted share, excluding ERP project costs and amortization expense. This projected year-over-year increase reflects improved operating performance, which we anticipate will be partially offset by higher interest costs and an increase in our effective tax rate. We expect our adjusted effective tax rate to be between 24% and 29%, also excluding ERP project costs and amortization expense. With that, I will turn the call back to Dave. David Huml: Thank you, Fay. Before we move into Q&A, I want to close with a simple message. This quarter clearly reflected the impact of the North America ERP transition, but our teams responded with urgency, discipline and a clear commitment to our customers. Because of this, we've stabilized the most critical issues, and we believe we have a defined path back to normal operating rhythm as we move through the first half of 2026. At the same time, the underlying fundamentals of our business remain strong. Our global teams delivered solid execution throughout 2025. Our balance sheet is healthy and the momentum in our autonomous and robotics portfolio continues to build. These strengths, combined with the disciplined capital deployment and focused operational recovery, give us confidence in delivering our 2026 outlook. We are fully committed to strengthening our operational foundation and advancing the strategic initiatives that support growth and shareholder value creation. I'm proud of the resilience of our team, grateful for the continued partnership of our customers and confident in the opportunities ahead. With that, we'll open the call to questions. Operator, please go ahead. Operator: [Operator Instructions] And our first question comes from the line of Tom Hayes with ROTH Capital. Thomas Hayes: Dave, I just want to -- I guess, first, I appreciate all the color on the ERP system implementation. Maybe I just wanted to circle back on 2 questions. One, you didn't want to put words in your mouth, but would you call the system stable these days as we're kind of moving into the end of February, March time period? David Huml: I appreciate the question, and we did strive for transparency in our comments to make sure that everyone was well informed about what we've been through in Q4 and probably put a bit more color on Q1 than we normally would, given the impact of the ERP transition. We're stable in terms of our big 5 processes. As a manufacturing business, we've got to be able to book orders, build, ship, invoice and collect. And we are capable of transacting across that range of capabilities. What we are working through now is, I would call, the remnants of stability and efficiency, being able to operate at efficiency and our people getting used to using the new system. So in comparison to what we experienced in the first 3 weeks of November, where we were unable to enter orders in the system, yes, Tom, I would say we are far more stable. Thomas Hayes: Okay. And then, Fay, I think you mentioned of the $30 million impact to sales in the November time frame or fourth quarter time frame, roughly half of that you guys view as unrecoverable? Fay West: Yes. We -- and these are estimates and what we consider. So we've got about $15 million of that in backlog. And the other $15 million, we -- it was roughly 1/3 of that $30 million was parts, consumables and service. And so we think that, that is a difficult business to regain and to recover. So we think that, that's the primary driver of lost revenue in Q4. Thomas Hayes: Okay. Maybe shifting gears a little bit. I think it's really pretty interesting, Dave, I was hoping to get a little bit more color on the Robotics group and maybe what are some of the FY '26 objectives for that group? Because I think like you said at your closing remarks, there's a lot of momentum in that area right now. David Huml: Yes. Thanks, Tom. We're really excited about it. Obviously, it's a difficult time for us from an ERP perspective, but we have continued attention and focus on growing the business and specifically in robotics, not everyone in the company is tied up, although everyone is impacted in some way, not everyone is tied up trying to solve for the ERP challenges. Really excited about the TNC Robotics venture that we've stood up. We think there's a moment in time now. I should preface my remarks, we're really proud, and I'm proud of the business that the team has built in robotics to date. So this is not a replacement, frankly, we've been doing. This is an acceleration of our efforts. Since we started this business, 2019, 2020, we've sold to hundreds of customers globally, 10,000 units deployed. We've spent a lot of airtime on these earnings calls talking about our new products, our Gen 3 software technology, our relationship with Brain and exclusivity agreement. So I won't rehash those here, but I think we've got a really great foundation to build upon. And so when we looked at the outlook for robotics, we finished the year in '25 at $85 million in profitable robotics business as a company. And we looked at the market, which is growing. The underpinnings of that growth, the persistent labor challenges, cost of labor and availability of labor, we thought that continues to provide a tailwind for us on a global basis. We're getting really strong demand signals for robotics from an interest and demand generation perspective. And as we assess the market, we see that there's a number of new entrants that are robotics-only players from Asia and elsewhere. And these players are very fast. They're very agile. They're only selling robotics. They're gaining some positions in some distribution, and we're starting to see them be in the consideration set of our customers. And so we saw this as both an opportunity and maybe a potential threat from these upstart competitors. So we talked about it kind of early part of last year, midpoint in the year, we decided in concert with our Board to make a bold move to make a step change investment and face off differentially to accelerate our growth in robotics. So the TNC Robotics group is stood up to accelerate the efforts of our core business. And when I think about having a group of dedicated people across product management, R&D engineering, marketing, demand generation, sales and deployment specialists, coupled with the core legacy Tennant strength in sales, decades-long customer relationships, the industry's largest factory direct service organization, I think it makes a really formidable combination. And so -- what the group will be focused on over the 2026 and in pursuit of our aspiration of $250 million in sales in 2028. We'll be focused on accelerating our NPD road map. We had a 4- or 5-year road map of what we wanted for products in the robotic space. This team through additional resourcing as well as investment is going to bring those products in and get those products to market faster. That will allow us to reach more customers in more distinct vertical markets with our robotic solutions in a broader range of applications. We're also going to work on improving our adoption efficiency so that we can get to -- so we can spend less time deploying robots and have our customers self-deploy to the extent possible and still have a fantastic experience. The quicker we can get the robots adopted at scale, the quicker the customers can start to realize our ROI and the quicker we can redeploy our sales and deployment resources onto the next customer. So working on demonstration efficiency, onboarding and adoption efficiency, both through software and also through our processes. And we'll also work on making sure we can demonstrate an ROI to our end-use customers through the data we can pull off the machines and demonstrate that we're hitting on the KPIs that are most important to our end-use customer. And last but not least, capturing and generating demand, just getting in front of more customers with our solution. We've been -- we've done a good job penetrating sort of large-scale customers that we sell on a strategic account and direct basis. We've got more opportunity through distribution channels and smaller customers in each of the vertical markets we serve as well as some adjacent vertical markets. So demand generation is one of the near-term goals for the TNC Robotics venture as well. Really excited about it. We think it can be a significant growth contributor for us. And I look at it as an opportunity to disrupt our own business. And so the fact that we already have a fantastic embedded business in non-robotics equipment, we are the rightful company to come out and disrupt this industry. Thomas Hayes: Okay. I appreciate the color. Maybe if I could sneak one follow-up question in. Fay, on your commentary on the guidance, I appreciate all the color. I'm still kind of going through my notes. But I was just wondering your comment on the gross margin for Q1, you said it's going to be roughly equal to the Q4 gross margin. I was just wondering how you're kind of thinking about that progressing through the year? And do you expect -- I haven't gone through the numbers, but do you expect overall gross margin growth year-over-year in '26? Fay West: We do. So we think that there's going to be kind of gross margin performance in Q1 of 2026 comparable to what we saw in Q4 of 2025. And that's mostly due to the physical inventory and the shutdown in the plant and the distribution centers were offline. And so the ramp-up time and the cost required to get to full production is really going to put pressure on the first quarter gross margin. We do anticipate seeing gross margin growth in sequentially. And overall, we think we're going to see kind of year-over-year gross margin expansion, which will drive the EBITDA margin expansion year-over-year as well. Operator: And our next question comes from the line of Aaron Reed with Northcoast Research. Aaron Reed: So I just kind of wanted to follow up a little bit more about the AMR because, again, that's the part that is always, at least for us, the exciting part of things. So you mentioned that AMR costs are starting to fall. And previously, the margin on AMR units was the same as traditional units. So how much have AMR margins improved versus the traditional units? David Huml: Thanks for the question, Aaron. So when we talk about costs in robotics, it's really more of a broad statement about the technologies that enable robotics. So when you think about LiDAR and high-def cameras, because those technologies are being more broadly adopted across other applications outside of cleaning, over time, we're able to take advantage of lower cost of components, us and our competitors, which makes -- which allows us to offer robots at a more competitive price. And let's be clear, in this robotics space, our charter, our objective is to go gain unit share. And so we need to watch margins. We need to be cognizant of margins because we -- especially if we're cannibalizing ourselves. But given the rapid growth in this marketplace, we need to be outgrowing unit share right now and making sure that we're competitively priced in the marketplace. So my comment on cost really has to do more with the unique componentry that goes into enabling robotics, and we see those continue to come down the cost curve. It's not by leaps and bounds. And candidly, at our volumes, we're not a major player yet where we can leverage our volumes, but there are some volume breaks that as we grow our business, we can take advantage of. The benefit to us will be being able to offer robots to more customers at more competitive prices, which gives them the ability to get an even better ROI on the investment. Aaron Reed: Are you seeing any pricing pressure then from some of those newer competitors coming in at all then? David Huml: Yes. Great question. We are seeing pricing pressure from our competitors, all of our competitors, but I would say, especially the upstart entrance robotics-only competitors. These are brand-new upstart companies. They don't have an embedded business they're trying to protect. They're trying to go out and grow unit volumes so they can presumably get to profitability. So they're in a very different starting position than us. Given that pricing pressure, that's another one of the reasons we decided to stand up the TNC Robotics venture, so that we have a group of people inside the company that are thinking, planning, acting more entrepreneurially and going after the market as it exists today, acknowledging the reality of those robotics-only competitors and making sure that our value proposition is at a commandable premium to them. We do think that our value prop product and our ecosystem support can command a premium, but there's a limit to that premium. And so one of the first things that the robotics group is working on is making sure that we're competitively priced in the marketplace as well as have a competitive offering of solutions as well as product. Aaron Reed: That makes sense. And then one more question here, and then I'll pass it off. Just switching back to your guidance. So your guidance on '26 reflects like a mid-single-digit growth and an EBITDA margin expansion in line with that of your long-term goals. So taking a step back, how should we think about the first part of '26, especially in the first quarter? Fay West: Yes. So I think we'll see -- it's almost going to be like a tale of 2 halves. And I think I mentioned just previously and in the prepared remarks that Q1 will be impacted by the shutdown of the facilities for the physical inventory and the ramp-up. And so we're going to see an impact on sales, and impact on margin. The margin is not recoverable long term, but the sales will be recoverable within the year. So that's really just kind of from a timing perspective. We are going to slowly see kind of a ramp-up in Q2. And I think when you look at the first half versus the second half, we'll see significant improvement in the second half as we work through the kinks and stabilize the system and increase our efficiency and have the physical inventory and the impacts of that behind us. So we'll see improvement throughout Q2, but really a ramp-up in Q3 and Q4. Operator: [Operator Instructions] And our next question comes from the line of Steve Ferazani with Sidoti. Steve Ferazani: Appreciate all the detail on the call. I got to ask a couple of difficult questions. As you had imagine, Dave, I apologize for it ahead of time. But in terms of disclosing what were clearly issues that were going to be material to your results. Obviously, you knew probably within by early December. It's now late February. What was the decision process in terms of not disclosing some of these issues earlier to shareholders? David Huml: Thanks for the question, Steve. We knew we had challenges. We were still in triage mode to understand what the magnitude of the challenges were and whether or not we're going to be in a position to recover some or all of it as we came through the year and ultimately, as we closed the books, which included our physical inventory in the first 2 weeks of January. You can imagine when you are unable to -- when we were unable to book orders for 3 weeks in November, when you can't book orders, you can't build, ship, invoice, collect, -- you also can't supply dates to customers on when they can expect to get their product. And so as we unlocked the challenge in getting orders into the system, we dumped not only the cutover orders from pre-go-live, but also 3 weeks' worth of orders that had come in. We dumped those into the system and had to reconcile who was going to get the limited production we were going to have in December and allocate the output across the customer base. So it was anything -- it was not like turning on a light switch and getting -- kind of getting back to business as usual. We really didn't have any sense for if we could recover, how much could we recover, what it would look like as we were scrambling to satisfy customers coming through December. Having said that, from Thanksgiving through the end of the year, we threw every lever forward we could. And I think you see that reflected in our cost of the revenue we generated in December in the quarter. We were inefficient. We had overtime. We ran multiple shifts and overtime. We're expediting freight. We were doing everything we could to -- with the goal of satisfying customers and reducing the customer frustration level that we had created with our challenge in the first 3 weeks of November. So yes, we knew we were having challenges, being able to estimate and quantify what the impact of those challenges would be and what the implications. We really didn't know that until we got through with the close. And so by that point, we were very close to our earnings release date. And so as soon as we knew you knew. Steve Ferazani: Okay. Fair enough. Obviously, you're not the first company that has had these ERP implementation issues. The concern becomes when you couldn't book orders for 3 weeks, permanent customer loss because you're still guiding for 3% to 6.5% revenue growth next year. Do you have a sense, and I'm sure it's too early about the potential for permanent customer loss that might damage that growth rate? And more specifically, obviously, I'm thinking about your larger direct customers. Have you been able to survey, get any feedback? -- have any sense on that, right? Because that would seem to me to be the downside risk. David Huml: Yes, it's a great question. It's one top of mind for me and us. Obviously, as we come through this experience over Q4 and now starting Q1, throughout this journey, our customers showed an amazing amount of patience with us. We communicated the original go-live early. They knew it was coming. I think they showed us a tremendous amount of patience and grace coming through kind of the first week. By second week, they had concerns. And by third week, we frustrated them, not only with our lack of ability to deliver, but our lack of ability to provide dates. So in response to that, in addition to everything we did internally to try to right the ship and get the system stable and get the orders in and build and produce. In addition to that, we've drawn very close to our customers. We've been very transparent and open with them, large customers and small customers to make sure that we understand their priorities and needs. They understand not only that we regret that happened, but what can we do to try to get them through this period and back on track. Largely speaking, we're still in contact with all of our customers where we've lost business, it's customers and distributors that told us we were going to lose it. It was a customer needed a machine and we just couldn't physically get it produced or there were some parts we couldn't get parts out and they had an alternative source for them. So I think we're aware of where we took the -- where we lost the sales in Q4. Similarly, as we came through kind of our Q1 January experience, we're close to customers, and I think we understand where that leakage has been. We have work to do. And I'm -- the customers are still talking to us and telling us what their needs are and maybe expressing frustration by working with us as we dig out of the hole. I'm very concerned about them. I'm less concerned about them than -- than a customer that just walked, right, and just said, "Hey, I'm frustrated and I'm moving on." The vast majority of our customers are certainly the largest are in that first camp, where they're frustrated. We're working with them. In some cases, we're on a daily reporting of their orders and their orders in process and their shipments to let them know how we're getting back on track. We have made significant progress coming through December. And then another -- we took another step back, I'll say, with the physical inventory from a customer perspective, and we made progress since that physical inventory. When I look at just the raw output at a macro level, we're trending positively since the physical inventory. We're projecting to be above water kind of back at output rates as we exit the quarter, mostly in February. We also have to work down the backlog. And so even though we're operating and the output is at target, we still have to work down the backlog. And my sense is -- our customers are not going to be ready to listen to us about recovery until they can feel it and they've got their back order product in hand. Then we will make a concerted effort to get back with our customers, understand how we begin to rebuild trust. But the biggest thing we can do is start performing so that they can rely on us to predictably deliver the way they have for the past years and in some cases, decades. So having said that, I think Fay commented earlier, there are some of these sales that we think are just gone. Certainly, some of the sales we couldn't recover in 2025 from the November experience. But if you open the aperture and look at a 2-year period, the lost sales are reflected in our guidance. So you can see that we still think we can gain back and claw back our rightful share of the market and rebuild the trust that we lost with customers. Steve Ferazani: That's really helpful, Dave. I appreciate that. David Huml: I'm sorry, just another point I make... Steve Ferazani: Go ahead... David Huml: When you think about customer frustration, it's not directly correlated to the size of the revenue in a particular order. What I mean by that is if a customer is going to order a $40,000 or $50,000 or $60,000 piece of equipment from us, an industrial piece of equipment, that has a 4- to 8-week lead time. So when they put the order in November and we gave them a 4 that became a 6 or a 4 that became an 8, they're not happy with it, and I get that, but they buy a piece of equipment every 4, 5, 6 years. That is a bit easier conversation than a customer that has a machine down and needs a repair part today. So in the first case, we're dealing with a $50,000, $60,000 piece of equipment and that revenue. In the second case, we may be dealing with a $100 parts order, but the machine is down and they need it today because they get the machine running. It's a different sense of urgency and frustration. So the customer frustration doesn't correlate exactly to revenue, is my point. Steve Ferazani: That's fair. That's helpful. Looking at your balance sheet, you noted net leverage is still despite the operational issues, you still came out of the year 1x net leverage. You talked about -- you've used the buyback a little bit. But in terms of looking at the stock price today, it seems like if you're going to work through these issues and you seem to have confidence based on your guidance, it seems like there's an obvious best return of investment case here. How are you thinking about the buyback? David Huml: Yes. Well, I think we exercised our authorization quite aggressively last year. We took down 1.1 million shares for $88 million, 6% of shares outstanding at the time. So although our leverage remained low, I think we exercised the authorization, and I'm pleased with how we action share buybacks. And we bought back shares last year because, one, the price was attractive at the time versus our view of value of the intrinsic value of the company and the stock in line with our capital allocation priorities. And so we -- as we've said before on publicly, as we look out next quarter, 2 quarters, if we don't have a strategic M&A opportunity upsize that's imminent and the stock is at an attractive price, then we're going to participate in buybacks. We'll continue that stance. We are staged to continue that stance into 2026, and we'll be equally as aggressive. We've stated that we want to keep our leverage within that 1x to 2x. So don't be surprised if we start flexing that here, especially if the stock reacts negatively to our ERP challenges, and that presents a greater buying opportunity for us. We think it's a great value creation opportunity for us. We're not really in the business of timing the market. But consistent with our capital allocation prioritization, we'll have a plan in place. Steve Ferazani: Great. That's helpful. I get one more in, there were some filings recently around the change to your Board structure composition. Can you comment about those filings? David Huml: Yes, I'd be happy to. I think we reinforced, we -- as a Board and the management team and I, we are really very open-minded about value creation opportunities for this business. So we engage -- we routinely engage investors and analysts alike on their ideas for value creation from our business, and we thoughtfully consider those as they are opposed and we discuss them and we digest them as a leadership team and a Board and decide which ones make sense and analyze the pros and cons and move forward. We have been engaged with Vision One since they moved into -- took a position of our stock late in 2024. We've had a series -- more recently, we had a series of very constructive conversations with the principles of Vision One, myself and our Chairman of the Board and some of our Board members as well. The Vision One constructive conversation really centered primarily around Board topics, Board composition, Board governance. And so in addition to our robust existing Board governance processes, including Board refreshments and our skills assessments and our director assessments, in addition to that, we entertained their comments and thoughts about composition and governance in a very thoughtful manner. And the output of that conversation is we've landed 2 new great directors on our Board, one of which was nominated by Tennant Company, that's Jim Glerum. Patrick Allen was nominated by Vision One and vetted by the company. We think we've added a significant skill sets to our Board, and we're pleased to have Jim and Patrick on board. You probably saw a cooperation agreement that has some fairly customary clauses in it, including a standstill, some Board assignments for the new -- or excuse me, some committee assignments for the new directors, and we've committed to move away from a staggered Board starting in 2027 or at least make the proposal to move away from a staggered Board. So I would say these 2 new Board directors, welcome to Jim and Patrick. I'm sure they're on the line. I talked to them just last night, and they're excited to be part of the Tennant organization and Board of Directors. And we're moving forward. It was a constructive set of conversations, and we're really focused on creating maximum value for the business in any way possible as we go forward. Operator: And with no further questions at this time, I would like to turn the call back over to management for closing remarks. David Huml: Thank you. If you'd like to learn more about Tennant, we will be participating in the following conferences, the Sidoti Virtual Small Cap Conference on March 19 and the 38th Annual ROTH Conference in California on March 23. Thank you all for your continued interest in our company. This concludes our earnings call. Hope you have a great day. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Fulcrum Therapeutics conference call to discuss 12-week data from the 20-milligram cohort of the Phase 1b PIONEER trial of pociridir in sickle cell disease. [Operator Instructions] This call is being webcast live and can be accessed on the Investors section of Fulcrum's website at www.fulcrumtx.com, where a replay will be available. I'll now turn the call over to Alex Sapir, CEO and President of Fulcrum Therapeutics. Alexander Sapir: That's great. Thanks so much, Gigi, and good morning, everybody, and thank you all for joining us on the call. So, for those of you who know this management team well, you know we are not ones to use superlatives all that often. But this morning, we are very, very excited to share with you the full 12-week data from the 20-milligram cohort of the Phase 1b PIONEER trial, building off of the strong data that we presented at ASH in December of last year. This data set has been years in the making, and we simply could not be more pleased to share it with you this morning because of the potential that it has to help many sickle cell patients around the world. So before we jump in, I do just want to remind everybody that today's presentation does include forward-looking statements, which are based on current expectations and subject to risks and uncertainties. Actual results may differ materially, and we encourage you to review the full disclaimer on this slide, together with the risk factors in Fulcrum's most recent filings with the FCC. I'd like to start by welcoming our guest speaker today. We're very fortunate to be joined by Dr. Martin Steinberg, who is also with us when we presented the interim data at ASH last December. Dr. Steinberg is a Professor of Medicine, Pediatrics, Pathology, and Laboratory Medicine at Boston University School of Medicine. It is his pioneering work that has helped shape much of our modern understanding of sickle cell disease biology and clinical care. Thank you for joining us this morning, Dr. Steinberg. Unknown Executive: Welcome. Alexander Sapir: Thank you. I'm also joined by Iain Fraser, our Head of Clinical Development;, and Alan Musso, our CFO. Many of you know Alan and Iain quite well. So here's the agenda for the call. I will provide some brief introductory remarks. Iain will then quickly provide an overview of sickle cell disease and the clinical relevance of HbF, and then take us through the clinical data from the 20-milligram cohort in some detail. Next, we'll turn to Dr. Steinberg for his expert perspective on the clinical data and what this means for his patients and for the field in general. And then lastly, we'll open it up for Q&A. So let me start with a high-level takeaway of the data that Iain will walk through in just a couple of minutes. With 20 milligrams of pociredir dosed over a 12-week period, we are seeing rapid and robust HbF induction with a 12.2 mean absolute increase beginning from a baseline of 7.1% and ending at 19.3% at week 12. Importantly, more than half of the patients achieved HbF levels at or above 20%, a threshold historically associated with clinically meaningful protection. We're also seeing progression towards pancellularity alongside reductions in key markers of hemolysis, resulting in a greater than 1 gram per deciliter increase in total hemoglobin after only 12 weeks of treatment. At the same time, we continue to observe encouraging trends in vaso-occlusive crisis reduction over the 12-week treatment period, with 7 of these 12 severe SCD patients reporting no VOCs. And finally, pociredir continues to be generally well tolerated at this higher dose. Taken together, the 20-milligram data reinforce our belief that pociriedir is demonstrating the biological profile we would expect from a best-in-class oral HbF inducer for sickle cell disease. And so with that brief overview of the data, I'll now turn it over to Iain to walk through the data in some more detail. Iain, I'll kick it over to you. Iain Fraser: Thanks, Alex. This slide, which is familiar to you all on the call today, is a reminder that sickle cell disease is a debilitating, life-threatening condition that affects millions of individuals globally. Importantly, there remains a very significant unmet medical need. In spite of advances in clinical care, mortality rates remain elevated, and overall life expectancy is reduced. Similarly, the next slide you have seen before, again, just to emphasize that fetal hemoglobin or HbF has long been identified as an important modulator of disease severity in sickle cell disease. As HbF levels increase, the number of VOCs reported by patients on an annual basis decreases, and even modest increases in HbF have been associated with reductions in the frequency of these VOCs. We turn now to the PIONEER study 20-milligram cohort itself. This is the overview of the trial design. And today, we're providing an update to the partial cohort data that was previously presented at ASH in December of 2025. We'll be discussing today the full 12-week treatment period from the 20-milligram dose cohort, which represents a data cutoff of December 23, 2025. The main highlight that I want to mention here, as we move into the data itself, is that on the bottom left, the inclusion criteria for these patients indicate a very high degree of disease severity in the sickle cell disease patient population. Moving to the disposition of patients across the study. There were 13 patients enrolled. There are 12 evaluable patients in the pharmacodynamic analysis subset. We had previously disclosed discontinuation due to a death on day 1 of the study for one of the individuals. This was deemed unrelated to the study drug. The main feature that we'll be discussing today is that we have data now for the full 12-week treatment period. At the time of the ASH presentation, we had full data for the cohort only through week 6 of treatment. Going to the next slide, the baseline characteristics. Since this is the baseline, this is exactly the same as we presented at ASH. Again, you'll see that the cohorts of 12 and 20 milligrams are quite well matched. There were fewer males in the 20-milligram cohort than in the 12-milligram cohort. And as we previously discussed in the 20-milligram cohort, there are fewer patients from South Africa, just one patient, and there are now patients from Nigeria who were not enrolled in the 12-milligram cohort. We just focused briefly on the baseline fetal hemoglobin. The 12-milligram cohort came in at 7.6% baseline. The 20-milligram cohort was similar, but slightly lower at 7.1%. Similarly, baseline hemoglobin, 7.8 in the 12-milligram cohort versus slightly lower at 7.3 grams per deciliter in the 20-milligram cohort. And then lastly, baseline VOCs represent a slightly more severely impacted patient population at 20 milligrams. Go to the next slide. This shows the increase in fetal hemoglobin that occurred across the 12-week treatment period. On the left-hand side of the slide, you will see that the increase in the 20-milligram cohort was from a baseline of 7.1% to a 12-week mean of 19.3%, which represents a delta of 12.2% for the entire cohort over the 12-week period. I do want to highlight that, for the 20-milligram cohort, unlike the 12-milligram cohort, there were no transfusions in patients in this particular cohort. We turn now to the patient-level slide. This shows each individual patient in the cohort, stacked by their increase in HbF across the 12-week treatment period. What you will see here is that all 12 patients showed substantial increases in HbF and that 7 of the 12 patients, or 58%, achieved at least a 20% absolute level of HbF at the time of the 12-week cutoff. All patients in the 20-milligram cohort showed an increase of at least 6.5%. Turning now to the F cells at the 20-milligram cohort, what we see is a doubling of the F cells from a baseline of around 31% to a 12-week percentage of 63%. I do want to make an important comment about the time point from week 10 to week 12 and the dip that we are seeing there is a factor of the fact that not all patients are represented at every time point and that two patients who were represented at week 10 with relatively high F-cell percentages of 63% and 57% who were not represented at the 12-week time point and I think that likely accounts for the dip that you're seeing there, but nonetheless, all patients responded in terms of an increase in their F-cell percentage, and overall, we see at least a doubling over the 12-week treatment period. We then move on to other markers that are associated with the increase in HbF in these patients and what we're seeing here on this slide are markers of hemolysis: LDH on the left and indirect bilirubin on the right. You'll see a 34% reduction in LDH and a 40% reduction in indirect bilirubin at week 12. This is consistent with the reduced hemolysis that is occurring in these cells as a result of the increase in HbF. I do want to comment here that the 20-milligram cohort did have slightly higher baselines for both markers, again reflecting the slightly increased severity of the 20-milligram cohort versus the 12-milligram cohort. The next slide looks at markers of erythropoiesis and red cell morphology. What you see at the 20-milligram cohort is a 42% drop in reticulocytes. We will see the increase in hemoglobin on the next slide. The reduction in reticulocytes reflects a reduction in the bone marrow stress that is caused by hemolysis. As hemolysis decreases, there is less stress on the bone marrow, and the reticulocytes decrease accordingly. We also see on the right that the RDW, which is a measure of the heterogeneity of red cell size, is essentially normalizing, which is what we saw in the 12-milligram cohort, which indicates a more uniform red blood cell population. Then as mentioned before, if we look at total hemoglobin, we see here that at 20-milligram cohort at week 12, we are seeing a 1.1 gram per deciliter mean rise in total hemoglobin versus 0.9, 12-milligram cohort. On the left, you see that the absolute value was lower for the 20-milligram cohort, again reflecting the severity -- increased severity of that 20-milligram cohort population, but you can see the rise that occurs over the 12-week treatment period. And again, I would emphasize that in the 20-milligram cohort, unlike the 12-milligram cohort, there were no patients with transfusions during the treatment period. Turning now to the VOCs, or acute events, we have indicated this before. We capture baseline VOCs as part of the [inclusion] [indiscernible]. What we are seeing here is that 7 of the 12 patients in the PD analysis subset had no VOCs at all during the treatment period, despite having a high level of baseline VOCs coming into the study. Study is not powered for VOCs, but this trend is obviously encouraging, and we observed this trend in the 12-milligram cohort. The expected VOCs based on the baseline VOCs reported by these patients was in expectation 16 events over 12 weeks, and we observed 6 in 5 patients during the treatment period. Turning now to safety, pociredir at the 20-milligram dose continues to be generally well tolerated, with no treatment-related serious adverse events. Overall, the pociredir safety profile similar to that described in the December 2025 presentation. There were three patients with treatment-related adverse events. All of these resolved with continued dosing of pociredir, and we have mentioned some of the details of these patients previously. Again, we will note that with the updated 20-milligram cohort, there have been no discontinuations due to treatment-related adverse events. The next slide looks at the 12-milligram and the 20-milligram cohort next to each other. I think at a very high level, the adverse event profile that we see is consistent with what you would expect in a severely impacted sickle cell disease patient population. There have been no dose-limiting toxicities and no treatment-related discontinuations. An overall, pociredir has been dosed in almost 150 adults to date. And then just to wrap it up, I would like to take a step back and evaluate the totality of the data that we presented today as we move left to right across this slide. What I would emphasize is that what we are seeing at the 20-milligram dose is not really a collection of isolated data points, but rather it reflects an expected biologically relevant cascade of events that you would expect with a drug that increases fetal hemoglobin. So we start with a robust induction of HbF on the far left, reaching a mean of 19.3% at week 12, and with more than half of the patients achieving an HbF level of 20% or higher. As HbF rises across a broader population of red cells, we expect there to be more of the red cells protected as a result of now having fetal hemoglobin within them and that is what we see as we see markers of hemolysis reduce. With less hemolysis, we also see a normalization of erythropoiesis and improvements of anemia with approximately a 1 gram per deciliter increase in total hemoglobin. And ultimately, while exploratory, the VOC trends that we've observed to date in this relatively short-term study are consistent with this overall biological framework. So importantly, the clinical signals that we're seeing align very nicely with the mechanism of action of induction of HbF and on the biology of sickle cell disease. With that, I'd now like to turn the call over to Dr. Steinberg to provide his expert perspective on the clinical data for pociredir and its potential for treating sickle cell disease. Dr. Steinberg? Unknown Executive: Yes. Thank you very much, Iain, for presenting these data. So I think generally, all experts in the field believe that enough fetal hemoglobin in most sickle cells can cure or greatly ameliorate the phenotype of sickle cell disease. So gene therapy could do this, but for many reasons, of course, it's ineffective because it can't reach a population of patients and it's unlikely to do so for a very long time, if ever. So the major unmet need for treating sickle cell disease and other beta hemoglobinopathies is an orally available agent that will induce high levels of fetal hemoglobin. I think these results are very impressive because they suggest strongly that this drug will be efficacious and decrease both acute vaso-occlusive events and the hemolytic anemia of sickle cell disease. So the standard of care now in sickle cell disease is hydroxyurea, which has started before the end of the first year of life with excellent results at least in very youngest patients. I think it's useful to compare the results that Iain suggested with the multicenter study of hydroxyurea trial. Hydroxyurea, of course, the standard of care. And the trial is one of the few studies where the drug was administered under controlled conditions. And this is the trial that led to FDA approval of hydroxyurea. And at the end of the study, in all 150 patients, fetal hemoglobin increased to about 10% with about 35% F cells. And this was in the totality of the patients. And the reason for this, of course, is that the patients responded differentially to hydroxyurea. Now the whole group had about 0.5 gram increase in fetal -- in total hemoglobin and the acute sickle cell-related vaso-occlusive events decreased by about 50%. Then the pociredir study at 12 weeks, fetal hemoglobin was about 20% F cells, a little bit more than 60%. If you look at the MSH study, and divide the people into quartiles, this is about equal to the highest quartile of hydroxyurea treated patients in the MSH after 12 weeks. So in this top quartile of responders, which is the most stringent comparative for the pociredir trial, they had about 20% F and about 60% F cells. Of course, over time, the amount of F cells increased because they continued to get the drug and F cells have a preferential survival. And these results are similar to the 20-milligram cohort. Now the thing to remember is the 2 lowest quartiles of the MSH trial had little long-term increment in fetal hemoglobin. Now I think the key difference between these trials is in the MSH trial, the mean corpuscular volume and mean corpuscular hemoglobin increased by about 16% in these high fetal hemoglobin responders, whereas in the pociredir trial, they increased somewhere around 5%. And therefore, the importance is that similar mass fetal hemoglobin concentrations, the hemoglobin F per F cell in pociredir patients is higher. And I think this is critical because in our analysis of the cooperative study data and MSH databases, it's F -- the F cell that's associated with the reduction in acute vaso-occlusive events, less hemolysis and reduced mortality. In addition, the pociredir trial that Iain reported gave the results of all patients. And many of these patients are likely to have CAR haplotypes of sickle cell disease. And in the MSH trial, it was the absence of this haplotype that was associated with better fetal hemoglobin response. So I think the takeaway point is that if these results are replicated in late phase clinical trials. Pociredir could be used as a first-line stand-alone therapy. Now as its mechanism of action is different from hydroxyurea, it could also be part of a combination chemotherapy where there might be synergistic or additive effects. And I think its tendency towards pancellularity, which we're seeing to be especially useful as the increase in fetal hemoglobin caused by hydroxyurea is heterocellular, which is less efficacious than a pancellular distribution. So I'm excited by these results because of the possibilities that they will give us for additional fetal hemoglobin inducing agents, which at this moment in time is the way to impact the phenotype of sickle cell disease in a clinically important manner. Thank you. Alexander Sapir: That's great. Thank you so much, Dr. Steinberg. And I'm sure many of you will have questions for both Dr. Steinberg as well as Iain. So before we open it up for Q&A, I would just like to share why 2026 is such an important year for Fulcrum. So we'll be providing an update on the next trial design in Q2 of this year following receipt of FDA [meeting] minutes. And then pending that feedback from FDA, our current plan is to initiate a potential registration-enabling trial in the second half of 2026. We also plan to engage with the European Medicines Agency in mid-2026 to obtain protocol assistance and feedback on the design of the next trial. And finally, we're currently activating sites for an open-label extension study for PIONEER patients to evaluate the longer-term safety and durability of response of pociredir. And so with that -- with those brief comments as an overview, Gigi, let's go ahead and open up the call for questions. Operator: [Operator Instructions]. Our first question comes from the line of Joe Schwartz from Leerink Partners. Joseph Schwartz: Congrats on the excellent update today. The VOC data is pretty encouraging. I was wondering if you can give us any additional insight into when -- into which patients had VOCs and when during the study they occurred? Alexander Sapir: Yes. Joe, it's Alex. Thanks so much for that. Yes, let me turn that over to Iain to answer. Iain Fraser: Yes. Thanks, Joe. So the VOCs were spread throughout the treatment period. I think I do want to emphasize that this 12-week treatment period is relatively short. And throughout that period, we see increases in HbF so that these patients have not reached their steady state by any means during -- during the study. So it's not unexpected to have seen them throughout the treatment period. Having said that, there were more VOCs occurring in the patients who had lower increases in HbF, but we haven't revealed further details of individual patients there. Joseph Schwartz: Okay. That makes sense. And it's a good segue to my next question. Given the response to pociredir seems to depend somewhat on the underlying sample type, I was wondering if you have a sense of how well the 20-milligram cohort represents the population of sickle cell patients who might enroll in a Phase III as well as how well it represents the population of sickle cell patients who are living with the disease in the U.S. and other major markets? Alexander Sapir: Yes. Great question, Joe. Iain, do you want to take that one as well? Iain Fraser: Yes, absolutely. And you may recall from the 12-milligram cohort where we had a number of patients from South Africa who, in fact, turned out to have originated in the Democratic Republic of Congo, where we know epidemiologically, there's a very high prevalence of the CAR haplotype or the CAR allele that Dr. Steinberg referenced earlier. And we noted that 5 of those 6 patients in that cohort tended to have lower responses in their HbF. We have gone back and we're looking at haplotyping those to get the actual genetic data, but that was an epidemiologic observation. In the 20-milligram cohort, we had just the one patient from South Africa and enrolled more patients from Nigeria. Epidemiologically, we know that there's more heterogeneity across the haplotypes in Nigeria. And in some ways, that's more representative, I think, of the heterogeneity that you see within the U.S. We did not have any patients who were expected to be of the ArabIain IndIain haplotype, which is the opposite end from the CAR. So those are the ones with the highest baseline HbF and the best responses to HU. We do not expect that there were any of those patients enrolled here. And so I think the 20-milligram cohort likely represents a sort of middle slice, if you like. It's not over on the low end and it doesn't [indiscernible] high end. So I think 20-milligram likely more representative of the sort of global population. Joseph Schwartz: Very helpful. Thank you. Alexander Sapir: Thanks Joe, Gigi next question. Operator: Our next question comes from the line of Anupam Rama from JPMorgan. Anupam Rama: Hi guys. Congrats on the update. When you look at the totality of the biomarker updates, which ones would you highlight that would take a little bit more time, let's say, beyond 12 weeks to kind of show a clear dose response and then sort of an increased depth of effect? Alexander Sapir: Yes. Great question, Anupam. And I think in terms of the biomarkers, maybe, Iain, I'll turn this over to you, but maybe I think just focus specifically on some of those biomarkers that look at the markers of hemolysis. Iain Fraser: Yes, absolutely. Thanks, Anupam. I think that's a really important question. HbF induction is the primary mechanism of action here, and that's the sort of proximal effect and we capture that as we measure the HbF increasing in these cells. As HbF increases in cells and there are more cells in the circulation that have increased levels of HbF, those cells are relatively protected against hemolysis, their lifespan increases. And so the population changes over time. Some of the more immediate effects include the reduction in hemolysis, which are reflected by the LDH and the bilirubin. And those are sort of more immediately downstream, if you like, from the HbF, and we see those markers coming down. Importantly, there are other sources of those particular markers. LDH, of course, associated with tissue damage as well. And so that might have an impact on how those particular markers move and the bilirubin impacted by the liver function in addition to the hemolysis. So I think those are 2 comments there. As we look at some of the other markers, essentially a normalization of the RDW, which I think is encouraging that goes down to levels that are more or less normal. And then with the reticulocytes, you see them coming down quite dramatically. They don't reach baseline levels. And if you look even at the successful gene therapy patients, even out to, I think, about 2 or 3 years after that gene therapy, those reticulocytes don't normalize completely to baseline. So there might be something about the biology there. And then lastly, with the total hemoglobin, that sort of -- view that as the end of the cascade, if you like, and that needing to reflect increased populations of cells with fetal hemoglobin in the circulation, greater protection and allowing it to reach a new steady state. And so I think those are all expected to be lagging indicators behind the HbF. They may take longer to see the full manifestations of the effect. Anupam Rama: Thanks so much for taking the question and congrats again. Alexander Sapir: Thanks Anupam, Gigi next question. Operator: Our next question comes from the line of Kristen Kluska from Cantor Fitzgerald. Kristen Kluska: Hey, good morning, I'll also add my congratulations on these data. So I had a couple of regulatory questions. I guess, first and foremost, now that the Fulcrum team has seen the full data set here, I'm curious how you're going to approach your meeting with the agency in terms of what you're going to ask for on your wish list? And then for a registrational trial, how do you think about wanting to expand the TAM as much as possible, but also keeping a good balance of the patients that you do enroll to ensure that the trial is successful, just given some of the recent unfortunate failures we've seen in the space? Alexander Sapir: Yes. It's a great question. Maybe, Iain, if you want to talk about the first one, and then I'm happy to cover the second one. Iain Fraser: Yes. Yes. Thanks, Kristen, for the question. Based on the strength and the consistency of the data that we've generated to date, with the robust induction of HbF and this progression towards a broader pancellular distribution along with the improvements of biomarkers of hemolysis and anemia, we really think that it's appropriate to advance into a study with the potential to be registration enabling. And that will certainly be a topic for our discussion with the FDA at the end of Phase meeting. Of course, there is substantial published literature that demonstrates an association between higher HbF levels and improved clinical outcomes in sickle cell disease. And that biological relationship is obviously a key part of the underlying rationale for our program. And of course, whether HbF could play a role in an accelerated approval framework will ultimately be a regulatory determination, but we very much look forward to discussing the totality of the PIONEER data set with the FDA in order to understand their perspective on the appropriate path forward. Alexander Sapir: And then, Kristen, in terms of -- in terms of the TAM, I think from a regulatory standpoint and from a probability of clinical success standpoint, I think certainly studying a more severe patient population like we have here helps from not only a powering standpoint, but also helps from a probability of clinical success. If you have a patient with 4 VOCs seeing a 25% or 50% reduction down to 3 or 2 is going to be easier to achieve compared to a patient that may only have 1 to 2 VOCs, so a less severe patient. I think our assumption as well is that if we were to study a more severe patient population, ultimately -- and that severity is measured by the number of VOCs, I think it would be pretty unlikely for the label and specifically the indication statement in the label to specify the number of VOCs. Now it may say something along the lines of for the treatment of sickle cell disease for patients with recurrent vaso-occlusive events or vaso-occlusive crises, or the qualifier could be for the treatment of patients with severe sickle cell disease. And I think really in either one of those cases, I think then it's really left up to the physicIain to have that conversation with the payer and demonstrate to the payer that this patient represents a severe patient or a patient with recurring VOEs, regardless of the number of VOEs that, that patient has had within a -- within a given year. So that's kind of how we're -- that's kind of how we're thinking about the approach the next study, and the impact that that may -- that approach may have on the overall total addressable market. Kristen Kluska: And just to follow up on that, assuming that is indeed what it ultimately looks like, what would you say, just roughly what percent of these patients would fall under that umbrella of having recurrent VOCs or something along that criteria that makes them more on the moderate to severe spectrum? Alexander Sapir: Great question. So, what I can say is that the percent of the patient-- of the patients who currently meet our inclusion/exclusion criteria, we believe it's around 20%. If the label was specific in terms of recurrent VOEs or patients with severe disease, that 20% would obviously go up much higher than the 20% that we're currently studying. And I think it really goes back to, I think, a point that Iain made in one of his first introductory slides. This is a very severe disease. Patients have -- patients with severe -- with sickle cell disease have a 9x greater chance of mortality, and 20 years are typically shaved off of their life. So, this is in whole, sickle cell disease is a very, very severe disease to begin with. Gigi, next question. Operator: Our next question comes from the line of Matthew Biegler from Oppenheimer & Company. Matthew Biegler: I wanted to ask a follow-up on the pancellularity data and the remark by Dr. Steinberg. -- that on hydroxyurea, F cells tend to increase over time as the non-F cells die out. I think I understand that. But just to confirm, does that mean we should expect pancellularity to increase as patients stay on pociredir for longer than 12 weeks? And I just had a quick follow-up on those 2 patients that didn't have the 12-week assessment. Are we going to get those? Or because that does seem like it kind of swayed the average downward? Thank you. Alexander Sapir: Matt, great questions. I think, obviously, to answer your first question, I'll turn that one over to Dr. Steinberg. And then the second question, I can have Iain cover. Dr. Steinberg? Unknown Executive: Sure. Well, yes, I would expect that it's going to increase. If you look at the results of the MSH trial that I referred to. At 12 weeks, they similarly had about 60% F cells, but it increased over time to over 85%. And we know, of course, that the mechanism of F cell induction in hydroxyurea is different than the mechanism of F cell induction with pociredir. So, I think this provides some optimism that over time, the F cell levels is going to increase and there will be increased in the cellularity. And these F cells not only have fetal hemoglobin in them, but have important levels of fetal hemoglobin in them enough to protect them almost fully from sickle hemoglobin polymerization. Because in F cells all F cells aren't alike. You could see an F cell because it has some fetal hemoglobin in it. And whatever it has is protective, but not protective enough. And this is the reason to try to achieve both pancellularity with a concentration of fetal hemoglobin that protects the cell nearly fully, as the cells in successful gene therapy treated patients are. And you can see the results from those patients. Alexander Sapir: That's great, Dr. Steinberg. Iain, second part of Matt's question. Iain Fraser: Thanks, Matt. So, in response to the second part of your question, we will not get those data -- the missing data that was mentioned earlier. This particular assay is performed at a single site, and there have been some logistics around shipping of samples to the analysis sites that have caused the data to be not represented of all patients at all time points. And so that's just a feature of that particular assay at this particular time point. But I do want to emphasize that the 2 patients that were missing at week 12 had a 63% and 57% F cell percent at the week 10 mark. And so we're contributing to that somewhat higher F cell percent at that time point. In addition, there were 2 patients who were represented at week 12 with rather lower-end HbF, so 38% and 35%, respectively, but who were missing at the week 10 time point. Those 2 patients, the 38% and 35% started out from baseline that were below 15%. And I think that's perhaps the important message across the entire cohort that even those with low baseline F cell percent responded. So, we're seeing a response in F cells across the board in these patients, and that the numerical value at individual time points is somewhat sensitive to the missing data, as I alluded to earlier. Alexander Sapir: Thanks Matt, Gigi next question. Operator: Our next question comes from the line of Corinne Johnson from Goldman Sachs. Corinne Jenkins: Good morning. Maybe a couple of follow-up questions for me. One, I guess, now that you've seen the 20 mg data and the 12 mg, et cetera, do you feel confident that you've fully explored the dose range to move forward into registrational study here, both with respect to what the FDA might require and for purposes of just realizing the full value or benefit of this agent. And this is a bit nitpicky, but on the patient level, it looks like patient 10 kind of achieved a higher percent HbF earlier on at day 56 and then came back, obviously still having a good response. But could you provide any color on what happened with that individual? Thanks. Alexander Sapir: Yes. Two great questions. And I think in terms of your first one around dose response, I'll have Iain answer that. Maybe, Iain, if you also want to touch on patient 10. But then Dr. Steinberg, I would like also to get your sort of thoughts on patient 10 at a prior time point was at 34 and now they're down to 29. How -- like how much does that matter to you that for that one particular patient, we saw about a 5% or 6% absolute drop in their fetal hemoglobin. But maybe I'll start with Iain and then turn it over to Dr. Steinberg. Iain Fraser: Thanks, Corinne. And based on the first question, so what we've articulated previously is even at the 12-milligram cohort based on the robustness of the increases of HbF and the consequent hemolysis and anemia biomarkers that we saw downstream of that, we felt very comfortable that those were robust and relevant responses that we were seeing. The 20 milligram certainly expands upon that, and we're very encouraged by that. The PIONEER protocol did allow for an increase to a dose as high as 30 milligrams once daily. That dose had been explored previously in our first-in-human study in healthy volunteers. We observed as a pharmacodynamic biomarker in that study, the HBG mRNA, which is the gene that encodes HbF. We saw inductions of HBG in a dose-responsive fashion all the way from 2 milligrams up to 20 milligrams at each of those dose increments seeing an increase in HBG mRNA at the 2-week mark. As we went from 20 to 30, we did not see further induction there. And so based on the robustness of the clinical data in the sickle cell disease patient population in PIONEER at the 12- and the 20-milligram dose, and the lack of incremental HBG1 mRNA induction earlier on, we decided not to go further on to the 30-milligram dose. That's the first part of the question. Second part of the question relates to the individual patients who achieved a higher level of HbF earlier on. We've gone back and looked at all the individual data. This is an anomaly in terms of the overall trend of HbF across the patients across the entire PIONEER study, where we have not seen declines in HbF occurring during the treatment period. There's been no clear explanation for that, no clear lab error or mixup of the data. I think it's just likely a reflection of small numbers of patients and some variability in the assay that contributed to that. But I would remark that, that patient started out with a baseline of around 8%, ended up at 29%, which by any measure is a very robust induction of HbF. So I think that small difference to the 34% and the 29%, we don't consider that to be clinically meaningful. Alexander Sapir: Yes. Dr. Steinberg, anything you want to add on that individual patient #10? Unknown Executive: No, I think Iain said it all. The assay has a certain coefficient variation and it's going to vary from time to time. And so in a single patient in a small study, I wouldn't make anything of. Alexander Sapir: Okay. That's great. Yes. And then maybe, Corinne, just to sort of conclude, going back to your point about dose response. I mean, as I said at the outset, this 20-milligram data is extremely robust. And therefore, this is the dose that we will be taking to the agency as part of our plan to discuss the next study, which will be kicking off in the second half of this year. We right now have -- there's a lot of interest in HbF induction for obvious reasons, as Iain and Dr. Steinberg have mentioned. We believe right now that conservatively, we have about a 2-year head start over the next competitor. That's probably coming from the WIZ degraders. And so we want to do everything we can to maintain that 2-year head start before other players enter into the -- enter into the market. So we will be taking the 20 milligram. We're very excited about the 20-milligram data and the 20-milligram dose is the dose that we'll be recommending that we take forward in discussions with the agency that we're planning to have sometime in the first half of this year. Gigi, next question. Operator: Thank you. Our next question comes from the line of James Condulis from Stifel. James Condulis: Hey! Thanks for taking my question and congrats on the data. I just had one on sort of safety. I know that the cutoff here is late December. So presumably, there's some additional kind of safety follow-up. And -- just curious if there's any color you can provide kind of beyond sort of what we've seen in this deck. And then more broadly, this drug has been studied in a lot of people now and just curious sort of your comfort that this is enough of a data set you think to get the FDA comfortable with kind of expanding the study population here kind of over time. Thanks so much. Alexander Sapir: Sure. Iain, do you want to take those? Iain Fraser: Yes, absolutely. And I think, James, even though data cutoff is 23rd of December, we do get safety information in real time. And if there were any important safety events that occurred after the data cutoff, those would be relevant and we present those. So we don't have any untoward safety events that we have become aware of through that process that need to be reported. So I think we're -- we remain comfortable that the overall generally well-tolerated profile that we've seen with pocerdir at the 20-milligram cohort, similar to that at the lower doses with no dose-related toxicities that we've seen. So I think that, that's the key feature around updated safety, if you like. The second question relates to broadening the patient population and how comfortable do we feel about this. I think the important thing to recognize here is not only the disease severity of sickle cell disease, but also the unmet need that exists for patients. And we've seen despite what were some encouraging developments over the past several years. We've seen those being peeled back now. And so patients have fewer therapeutic options available to them now than they did just a few years ago. So I think it's very important to contextualize moving forward with an encouraging therapy in terms of the severity of the disease and the unmet medical need and we certainly feel very comfortable about at least proposing our move forward into a registration-enabling study as part of our discussions with the agency. And naturally, that will be an important topic for our discussions upcoming with them. Alexander Sapir: Yes. And maybe, Dr. Steinberg, I'd love to get your thoughts on how significant is the degree of unmet need for somebody like yourself who has treated a large number of patients with sickle cell disease, obviously, with the withdrawal of Oxbryta, crizanlizumab not showing a reduction in VOCs in its confirmatory studies. And despite Lyfgenia and Casgevy both being approved, they really haven't seen much uptake in the market. Maybe if you could just help the group here really contextualize how significant is the degree of unmet need in sickle cell disease? Unknown Executive: Well, I think it's huge. We only have hydroxyurea that has shown sustained disease-modifying effects over many years and even over a lifetime in some patients. And we also know the heterogeneity of response to hydroxyurea. And as a single therapy, it's almost never good enough. There's patients who even are good responders to hydroxyurea because of the heterocellular nature of the response, continue to have severe sickle cell-related events and increased mortality. Now the whole field of developing agents that work downstream of polymerization, and this includes [indiscernible], voxelotor, crizanlizumab, mitapivat, they've all had really unimpressive effects. It's not that there isn't -- given our current dearth of therapy, there's some role for these drugs as adjuncts to hydroxyurea. And I've written about this and discussed this in the past. But what we really need is better ways of inducing more fetal hemoglobin and more red cells. And so that is -- obviously, the industry has taken this to heart and the most promising developments are agents like pociredir and who knows about the molecular glue degraders, but they are also show to have the potential being important agents. So I think the unmet need is great and oral agents are the way to go if any type of therapy is going to be effective. Alexander Sapir: Thanks for the color, Dr. Steinberg. Gigi next question. Operator: Our next question comes from the line of Gregory Renza from Truist Securities. Gregory Renza: Great. Thanks Alex [indiscernible] congratulations on the updates as well, and I appreciate you are taking my question. Alex, as you're looking towards a potential registrational trial and certainly international implications when it comes to trialing and exploring next steps. Just curious if you can comment perhaps on how you're thinking about just optimizing the strategic value of pociredir globally, this may be the time to think about the best way to perhaps penetrate commercially to do that work internationally. I'm just curious how you're thinking about going global, especially with markets of high unmet need ex U.S. Thanks so much. Alexander Sapir: Yes. Great. Really, really good question, Greg. And maybe just to orient folks. So what we know, and Iain talked about this at the outset, about 7.7 million patients worldwide with sickle cell disease. A lot of those patients exist in Sub-Sahara Africa. In the U.S., about 100,000, although we actually have done some research, which I think it could actually be closer to 125,000 in the U.S., about 50,000 in Europe. We are in the process of operationalizing that Phase III study, and we're obviously doing a lot of that work right now at [risk] because we've yet to have guidance from the agency in the form of those -- in the form of those meeting minutes. And obviously, that global study will include not only sites in the U.S., but many sites in Europe, potentially some sites in Sub-Sahara Africa, like Nigeria. And we feel that, that sort of having this to be a global study will certainly give many other physicIains besides just the physicIains in Nigeria and the U.S. that have had experience with pociredir. We really feel that that will give many more physicIains the opportunity to have experience with this drug in a clinical trial setting. Clearly, the market opportunity very much exists, I would say, in the developed world. But that being said, I think that if we have an oral agent that can induce levels of fetal hemoglobin like what we're seeing, it really is incumbent on us as an organization to make sure that all patients around the world, regardless of whether they're in the developing world or the developed world, can have access to this drug. And so obviously, we're thinking strategically about ways that we can maximize the uptake and the revenue of this drug, but also to make sure that we don't lose sight of the fact that there are many, many patients in the developing world that might not otherwise have access to potentially a transformative therapy like this. And so, we're clearly thinking about ways that we can ensure that all patients around the world, regardless of where they reside, can get access to a potentially transformative medication like pociredir. Gregory Renza: Great. That's very helpful. And then Alex, maybe just one more and perhaps for Dr. Steinberg. Alex, as you mentioned, the criticality of maybe maintaining a lead over next fetal hemoglobin inducer of oral options. Maybe to ask Dr. Steinberg to help put into context the oral scalable options that are in development now, how you break down pociredir and EED inhibition versus other HbF induction EED [indiscernible] WIZ degraders. Thanks again and congrats guys. Alexander Sapir: Yes. Great. Great question. And before turning it over to Dr. Steinberg, just to remind folks, again, conservatively, we believe we have about a two-year head start over the next closest class of HbF inducers, and we believe those are the WIZ degraders. Dr. Steinberg did mention the glues and they're a little bit earlier, but -- maybe Dr. Steinberg, if you wanted just to provide a little bit more comprehensive overview of the different mechanisms of HbF induction and where they are currently in development. Unknown Executive: Sure. Well, there's been a very limited amount of published material on this. The molecular glue degraders include degraders of the transcription factors WIZ and BCL11A and perhaps some other ones. And this is a way of decreasing the repressors that are responsible for turning off fetal hemoglobin gene expression. As far as I know, these are in very early phase clinical studies, but there certainly hasn't been any published information on this. The effects of these drugs in cell-based studies and animal studies have been profound. But of course, it's a big leap from there to human development, especially given the nature of the action of the transcription factor degraded. All I could do is agree with Alex. I don't know any other agents that are in this phase of clinical development. So I think there is an advantage for the development of this agent right now. But as a physicIain, I welcome the field to develop as many agents as possible because we know from experience that 1 or 2 aren't enough. We like to have choices of different ways of attacking the fetal hemoglobin gene so that it's robustly expressed into [adulthood]. Alexander Sapir: Yes. Thanks so much, Dr. Steinberg, and thanks for the question, Greg. Gigi, next question. Operator: Our next question comes from the line of Luca Issi from RBC Capital Markets. Luca Issi: Okay, team, this is Shelby on for Luca, and congrats on all the progress. It looks like the total number of VOCs when we look at the treatment period plus the safety follow-up went from 6 at ASH to 9 today. Appreciate that it's a very sick population, as you've highlighted in the baseline characteristics. So how should we think about that increase in such a short period of time? And does that modestly decrease your confidence that this drug can lower VOCs in a pivotal trial? Any color to it much appreciated. Alexander Sapir: Yes. Maybe before kicking that over to Iain. So, based on the baseline VOCs that these patients were coming in with, we would have expected to see 16 VOCs in these 12 patients over that 12-week treatment period. What we did observe during that treatment period was 6 VOCs in 5 patients. And if you remember the data that we presented at ASH, it was 5 VOCs, I believe it was in 4 patients. So we did see a very small uptick in the number of VOCs with this full data set. I guess maybe to-- I'd love to hear maybe from Iain, but also from Marty as well, when you sort of think about this encouraging trend in VOC reduction, albeit a small increase in the number of VOCs, does that give us any sort of pause or concern from a path forward? Iain, maybe start with you. Iain Fraser: Yes. I'm happy to take that. I just want to make one clarification. So the slide that indicates the reduction of VOC, Slide #19, that is within the PD analysis set of patients. So that's in the 12 patients. And there, there were 6 VOCs observed in the 5 patients during the treatment period. And then, in addition, 3 VOCs were observed during the safety follow-up period. So that represents 9. On the following slide, Slide #20, which is the safety slide, that includes the entire safety analysis set for the study, and that's where the 10 VOCs are reported, which includes the patient who came into the study experiencing a VOC and who ultimately experienced a Grade 5 SAE and was discontinued. So that's where the 9 and the 10 come from. I don't think that the observation of the increase from the time of the ASH presentation to this presentation, different data cut in any way changes our view of the effect on VOCs here. Again, this is a very short study to observe that clinical endpoint. The patients are not at a steady state of maximum effect of the drug. They're increasing their HbF throughout the treatment period. And given that they are a severe patient population to start with, it's not unexpected that they would have VOCs during that early treatment period. So we do not feel in any way dissuaded or discouraged by that fact and remain, in fact, very encouraged by these trends. Alexander Sapir: Yes. And maybe, Dr. Steinberg, your take on Slide 19. And I think it's really important to remind everybody that even though we reported this data, we've always been really cautious for people to say, I wouldn't overinterpret this data. It is a short-term study. VOCs were not an endpoint in this study. There was no adjudication committee, but we decided to report the data out as we did on Slide 19 without too much overinterpretation. But maybe Dr. Steinberg would love to get your sort of perspective, with all the caveats that I just mentioned, on what you think about the data on Slide 19. Unknown Analyst: Well, I don't think you could make anything of that. If fetal hemoglobin is going to be increasing to the levels we're seeing, and if the hematologic changes are going to be similar. And based on 40 or 50 years of understanding pathophysiology and fetal hemoglobin, when the F goes up, the events go down. And so one patient in a short period of time means absolutely nothing for the ultimate efficacy of the agent. Alexander Sapir: Yes, that's very helpful. Gigi, next question? Unknown Analyst: I think I have to go off because I have some other calls. Is that okay? Or how do you want to do? Alexander Sapir: Gigi, can you see if there are any more calls in the queue? Operator: At this time, I'm showing no further questions. Alexander Sapir: All right. Timing is perfect. That's great. So thanks, Gigi. And Dr. Steinberg, thanks for joining. Maybe just very quickly, in closing, I do want to thank all of you for joining us this morning. More importantly, I do want to thank the sickle cell warriors and their caregivers. None of what we do would be possible if it weren't for the warriors who enrolled in the study and their physicIains and families who supported them along the way. We're deeply grateful for their passion and partnership, and we remain steadfastly committed to advancing this important work in the months and years to come. Thanks, everybody, for joining us on the call. Unknown Analyst: Thank you. Bye-bye. Alexander Sapir: Bye-bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences' Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I will now turn the call over to Matthew Beck from Astr Partners. Please go ahead. Matthew Beck: Thank you, operator. Good morning, everyone, and thank you for joining us today as we review Harmony Biosciences' fourth quarter 2025 financial results and provide a business update. Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including a reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe the non-GAAP financial results better represent the underlying business performance. Our speakers on today's call are Dr. Jeffrey Dayno, President and CEO; Adam Zaeske, Chief Commercial Officer; Dr. Kumar Budur, Chief Medical and Scientific Officer; and Sandip Kapadia, Chief Financial and Administrative Officer. As a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties. Our actual results may differ materially, and we undertake no obligation to update these statements even if circumstances change. We encourage you to consult the risk factors referenced in our SEC filings for additional details. I would now like to turn the call over to our CEO, Dr. Jeffrey Dayno. Jeff? Jeffrey Dayno: Thank you, Matt. Good morning, everyone, and thanks for joining our call today. I want to start off by recognizing the entire Harmony team for another outstanding quarter and a remarkable year in 2025. Our fourth quarter results reflect strong, sustained execution and have positioned us to achieve blockbuster status for WAKIX this year. In Q4, we delivered $243.8 million in net product revenue, up from $201.3 million in the same period last year, driven by continued strong demand for WAKIX based on its broad clinical utility and ongoing executional excellence by our commercial team. Q4 '25 marked the third consecutive quarter with approximately 400-plus average patient adds, the first time in franchise history. This quarter's net patient adds brings us to approximately 8,500 average patients on WAKIX. With 80,000 diagnosed patients with narcolepsy, there continues to be a large market opportunity to support strong growth. For full year 2025, WAKIX generated $868.5 million in net product revenue, representing strong year-over-year growth and extending to 6 consecutive years of revenue growth and profitability. Looking ahead to 2026, we are guiding WAKIX' net revenue to blockbuster status of $1 billion to $1.04 billion for the first time in franchise history, underscoring the durability of the WAKIX brand and the strength of our commercial engine. On the IP front, we have made good progress towards the goal of securing the WAKIX franchise. We recently settled with 3 generic filers, resulting in us having settled with 6 of the 7 ANDA filers. Based on these settlements, generic entry would occur no sooner than March of 2030 if we are granted pediatric exclusivity, which we are on track to obtain. As for last week's trial, we remain confident in the strength of our IP, and we'll continue to vigorously defend it as the legal process and trial continues. In addition to the strong growth of WAKIX, we are advancing the next generation pitolisant franchise. Pitolisant GR will extend the WAKIX franchise and our leadership in narcolepsy as a line extension of WAKIX with its broad clinical utility. We are on track for NDA submission in Q2 this year with a target PDUFA date in Q1 2027. Pitolisant HD is designed to expand the pitolisant franchise into unique indications in orphan rare diseases, addressing unmet medical needs. And we now have an opportunity to explore a new pitolisant formulation to pursue broader indications in CNS patient populations in which fatigue is a prominent symptom. This strategy is a mechanism-based approach as fatigue is mediated through histamine circuits in the brain, and pitolisant works by upregulating histamine transmission in the brain, along with other neurotransmitters. This work is supported by newly licensed IP with patent protection until 2042. And we are excited for the opportunity to explore broader CNS indications with pitolisant. Kumar will provide more color on this opportunity later in the call. Our robust late-stage pipeline continues to advance with 5 ongoing Phase III registrational trials towards 5 distinct CNS indications, and we are making good progress. These trials set us up for multiple catalysts over the next few years and if successful, meaningful long-term value creation. Kumar will provide more details on the progress of our pipeline programs, and the timing of these important catalysts during his R&D update. In summary, Harmony enters 2026 with powerful momentum, a clear path to blockbuster status for WAKIX in narcolepsy alone; record revenues and a large market opportunity that remains in narcolepsy for continued growth of WAKIX; a life cycle management strategy that we are advancing to extend the success of WAKIX; expand next-generation pitolisant into unique indications in orphan rare CNS disorders along with our new opportunity to explore broader CNS indications with a new formulation of pitolisant driven by a mechanism-based approach; and a robust late-stage pipeline with 5 ongoing Phase III registrational trials toward 5 distinct CNS indications. All of this reinforces our belief that we have built something rare in this industry, a profitable, self-funding biotech company with a strong balance sheet, well positioned to build out our pipeline and expand our commercial portfolio to drive long-term value creation. With that, I'll turn the call over to Adam Zaeske, our Chief Commercial Officer, for an update on our outstanding commercial performance. Adam? Adam Zaeske: Thank you, Jeff. 2025 marked a year of unprecedented and record-setting performance for WAKIX and that performance continued in the fourth quarter. In Q4 of 2025, WAKIX continued its remarkable trajectory with the third consecutive quarter of approximately 400 or more average patient adds. The first time this has been achieved in the history of the franchise. This level of sustained momentum speaks directly to the strength of the brand and the consistency of our execution. What's driving this performance is clear. WAKIX maintains a unique, highly differentiated position as the only non-scheduled treatment option, which continues to fuel broad clinical adoption. Brand awareness, perceived efficacy, tolerability and stable payer coverage remain exceptionally strong. And we've sharpened our commercial fundamentals from field deployment and call planning to refine messaging, targeted promotion, new payer wins and better patient support processes that shorten time to dispense and boost conversion. The compelling value proposition of WAKIX combined with continued strategic adjustments and strong operational execution are delivering results, giving us confidence heading into 2026. In addition, right now, we are expanding our field-based teams by almost 20% across our field sales, field reimbursement and remote sales teams, and we've already made progress in hiring for these roles. This investment will increase our presence in the market and demonstrates confidence in our continued growth. We will launch a new online portal to enable easier and faster access for patients, and we're continuing to deploy process improvements to further improve time to dispense and success rate, and we'll continue to look for opportunities for additional improvements and efficiencies moving forward. We're also extremely excited about the recent FDA approval of WAKIX for the treatment of cataplexy in pediatric patients 6 years of age and older with narcolepsy. This approval further demonstrates the clinical value of WAKIX for pediatric patients who experience cataplexy and gives their health care providers the option of prescribing WAKIX to address excessive daytime sleepiness, cataplexy or both in people's 6 years of age and older living with narcolepsy. Our commercial teams were well prepared ahead of this approval and with robust promotional strategy and began executing on those plans from the day of approval. With all of this momentum, we've announced full year revenue guidance for WAKIX to achieve blockbuster status of between $1 billion and $1.40 billion in revenue in narcolepsy alone. Looking ahead, pitolisant GR and pitolisant HD give us the opportunity to extend and expand the franchise with differentiated formulations that address important unmet needs, while fully leveraging the commercial engine we've built. Early feedback from market research with health care providers and payers has been highly encouraging, and we're preparing the organization to drive the next phase of growth as these assets come to market. In short, our commercial performance has never been stronger. The fundamentals are sound, execution is disciplined, and we have a clear path to sustained growth. Now I'd like to turn the call over to our Chief Medical and Scientific Officer, Kumar Budur, to discuss the advancements in our clinical development programs. Kumar? Kumar Budur: Thank you, Adam. Good morning, everyone, and thank you for joining us today. Q4 2025 capped a year of significant scientific and clinical progress for Harmony, and we are entering 2026 with one of the most robust late-stage CNS pipelines in the industry. We now have 5 ongoing Phase III registrational clinical trials across 5 distinct CNS indications underscoring the breadth and depth of our development programs. I'll start with updates for our Sleep/Wake franchise. I'm pleased to highlight a new indication for WAKIX that the FDA approved on February 13. The FDA approved WAKIX for cataplexy in patients 6 years of age and older. This is another important milestone for WAKIX, and it is now approved for both excessive daytime sleepiness and cataplexy in adults and children 6 years of age and older. This approval also advances our efforts towards achieving pediatric exclusivity for WAKIX, which is an additional 6 months of regulatory exclusivity at the back end of the longest pattern for WAKIX. The data from the ongoing Phase III study in Prader-Willi syndrome, the TEMPO study is the other requirement for pediatric exclusivity, and we are on track for the top line data from the TEMPO study in the second half of this year. Across our next-gen pitolisant program, pitolisant GR continues to advance as a fast-to-market strategy after demonstrating bioequivalence to WAKIX in a pivotal bioequivalent study and has the ability to initiate treatment at the therapeutic dose range at 17.8 milligram, eliminating the need for titration, which is an important differentiation. We remain on track for an NDA submission in Q2 2026 and target PDUFA in Q1 2027. Pitolisant HD, our enhanced formulation with an optimized PK profile and a higher dose remains on track for top line data in 2027 and PDUFA in 2028. The Phase III registrational clinical trials in narcolepsy and IH, that is the ONSTRIDE 1 and ONSTRIDE 2 studies are ongoing. ONSTRIDE 1 is a prospective placebo-controlled parallel-arm double-blind randomized clinical trial comparing pitolisant HD and placebo. This is an 8-week study, evaluating excessive daytime sleepiness via subjective and objective endpoints, that is ESS and MWT, and we are also evaluating cataplexy and fatigue in this study. On Slide 2 is also a prospective placebo-controlled parallel arm double-blind, randomized clinical trial comparing pitolisant HD and placebo. This is an 8-week study, evaluating symptoms of idiopathic hypersomnia via IHSS and sleep inertia via sleep inertia scale. The sample size for each of these studies is approximately 200 patients, and both programs are pursuing differentiated labels, fatigue in narcolepsy and sleep inertia in idiopathic hyperthermia. Both the GR and HD formulations have utility patents filed extending and expanding the pitolisant franchise potentially into the 2040s. We are also very excited to announce the opportunity to explore broader CNS indications with a new formulation of pitolisant with an issued patent until 2042. As we have discussed in the past, the histaminergic mechanism of action of pitolisant is uniquely positioned to address all 3 different dimensions of fatigue: physical, emotional, and cognizant, and we have already generated clinical data to support the utility of pitolisant to treat fatigue. We plan to evaluate this new formulation for fatigue in broader indications with fatigue in multiple sclerosis of the lead indication and explore other opportunities such as post-stroke fatigue and fatigue in Parkinson's disease. Our current efforts are focused on formulation optimization and new modes of delivery and towards the Phase I PK study. Beyond pitolisant, our orexin-2 receptor agonist BP1.15205 is enrolling in our Phase I clinical study. We are on track for Phase I PK data in mid-2026. As we have previously shared, BP1.15205 has demonstrated compelling preclinical potency, selectivity, safety and efficacy, positioning it as a potential best-in-class orexin-2 receptor agonist. Moving on to our epilepsy franchise. EPX-100 continues to advance in 2 global Phase III registrational programs. Enrollment is ongoing in both the Dravet syndrome and the Lennox-Gastaut syndrome programs, that is the ARGUS study and the LIGHTHOUSE study, respectively. The top line data is expected in first half of 2027 and PDUFA in 2028. We recently label extension part of the Phase III study in Dravet syndrome at the AES meeting in December 2025, which supported a differentiated product profile for EPX-100. The effectiveness data in patients who had at least 6 months of exposure to EPX-100 showed clinically meaningful reduction in seizures, approximately 50% median reduction in seizures as measured by CMS-28. In addition, we saw at least 50% reduction in seizures in half of the patients. EPX-100 was found to be generally well tolerated with no additional laboratory or special monitoring requirements with some participants exposed to EPX-100 for more than 2 years and approaching 3 years. Finally, on behalf of Harmony, I would like to thank all the patients and their families who are participating in our clinical trials as well as the clinical investigators and site personnel for their efforts and commitment in helping us to advance our development programs. I'll now turn the call over to our CFO, Sandip Kapadia, for an update on our financial performance. Sandip? Sandip Kapadia: Thank you, Kumar, and good morning, everyone. This morning, we issued our fourth quarter earnings release and filed our 10-K, where you'll find the details of our fourth quarter and full year 2025 financial and operating results. Our financial performance is also shown on Slides 15 through 17. We finished the year with great momentum across the business, delivering strong growth across several of our key metrics, positioning us well as we head into 2026. We delivered another year of double-digit top line growth as we reported net revenues above the top end of our previous guidance range. We continue to be a profitable cash-generating company, funding the growth and advancement of our pipeline fully with the strength of our balance sheet. Our strong financial performance, combined with a solid balance sheet, including approximately $882.5 million in cash, cash equivalents and investments positions us well as we continue to invest in the advancement of our robust late-stage pipeline and look for additional value-enhancing opportunities to further build out our pipeline and add to our commercial portfolio. We reported net revenues of $243.8 million for the fourth quarter of 2025 compared to $201.3 million in the prior year quarter, representing a growth of 21% and also our highest quarterly revenues to date. Performance in the quarter reflects the sustained strong underlying demand for WAKIX. We also reported total operating expenses for the fourth quarter of $136.7 million compared to $91.1 million for the same quarter in 2024. The growth in expenses was related to investments in our R&D to advance our late-stage pipeline, investments in the commercialization of WAKIX and narcolepsy as well as ANDA litigation and settlement expenses during the fourth quarter of 2025. Non-GAAP adjusted net income for the fourth quarter of 2025 was $33.4 million or $0.57 per diluted share compared to $64.2 million or $1.10 per diluted share in the prior year quarter. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP results. We ended the fourth quarter with $882.5 million in cash, cash equivalents and investments. The balance reflects robust cash generation of $348.2 million from operations in 2025, providing us with the financial flexibility to execute on our growth strategy. Looking ahead to our expectations for 2026. As previously disclosed, we are reiterating our guidance for WAKIX net revenue of $1 billion to $1.04 billion. We believe this guidance reflects our strong expectations for 2026 and demonstrates that we are on track to achieving blockbuster potential for WAKIX in narcolepsy alone. As you think about phasing of revenues for the first quarter of 2026, we expect to see the typical seasonal dynamics that the industry as a whole experiences each year in Q1. This includes higher gross to net deductions due to insurance plans resets and higher co-pay obligations, along with potential for drawdown in trade inventories. With respect to expenses, we expect significant increases in investments in R&D as we advance our pipeline with 5 ongoing registrational Phase III programs, along with plans for a sixth Phase III study anticipated to start later this year. Finally, business development is a high priority, and our intention is to deploy capital to expand our pipeline and commercial portfolio. In summary, I'm pleased with our strong financial performance in 2025. We once again delivered a year with strong top line growth, maintained healthy operating margins, while continuing to generate significant cash. This positions us well as we enter 2026 with a potential for significant value generation. And with that, I'd like to turn the call back over to Jeff for his closing remarks. Jeff? Jeffrey Dayno: Thank you, Sandip. In closing, I'm incredibly proud of what the Harmony team accomplished in 2025, but that is behind us, and we are now focused on 2026 and excited for what is ahead. Growth of the WAKIX franchise, guiding WAKIX to blockbuster status in 2026, extending the WAKIX franchise with pitolisant GR's target PDUFA date in Q1 2027, expanding the pitolisant franchise with the advancement of the Phase III trials with pitolisant HD in unique orphan rare CNS indications; a new opportunity to explore broader CNS indications with newly licensed IP and a new formulation of pitolisant and advancing our robust late-stage pipeline with 5 ongoing Phase III registrational trials toward 5 distinct CNS indications. It is the cost of these achievements that we continue to operate from a position of strength and drive significant momentum. This momentum reinforces our confidence that we have built something rare in this industry, a profitable, self-funding biotech company with a strong balance sheet, blockbuster commercial product, a pipeline positioned to deliver significant long-term value and the capacity, experience and commitment to generate even greater value through the pursuit of smart business development opportunities. Thank you, and I will now turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] We'll take our first question from Pete Stavropoulos with Cantor Fitzgerald. Pete Stavropoulos: Actually, I'm going to go to one of your earlier-stage assets, EPX-100 for Dravet and the clinical data disclosed at AES in December. Can you just comment on the baseline seizure rates and the baseline antiseizure med use? How do they sort of compare to the real-world patients? And then how do you compare to patients in other Dravet clinical trials? And with the interim OLE efficacy and safety data in hand for those that have at least 6 months of exposure, what's your view on the emerging benefit risk profile? How competitive do you believe the emerging profile is? And where do you see it fitting into the current landscape? Jeffrey Dayno: Pete. Thanks for your question, and I'll turn it over to Kumar to respond. Kumar Budur: Thank you for the question. These patients who participated in our Dravet syndrome study had treatment-resistant seizures. They were, on an average, approximately about 4 antiseizure medicines. And their baseline seizures, I don't remember the exact number what the baseline seizure was, but I can provide that information, but that was comparable to what we have seen in other studies as well. In terms of the value proposition, Pete, I mentioned on the call, the efficacy that we saw in this study. The effectiveness data showed that we had at least about approximately 50% median reduction in seizures. And we also saw 50% reduction in seizures in about 50% of these patients. What's important is to see this alongside the safety and tolerability profile. We did not see significant nausea, vomiting, abdominal pain, diarrhea, that is commonly seen with other medicines, including suppression of appetite. In fact, the only GI, AE of note was diarrhea, which was seen in about 2% of the patients. Liver function tests also remain normal, which is an issue with some of the approved drugs. And EPX-100 doesn't require any special monitoring. And also the ease of use is also very important here. Our liquid formulation BID dosing regimen is much more better suited in this patient population for patients and caregivers compared to some of the other drugs that are in development, which have a TID dosing regimen. Thank you, Pete. Jeffrey Dayno: Thanks, Kumar. Pete Stavropoulos: And one follow-up, if okay. A question on the orexin-2... Jeffrey Dayno: Go head, Pete. Pete Stavropoulos: Can you hear me? Jeffrey Dayno: Yes. Pete Stavropoulos: Yes. So for the orexin-2 receptor agonist, you're going to have data midyear-ish. What's the PK/PD and safety bar that you look for in the Phase I to move this program into later-stage studies? And where do you sort of see your orexin-2 receptor agonist fitting into the emerging landscape? Sandip Kapadia: Yes. We are dosing the -- sorry, we are dosing subjects right now in our Phase I PK study. By mid-2026, we will see clinical PK data, safety and tolerability data. We don't anticipate to see anything different than what is already seen with other orexin receptor agonist in this class. And we are making progress on advancing this to the next stage of development, which is sleep-deprived healthy volunteer study, we plan to commence in the second half of this year. And in terms of how it fits with the competitive landscape, look, Takeda is ahead. They have submitted an NDA, and the others are in Phase I and Phase II studies. And our goal is to really accelerate the clinical development by leveraging some of the learnings that we have from other development programs that are ahead of us without compromising the quality of data. Pete Stavropoulos: Congrats on the quarter. Sandip Kapadia: Thanks, Pete. Jeffrey Dayno: Thanks, Pete. Operator: And we'll move next to David Amsellem with Piper Sandler. David Amsellem: Two for me. One on the orexin, I just wanted to clarify, are we going to get multiple ascending dose data in the second half in sleep-deprived healthies? And how are you thinking about indications here given that you have a number of companies that are looking at narcolepsy and IH? Are you thinking beyond narcolepsy and IH? Or is that going to be your core focus for the orexin program? That's number one. And then number two, sort of a hypothetical here, but to the extent that with the patent case, if you were to not prevail and there was an earlier-than-expected loss of exclusivity, how do you think about cash conservation and ultimately trying to bridge from the LOE to your next set of development stage assets and commercialization of them? Jeffrey Dayno: David, thanks for your questions. With regards to the orexin-2 agonist, just to comment. In terms of target indications, I think we're contemplating broadly in addition to the primary targets in terms of our overall orexin-2 program, other opportunities beyond primary disorders of hypersomnolence. So I think that is part of an overall development strategy. With regards to the emerging data, first, I just want to clarify, in terms of the PK profile, in healthy volunteers, single-dose study, we are looking to confirm the expected profile of once-daily dosing, with regards to the initial data that will read out. And Kumar multiple ascending dose on sleep-deprived healthy volunteers? Kumar Budur: Yes. The single -- the multiple ascending dose study, David, will follow the single ascending dose study. And in parallel, we plan to conduct a sleep-deprived healthy volunteer study. In terms of the indications, as Jeff was mentioning, we are keeping an open eye and looking at everything, not just central disorders of hypersomnolence, but other potential neuropsychiatric disorders, including several aspects of cognition, mood and other things. We will pursue single-ascending, multiple-ascending dose study because that's something that we need to do regardless. And then we will evaluate the competitive landscape and decide which way to go. Jeffrey Dayno: And David, with regard to your second question, with regards to the ongoing litigation. I think as you're aware, I think it's premature. I'm not going to speculate on the future outcome of the trial. But I'd point you to the recent progress that we made in settling with 3 of the generic filers. So that currently, it brings the total number of settlements to 6 of the 7 ANDA filers. We feel good about how that positions us going forward. Based on these settlements, generic entry stands at March of 2030, if we're granted pediatric exclusivity, which we're on track to obtain. With regards to our cash position and how we stand, I'll ask Sandip. Sandip Kapadia: Yes. Look, I think we're in a very strong cash position. You saw we generated close to $348 million cash last year. We have $880 million of cash on the balance sheet. So I think we're really well positioned to continue to drive innovation, but -- to build our pipeline and be able to fund many -- of all the programs that we spoke about today generally. And we continue to have a solid position as a company. Operator: We'll move next to Jay Olson with Oppenheimer. Jay Olson: Congrats on the progress. Can you talk about any gating factors to filing the pitolisant GR NDA next quarter? And then separately, can you just talk about the pace of enrollment in your Phase III narcolepsy and IH studies for pitolisant HD, considering you've got some competitors also enrolling their studies? Jeffrey Dayno: Jay, thanks for your question. We're excited about pitolisant GR. It's sort of right around the corner in terms of NDA submission. Kumar, any gating items to that or how are things looking? Kumar Budur: Nothing. Things are looking good. We are on track to submit the pitolisant GR NDA in second quarter of this year. As always, the final things that are needed for NDA submission, that's what we are working on. And we are on target for PDUFA in Q1 of 2027. In terms of your question regarding the enrollment for pitolisant HD in narcolepsy and idiopathic hypersomnia studies, you're absolutely right, Jay. There is a competition for patients. We are very much aware of it. But we also have been in this field for a long time. We know the sites; we know the investigators. We have conducted studies in this patient population. So we are confident with our current time line, which is top line in 2027 and PDUFA in 2028. Jeffrey Dayno: Yes. Thanks, Kumar. Jay Olson: Great. And with regard to the... Jeffrey Dayno: Yes. Sure. With regards to pitolisant GR, I just want Adam to comment on how he sees the opportunity and how the commercial team is preparing for that. Adam Zaeske: Great. Thanks, Jeff. Preparation is definitely underway, looking for PDUFA in 1Q '27, that will have us launching several years before LOE with an opportunity to extend the WAKIX franchise. This is a fast-to-market line extension strategy that provides a GR coding to pitolisant and allows patients to start right at the therapeutic dose. So another layer of additional protection for a product that's already perceived is highly well tolerated and the addition of starting at a therapeutic dose, which has hopefully the benefit of securing faster patient outcomes. The strategy here is really focused on new patients that would have been prescribed WAKIX as well as previous patients that we have the ability to recontact because we secure consent right upfront anytime there's a patient referred for WAKIX therapy. Both of those are tremendous opportunities, and we look forward to executing on that launch beginning in 1Q ' 27 next year. Operator: We'll take our next question from Graig Suvannavejh with Mizuho. Ryan Ries: This is Ryan on for Greg today. A couple of quick questions for me. I'm wondering if you could comment on the increase in SG&A that we saw in the fourth quarter, the dynamics behind that? And then any updates that you might have on EPX-200 and when we might hear more about that program? Jeffrey Dayno: Okay. Sandip? Sandip Kapadia: Yes. Just regarding the expenses in the fourth quarter, I mean, as I mentioned on the call, I mean, we did see an increase in expenses, largely driven by the R&D investments as we start up our Phase IIIs for both IH and narcolepsy in the HD program, continued cost in terms of investments for WAKIX in narcolepsy commercialization there. And then I also mentioned that we did have ANDA litigation and settlement expenses in the fourth quarter. So that the team could be prepared for the trial, which happened a few days ago as well. So again, those are the key drivers for our expenses. And as I mentioned, going forward, I think the key thing to note in terms of expenses is as we'll have 5 registrational studies ongoing this year and potentially 6 ones planned for later this year, we will see some increases also in the R&D expenses as we go into 2026. Jeffrey Dayno: Thanks, Sandip. Kumar? Kumar Budur: Regarding liquid lorcaserin, which is EPX-200, we are doing some pre-IND-related work right now. Ryan, as you know, lorcaserin is more selective for 5-HT2B. And this drug probably has one of the largest safety and tolerability database out there, including a long-term cardiovascular outcome study. And also there is a lot of efficacy data in several DEEs with this compound. Our goal is to leverage all of the data that is already available and pursue an accelerated development program and hopefully bring a new medication to patients with Development and Epileptic Encephalopathies. Jeffrey Dayno: Thanks, Kumar. Operator: And we'll go next to Danielle Brill with Truist Securities. Alexander Nackenoff: This is Alex on for Danielle. Two little detailed questions. One follow-up on Jay's question on ONSTRIDE 1 and 2. Have those begun enrolling patients? Just we haven't seen any indication in [ clintrials.gov ]. And then on the OpEx expenditure, you mentioned the impact of some of the settlements and litigation. Was that primarily in the general and administrative line item? Just kind of curious how that run rate we should expect moving forward? Jeffrey Dayno: Okay, Kumar? Kumar Budur: ONSTRIDE 1 and 2 studies, as we have mentioned in the past, we started initiating sites towards the end of last year, and it will be posted on clinicaltrial.gov, typically within 21 to 30 days after the first subject is enrolled. We are at different stages of site initiation, site activation, sites are getting prepared to enroll the patients. Sandip Kapadia: Yes. And regarding the expenses, yes, most of them -- they were all under G&A in terms of the ANDA litigation and settlement expenses. Some of it tend to be onetime expenses and some will continue as we kind of continue with the litigation process. Operator: We'll move next to Corinne Johnson with Goldman Sachs. Corinne Jenkins: Maybe I know you can't speak too much about the details of ongoing litigation, but you could help us understand kind of the time line for decisions that are expected next, what process you kind of could anticipate for appeal for a situation like this? And also kind of remind us the regulatory exclusivity time lines that you have? And then I know you've talked about the litigation or the settlements you have kind of with 6 of 7 of these other generic manufacturers. But can you clarify what the impact this litigation might have on potentially like acceleration clauses in those settlements? I think those are pretty standard, but not sure if they're included here. Jeffrey Dayno: Yes, Corinne, thanks for your question. So with regards to the timing of the judge issuing a rule, it's really -- it's hard to know and can't really speculate. This is an ongoing legal process. And it's hard to know when that will complete and come to final decision. As a reminder, there is -- in the meantime, there is a stay that's in place that extends to February of 2027. And then based on the outcome of the trial, obviously, an appeals process is available to both sides. I think we know that the litigation process as well as the appeals process takes time. And with that, while this was happening, again, I think pointing back to the progress we've made on the settlements in terms of 6 of the 7 generic filers being settled, we feel that positions us well going forward with regards to the overall process. In the meantime, there are other things going on with regards to -- as we just spoke to, pitolisant GR and extending the franchise. And that's -- we remain -- with regards to last week's trial, we remain confident in the strength of the IP, and we will continue to vigorously defend it as the legal process plays out after the trial. Kumar, in terms of regulatory exclusivities? So in terms of our regulatory exclusivities of where we are with regards to -- I mean, ODE with regards to EDS takes us to March of '26 and for cataplexy to October '27. Operator: And we'll take our next question from Patrick Trucchio with H.C. Wainright. Patrick Trucchio: Just a couple of clarification questions and then a follow-up. First, I think you reiterated 2026 WAKIX guidance of $1 billion to $1.04 billion. What level of average patient growth is embedded in that range? And how much incremental contribution do you expect from the newly approved pediatric cataplexy indication in 2026? Jeffrey Dayno: Patrick, thanks for your question. Adam, what -- respond to the patient growth supporting that? Adam Zaeske: Yes. Thanks for the question. So for 2026 guidance, exceeding basically $1 billion or blockbuster status. The underlying patient growth is consistent with what we've seen this year. So we expect that momentum to continue. We're really excited to see the third consecutive quarter of more than 400 patient adds in the quarter. We've never seen that before in the brand. We believe that's a strong foundation and momentum carrying us into '26, and we expect that to continue. You're going to see the regular and normal seasonality that you're going to -- that we've seen over the last several years. Q1 tends to be a little bit slower as the start of the calendar year with payer resets and what have you. So we expect that seasonality to continue. But the underlying sort of average performance, we'd expect to continue the momentum we saw in 2025. Hopefully, that covers the question. Patrick Trucchio: Yes. That's helpful. And then just as it regards to the broader CNS strategy with MS fatigue, I'm wondering, first, can you elaborate on what existing clinical data supports pitolisant's efficacy in fatigue? And what's the development time line for your Phase I -- what is the development time line for the Phase I PK study? Kumar Budur: Patrick, regarding this new formulation, this is something we are very excited about. It's a new formulation with an issued patent until 2042. We have mentioned in the past about our interest to pursue fatigue based on the histaminergic mechanism of action. We have also said that fatigue is not an any-idimensional construct. It's a multidimensional construct with physical, somatic and cognition symptoms. And how pitolisant with its unique mechanism of action working at tuberomammillary nucleus and the downstream effects on serotonin and norepinephrine is uniquely positioned to treat fatigue. To your question about clinical data, Patrick, we actually showed the efficacy data in fatigue with pitolisant in our myotonic dystrophy study, where we saw clinically meaningful improvement in symptoms of fatigue, and we also saw a dose response. Similarly, we also saw clinical efficacy data in fatigue in patients with residual exclusivity and sleepiness with OSA. So on with all of these data points, we plan to pursue broader CNS indications where fatigue is a prominent symptom, and we have identified fatigue in MS as a lead indication because it's very well characterized very well-known and about 80% of patients with MS have fatigue with more than 50% having clinically significant fatigue. In terms of where we are with the development program, right now, the focus is on formulation optimization and looking at potentially other modes of delivery and prepare for a PK study, clinical PK study. That's where we are. Thank you. Patrick Trucchio: Great. Adam Zaeske: And if I could just jump in, I neglected to answer the second part of your question around the pediatric cataplexy opportunity. So just a quick couple of words on that. We're really excited about the approval of pediatric cataplexy. We now have approval for EDS and cataplexy in both adult and pediatric populations, basically anyone over 6 years of age. The pediatric patient population represents about 5% of the total narcolepsy population, just to give you an idea around scale of the opportunity. But really, we see this as -- look, this is an important addition to the label. It provides greater flexibility for health care providers and their ability to treat these patients. It's important new information that we will educate those health care providers on. And it -- I think reinforces WAKIX as an appropriate treatment for peds as well as having just broad clinical utility across almost all patients with narcolepsy. So our teams are really well prepared ahead of the approval. As I mentioned, we had a robust promotional and execution strategy ready to go, and we began executing on those plans really from the day of approval. Thank you for the question. Operator: We'll go next to Jason Gerberry with Bank of America. Pavan Patel: This is Pavan Patel on for Jason Gerberry. Just a couple of questions for us. The first is, I know you guys mentioned expanding the field sales and reimbursement teams in 2026. So maybe if you can just help us understand how much of this investment is dedicated to the core in narcolepsy market versus preparing for new launches like pitolisant GR in the future? And then the second question is with regards to BD. Maybe if you can speak to the BD as a capital allocation priority versus share repurchases or other things and how you're planning to diversify beyond the pitolisant franchise ahead of an important IP outcome, providing clarity on the full commercial asset. Jeffrey Dayno: Yes. I didn't catch the first part of the question, if you could repeat that. Adam Zaeske: I did. Pavan Patel: Yes. Why -- yes, go ahead. Jeffrey Dayno: Okay. Adam, go ahead. Adam Zaeske: Yes. The first part of the question was around the expansion. What does that look like and how much of that is related to core growing -- basically growing WAKIX versus preparing for GR. I mean the short answer on that last piece is 100% of the investment expansion is around continuing to grow WAKIX today. Our plans for how we will launch GR will take form kind of as we progress through the calendar year this year and approach that PDUFA date in 1Q '27. I'll remind that we were really pleased with the performance we saw in '25, really record-setting performance. And that was based on continuing to tweak some of the fundamentals around our sales execution, marketing promotional mix and messaging, adding some payer wins and supporting patients. As we enter '26, we triggered an expansion of our field-based teams. That's what you were asking about. Overall, it's about a 20% increase in total field-based personnel. So we see full increase in our share of voice. Also gives us the opportunity to rebalance territories that we want to do about every 18 months to 2 years. With our field sales teams, we're seeing that expansion more than 10%, field reimbursement more than 50%, our remote sales teams more than 10%. So it's really meaningful, and we're excited about that opportunity. We've posted those roles. We're already in the process of hiring. We've already identified several of those candidates. So we expect those folks to be in place by the end of this quarter. That's our plan. Thanks for the question. Jeffrey Dayno: Thanks, Adam. And with regard to the second question on business development, business development remains a high priority for us, obviously, with a very strong balance sheet, and we want to deploy that capital and invest in the business. As we said, the sweet spot, the focus continues to be orphan rare CNS opportunities, late-stage development as well as commercial on market. We have the capacity to do that. Obviously, we have a strong commercial engine. We'd like to build out the commercial portfolio. Dedicated business development team and we're also looking -- and we've said this before, adjacencies, broader CNS indications. Obviously, we shared today a new opportunity that we're very excited about based on newly licensed IP with a new formulation of pitolisant where we see a significant opportunity around fatigue and broader CNS populations. So we are focused and committed to those efforts, deploy our capital towards business development. Sandip, any thoughts on capacity? Sandip Kapadia: Yes. Look, I think we're in a very strong position. We have over $880 million in cash on the balance sheet as of last quarter. And just to your question, I mean, not only obviously, we're looking at business development, but of course, we also have $150 million capacity on the share buyback. So we're always looking at opportunities to drive value for shareholders and that's something that we think we have the optionality as a company as to move forward there. Operator: We'll go next to So Youn Shim with UBS. So Youn Shim: Congrats on the great year. I have 2 questions, if I may. First, so it seems like the settlement for generic entry with the 3 additional ANDA filers are now 4 months early, March 2030, if pediatric exclusivity is granted from the prior settlement agreement of July '30 -- July 2030. So I just wanted to check if I'm understanding it correctly. Does it mean without the pediatric exclusivity, the generic entry would start no earlier than September 2029 now? And my second question is on Prader-Willi syndrome indication for WAKIX. So the Phase III reading out second half of this year, potential PDUFA in 2028. Here, I was wondering what are you envisioning opportunities from the PWS? It would support the pediatric exclusivity for WAKIX and delay generic entry too. But on just the PWS indication itself, the runway would just be about 2 years from launch if approved. Are you thinking of trying the PWS with the pitolisant HD as well? Jeffrey Dayno: So Youn, thanks for your questions. With regards to your first one about the timing of the settlement, you are correct in terms of without the pediatric exclusivity market entry would be September 2029. But we are on track, making very good progress towards pediatric exclusivity, which would take it to March of 2030. One of the important components of that, obviously, after the peds narcolepsy data is the Prader-Willi program, both for potential indication. But the larger market opportunity, I think, as you're aware, is the 6 months extension with the peds exclusivity. Kumar, further thoughts on that? Kumar Budur: Yes. With -- So Youn. With PWS in the U.S. alone, there are approximately 15,000 patients with Prader-Willi syndrome. About half of these patients have significant excessive daytime sleepiness for which there are no drugs approved. So if we are successful with this study, we will go for an indication really addressing high unmet need in this patient population. And in terms of pitolisant HD being a potential option to pursue PWS, that's not how we are thinking right now, but that option is always open to us. Thank you. Operator: And we'll take our next question from David Hoang with Deutsche Bank. David Hoang: So maybe on the new pitolisant formulation, could you talk a little bit about what characteristics and profile you expect to see with that product? How is it different from, let's say, pitolisant HD? And are there characteristics that lend itself to MSLT related conditions? And then maybe a second question just around the IP estate for some of these life cycle management products. So could you just summarize again for us the IP that you either currently have or expect to obtain for pitolisant GR, HD and then the new formulation? Jeffrey Dayno: Kumar, it's on the new opportunity. Kumar Budur: Yes. David, thanks for the question. Regarding the new formulation, as we evaluated this opportunity, there might be some potential options for us with this new formulation that could potentially differentiate itself in terms of the PK parameters that probably will lend itself better for the treatment of fatigue in larger indications. Obviously, once we complete the human PK study, that's when we will get to know how exactly this will play out in humans, and that will help us determine the next step. But for now, we are really excited about this particular formulation because, as I mentioned earlier to the other question, this is a very unique opportunity for us to pursue fatigue in a broader CNS indication. Jeffrey Dayno: And David, in terms of your second question about the IP estate, just briefly as a reminder, pitolisant GR and pitolisant HD utility patents filed out to 2044. This new formulation of pitolisant and the opportunity there is actually an issued patent that we have a license to out to 2042. So formulation work continues on. As Kumar mentioned, the potential of other modes of administration, looking at the potential some of these patient populations where there's swallowing dysfunction and other methods of delivery, but an issued patent out to 2042. Operator: And we'll take our last question from Ami Fadia with Needham & Company. Poorna Kannan: This is Poorna on for Ami. Are there any recent updates for the enrollment from the ARGUS and the LIGHTHOUSE studies? And just in case I missed this, what are the targets for the recent sales force expansion? And when do you see that impact coming through? Kumar Budur: Poorna, ARGUS and LIGHTHOUSE study, they continue to enroll, and we continue to make progress. We are on track for top line data in the first half of 2027 and PDUFA in 2028. Jeffrey Dayno: And the second question, just to clarify. Poorna Kannan: Just want to understand when do you see the impact from the sales force expansion coming through? Jeffrey Dayno: Adam. Adam Zaeske: Yes. Thank you, Ami. And there was a question around the targets as well. We did add some targets, but let's say it was about 5%. So not a huge add. It's really improving our share of voice and rebalancing territories targeted at the existing target base that we've been targeting for some time. And when would we expect to see that impact? Obviously, we -- as I mentioned, we'd like to get those folks on board and in place by the end of this quarter. And so from the impact standpoint, I guess you would expect to see the impact from that point forward. Operator: Thank you. I'm showing no further questions. I would now like to turn the call back over for any closing remarks. Jeffrey Dayno: Thank you, operator, and thanks, everyone, for joining our call this morning for your interest in Harmony Biosciences, and have a great rest of your day. Thank you. Operator: This does conclude today's Harmony Biosciences fourth quarter and full year 2025 financial results conference call. You may now disconnect your lines, and have a wonderful day.
Operator: Good day, and welcome to the UFP Industries Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Stanley Elliott, Director of Investor Relations. Please go ahead. Stanley Elliott: Good morning, everyone, and thank you for joining us to discuss our fourth quarter results. With me on the call are William Schwartz, our President and Chief Executive Officer; and Mike Cole, our Chief Financial Officer. Will and Mike will offer prepared remarks, and then we will open the call for questions. This conference call is available to all investors and news media through the Investor Relations section of our website, ufpi.com, where we will also post a replay of this call. Before I turn the call over, let me remind you that yesterday's press release and presentation include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from expectations. These statements also include, but are not limited to, those factors identified in the press release and in the company's filings with the Securities and Exchange Commission. I will now turn the call over to Will. William Schwartz: Good morning, everyone, and thank you for joining today's call to discuss our fourth quarter financial results for fiscal year 2025. We'll start by sharing our thoughts on the quarter and what we're seeing in the marketplace before providing some thoughts on where we see the business heading into 2026 and opening the call for questions. The market dynamics we saw in early 2025 continued into our fourth quarter with net sales totaling $1.33 billion, representing a 7% decline in units and a 2% decline in price. Our profitability remained pressured, although the structural improvements we've made to the business were masked by several onetime accounting items Mike will detail later in the call. 2025 proved to be a difficult operating environment with several of our key markets facing both cyclical and competitive pricing pressures. Despite generally soft end market demand, our fourth quarter sales and profits were in line with internal expectations. On a trailing 12-month basis, our margins continue to flatten, and we continue to see stabilizing trends across the majority of our businesses. Throughout the year 2025, we took disciplined steps to invest in the future success of our business while returning capital to our shareholders. Last year, we executed on share repurchases of $443 million, representing 7% of outstanding shares. Further, we paid $82 million in dividends, and we announced a 3% dividend increase for 2026. We spent $270 million on maintenance and growth CapEx, Together with share repurchases and dividends, that's roughly $800 million of capital deployed in a disciplined and balanced fashion, and we still have $2.2 billion in balance sheet capacity. A hallmark of our balanced portfolio is our ability to generate strong and consistent free cash flow. This only enhances our position looking ahead. We plan to use our strong balance sheet to pursue meaningful M&A opportunities while continuing to return capital to shareholders through opportunistic share repurchases and dividends. Finally, our team made progress navigating a tough environment and executing on our strategy to manage things within our control. We exited underperforming businesses, reduced excess capacity, and we are on a path to successfully achieving our $60 million cost-out program. We expect to see the savings continue to build throughout the year as we remain committed to lowering our cost structure. As a result, we are entering 2026 in a stronger position to drive improved results. As we've said before, we continue to focus on innovation across the portfolio to bring value-added and higher-margin products to market. New product sales totaled 7.6% of total sales, and we like the trajectory and opportunities ahead of us. As we move into 2026, we are in position to build on that momentum. Last week at the International Builder Show, we showcased 5 new products and brands. We continue to build on the success of our Surestone technology introduced to the market last year. In the decking space, we are responding to market demand with a new color palette and continue to enhance our offering with a patent-pending process designed to closely mimic the look of natural wood. We further leveraged the success of our Surestone technology with the introduction of a new trim board, which brings the outstanding qualities of Surestone into the trim space. Additionally, our Deckorators brand continues to expand our lineup of decking and railing products. Deckorators introduced to our traditional wood plastic composite offering, a Class B fire rated option at a price point targeting the retail and do-it-yourself customer. We have expanded our railing portfolio, giving us product at all price points in all consumer styles. Capitalizing on our strength and knowledge in the decking space, ProWood recently introduced TrueFrame Joist, the business unit's first proprietary product designed specifically for use in deck substructures. The value we add on the front end eases several common pain points for contractors, saving time and money. Finally, UFP Site-Built launched Frame Forward Systems, which leverages our depth of experience in construction and our investment in automation to ease some of the bottlenecks common to on-site construction with an off-site system solution. I also want to note that while not featured at IBS this month, our packaging business continues to design and engineer proprietary packaging solutions that promote in-line safety and improve productivity. We are encouraged by the patent awarded to our nailgun-free crate fastener U-Loc 200 this past December, and we'll continue to build on this success. These are just a few examples of the types of actions up and down our brand portfolio to position us for success and market share gains. M&A has always been a key part of our growth strategy, and that will not change. With $2.2 billion in liquidity and strong recurring free cash flow, we are entering the year with flexibility. Our pipeline is more active today than it has been in the past 36 months, and we have identified targets across each of our business units that can strengthen our core. At the same time, we have taken intentional steps to be more strategic in our deal evaluation. We remain focused on complementing our core business and how a potential asset meets those criteria while delivering strong future growth and margin accretion. Above all, we will remain disciplined on valuation and stay true to our return targeted approach. Let's start with our Retail segment. Our largest business, ProWood, has performed well even in a tougher market. Results in the ProWood segment were impacted by the lack of storm activity in the quarter versus a year ago, creating an unfavorable comp. We continue to work on lowering our cost positions and improving our manufacturing processes. Turning to Deckorators. We continue to see strong demand across our portfolio of products, and we were very pleased with our early buy program for our proprietary Surestone product. Demand for our Surestone product outstripped our ability to produce for much of the year. However, recently added capacity is helping our teams work through those strong backlogs. The Selma expansion is complete and the start-up at our Buffalo plant is progressing nicely. We expect that the additional capacity will come online by the end of the first quarter. Both the Buffalo expansion and the expansion at Selma are on track to support robust demand in our spring selling season. Increased output, combined with strong demand drove a 44% increase in Surestone sales in the quarter and 35% increase in wood plastic composite sales. We believe both metrics are well ahead of the broader industry, and we remain optimistic about the 2026 selling season. To build on this momentum, we will maintain our higher marketing spend for 2026. As a reminder, we invested $30 million to support the brand, and we are pleased with the initial success. Our internal metrics indicate a successful return on the investment, unaided brand awareness, product sample requests and website traffic, just to name a few, have exceeded our expectations. Finally, we continue to expand our distribution partnerships as well as investing in internal distribution capabilities. We believe our ability to distribute internally remains a key competitive advantage for us long term. These expansion plans and investments are consistent with our plans to double our composite decking market share over the next 5 years. Moving on to our Packaging segment. The business continues to show signs of stabilizing, both in terms of sales volume and gross profit. Pricing remains competitive given the softness in certain markets. The lack of visibility caused by ongoing tariff discussions and volatile lumber pricing made 2025 a challenging market, but our team was busy working to position us for success. Our national footprint gives us the ability to support strategic customers in multiple geographies across the country. And our design and engineering capabilities separate us from many of our smaller more regional competitors. Our business has become a trusted partner for major global brands and customers with highly specific specialty needs alike. This coupled with our scale and financial flexibility gives us the opportunity to invest in automation to lower our cost position while developing innovative and patented solutions for our customers. With the improvements we made to the business, we expect above-market growth when the market recovers. To finish with construction, markets remained pretty consistent to our last quarter, where we reported a competitive new residential construction environment impacting results and overshadowing improvements in our other businesses. Residential builders continue to look to manage home inventories while consumer confidence and affordability remain challenged. While we don't have a national footprint, we do overlap with some of the markets that have been more pressured, particularly in the West. We continue to make investments in automation and other initiatives to improve our cost position and throughput. As previously mentioned, our Site-Built business launched Frame Forward Systems, which joins our successful and durable building products and Pivot Systems brands into a single solution selling approach. We have already been able to leverage this to secure major contracts with new national customers. Our factory-built business continues to add more value to our customers by using our expertise to develop products that improve the aesthetics of manufactured housing such as the addition of our Endurable drop-down deck with Deckorators decking. Our concrete forming business continues to expand our product portfolio and services offering to capture more of our customers' wallets while helping them address labor challenges on the job site. Finally, our commercial business continues to yield improved results built on new products, new customer wins and the benefits from prior restructuring efforts. Looking ahead, we remain committed to our long-term targets and believe the steps we are taking today will position us to achieve these results in the future. As a reminder, we are driving towards the following goals: a 12.5% EBITDA margin, 7% to 10% unit sales growth, some of which will come from M&A and new products; return on invested capital in excess of 15%, which is well ahead of our cost of capital; and lastly, to achieve all of this while maintaining a conservative capital structure. We are entering 2026 in a position of strength. We are excited about the changes underway as we continue to refine and strategically refocus our business. As we've said before, our focus remains on the most attractive opportunities that enhance our core business. We are making progress even in this down cycle, and we finished the year with an EBITDA margin that is 170 basis points higher than in 2019. We will continue to bring to market value-added solutions that will strengthen our company, all for the benefit of our shareholders, our customers and our communities. Thank you again for joining us today. We're proud of the progress we've made and the talented teams behind it, and we remain confident in our path forward. With that, I'll hand the call over to our Chief Financial Officer, Mike Cole. Michael Cole: Thank you, Will. Net sales for our December quarter were $1.3 billion, down 9% from $1.46 billion last year. Results were driven by a 7% decline in units and a 2% decline in pricing. The decline was a continuation of the trends we've experienced in 2025, resulting from weaker demand in a more competitive market, particularly in our business exposed to new home construction. These headwinds resulted in a 10% decline in our gross profits to $217 million from $240 million last year, primarily due to our Site-Built and ProWood business units. Positively, we continue to make strong progress on our $60 million cost out program in the fourth quarter, and we're pleased to achieve an $11 million reduction in our core SG&A despite a $3 million increase in advertising costs to support future growth in our Deckorators business unit. The overall increase in our total SG&A was due to bonus expense. Last year, our estimate of bonus expense was overstated in the first 3 quarters of the year, and that resulted in very little expense in Q4. This resulted in a $14 million increase in bonus expense for the fourth quarter compared to the year ago period. This was also a quarter that had certain nonrecurring noncash adjustments including gains from insurance settlements and from the sale of real estate as well as losses from asset impairments and from additional deferred income tax expense. For these reasons, we think adjusted EBITDA is a good metric to assess our performance this quarter and the difference in year-end bonus adjustments is also important to consider. Excluding bonus expense from each period, adjusted EBITDA was $124 million this year compared to $135 million last year, an 8% decline, reflecting our decline in gross profit offset by the reduction in core SG&A I mentioned earlier. Even with these headwinds and in the most challenging part of the current business cycle, our return on invested capital for the year remained resilient at 13.2%, well above our weighted average cost of capital. And our free cash flow for the year was strong at $451 million, off only 5% from 2024, providing ample resources to complete $443 million of share repurchases this year or roughly 7% of our shares outstanding at the beginning of the year. Moving on to our segments. Sales in our Retail segment were $444 million, a 15% decline compared to last year, consisting of a 13% decline in unit sales and a 2% decrease in prices. By business unit, we experienced a 13% unit decrease in ProWood and a 57% decrease in Edge due to the restructuring and repositioning of that unit offset by a 17% increase in Deckorators as our market share gains are becoming more evident. Our ProWood volume last year was impacted by storm-related demand as well as softer demand generally resulting from higher interest rates and weaker consumer sentiment. Within our Deckorators unit, growth was driven by our wood plastic composite decking, which increased 35% in our Surestone composite decking, which increased 44%. Our railing sales declined 7% due to the loss of placement with a large retail customer we mentioned in previous quarters. Looking ahead, we lapped difficult comparisons in early 2026 and believe next year's results will be more reflective of our position in the marketplace because of momentum in both our traditional wood plastic composite and our new Surestone products as we expand distribution in both the pro and retail channels. Moving on to Packaging. Sales in this segment declined 1% to $370 million, consisting of a 1% decline in units and flat pricing. Customer demand in this segment remains consistent with prior quarters, while pricing remains competitive. Importantly, we continue to gain share with key customers across all 3 business units. Structural Packaging volume increased by 1%, which marked the first positive year-over-year comparison since 2021. Our Protective Packaging and PalletOne businesses experienced 2% and 4% unit declines, respectively, as market conditions remain challenging. Turning to Construction. Sales in this segment declined 10% to $440 million due to a 5% decline in selling prices and a 5% decline in units. The decline in the quarter was driven by a 17% unit decline in our Site-Built business. Demand for housing remains challenged due to affordability and weak consumer sentiment which is amplified by many of our larger builder customers working to lower inventory. Our regional footprint and product mix, both negatively impacted results as we are more heavily weighted to single-family housing and have a strong footprint in Texas and Colorado, which have seen more significant declines in demand. Positively, we saw low single-digit volume increases in each of our factory built, commercial and concrete forming business units as an offset. With respect to our overall profitability, our consolidated gross profits decreased by $23 million driven primarily by our Site-Built and ProWood business units as a result of lower volumes. These decreases were offset by modest improvements in our Concrete Forming, Commercial and Deckorators business units, along with our captive insurance company. Total SG&A increased by $3 million because of bonus expense, as I previously mentioned, offset by an $11 million reduction in our core SG&A despite a $3 million increase in Deckorators advertising costs. As we manage through this cycle, we're focused on maintaining the right balance between cost discipline and advancing our long-term objectives. That means ensuring the company is appropriately sized relative to current demand while continuing to invest in the resources needed to drive growth, expand market share, further product innovation, strengthen brand awareness and improve operational efficiency through technology. With these objectives in mind, we set a goal at the beginning of 2025 to achieve $60 million of cost reductions by the end of 2026 with half coming from SG&A and the other half coming from capacity consolidations that reduce our cost of goods sold. I'll give you a status update on that objective. Our annual core SG&A expense, which excludes bonus and sales incentives, decreased by $21 million for the year because of $35 million of targeted cost reductions, surpassing our $30 million target, and a $6 million gain from an insurance settlement. These reductions were partially offset by a $20 million increase in Deckorators advertising costs. Looking ahead to 2026, we anticipate core SG&A of $570 million, a $20 million increase primarily because of higher compensation, health care and other benefit costs. Further, we estimate current period bonus expense will be 17% to 18% of pre-bonus operating profit, vesting expense associated with share-based bonus awards will total $21 million, and sales incentives will be approximately 3% of gross profit. We also achieved $7 million of cost reductions from capacity consolidations in 2025 and believe we will achieve an additional $25 million in 2026, surpassing that $30 million target as well. We're very proud of the efforts of our leaders to lower our cost structure in all our businesses and support teams. When combined with the successful efforts of our sales teams to win market share, and the capacity we've added to grow our higher-margin businesses, we believe we are positioned well for better bottom line results in 2026. Moving on to our cash flow statement. Our operating cash flow was a robust $546 million for the year. When combined with our strong balance sheet, we have ample resources to pursue our strategic growth objectives while also providing additional returns to shareholders through increasing dividends and opportunistic share repurchases. Our investing activities included $106 million in maintenance CapEx and $164 million in capital to drive future growth and profitability. Total CapEx was below our $275 million to $300 million target for the year due to longer lead times and our decision to postpone adding new capacity in markets where we see end market weakness coupled with sufficient capacity. As a reminder, our expansionary investments are primarily focused on 3 key areas: expanding our capacity to manufacture new and value-added products, geographic expansion in core higher-margin businesses and achieving operational excellence and efficiencies through automation. With regard to our capital expenditures for 2026, we currently plan to spend approximately $300 million to $325 million. Finally, our financing activities primarily consisted of returning capital to shareholders through almost $82 million in dividends and $443 million in share repurchases. The strength of our cash flow generation and balance sheet allows us to continue to invest in growing the business while also being more aggressive on share buybacks. We currently believe 2026 will return to a more normalized cadence of repurchases. However, we will remain opportunistic. And as we displayed in 2025, we can easily allocate more free cash flow towards repurchases while preserving the balance sheet for more meaningful M&A and other growth investments. Turning to our capital structure and resources. We continue to have a strong balance sheet. At the end of December, we had $914 million in surplus cash and no borrowings outstanding under our lending agreements, bringing our total liquidity to $2.2 billion. Our balanced business model generates meaningful and consistent free cash flow, which totaled $451 million in 2025 and was substantially used to return cash to shareholders. As we've discussed in the past, our highest priority for capital allocation is to drive organic and inorganic growth that results in higher margins and returns for the enterprise. Our strategy also includes growing our dividends in line with our long-term anticipated free cash flow growth and repurchasing our stock to offset dilution from share-based compensation plans. As we've demonstrated, we'll opportunistically buy back more stock when we believe it's trading at a discounted value. With these points in mind, our Board approved a quarterly dividend of $0.36 a share to be paid in March. This is a 1% increase from our October dividend and represents a 3% increase from the dividend paid a year ago. Last July, our Board of Directors approved a $300 million share repurchase authorization effective through the end of July 2026. We were very active in the quarter and for the year, repurchasing $443 million of our shares at an average price just over $98 per share. Finally, we continue to pursue a growing pipeline of M&A opportunities that are a strong strategic fit with our core business that adds higher margin and growth potential to our current portfolio of businesses. As we pursue these opportunities, we will remain disciplined on valuation to ensure we earn appropriate returns on our investments. I'll finish with comments about our outlook. We expect that many of the trends we saw in 2025 will continue in 2026, resulting in full year organic volumes being flat to down low single digits for the year. Nevertheless, we are cautiously optimistic for 2026 and anticipate market share gains and our cost-out initiatives will offset the headwinds in our businesses tied to new residential construction. We have confidence in our business model, and we continue to focus on things within our control. We believe we've taken the right actions to reduce costs, eliminate excess capacity and exit underperforming or noncore businesses while positioning the company to deliver above-market growth and margin expansion as market conditions normalize. With that, we'll open it up for questions. Operator: [Operator Instructions] And our first question will come from the line of Kurt Yinger with D.A. Davidson. Kurt Yinger: I wanted to start off on Deckorators, sort of a 2-parter. First, can you just provide us an update in terms of where you're at with the Summit store rollout and maybe how much of that benefit you still have ahead recognizing 2025 wasn't kind of a full year by any stretch. And then second, on the cost side, you talked about Selma, the new lines being implemented. You've got the new facility in Buffalo. What kind of opportunities are there on kind of the margin front as you grow into that new capacity this year? William Schwartz: Yes. So let's start with the first question and revolving around, and I know that's top of mind for a lot of folks is where are we in the rollout? We continue to gain share and increasing that store count as the capacity comes online. I think it's actually, when you start to think about whether it's on shelf or whether it's in the distribution centers that support those stores, I think it's more important to really kind of pivot that or think about it, Kurt, I think it would be better for you. We expect $100 million of increase in Deckorators sales in 2026. So if you think about that, the increase of $100 million heavily weighted towards decking, I think, is a better representation. And that's because of wins in both retailers as well as the independent channel. So I think that's probably a better number for you because it gets a little cloudy when you're trying to figure distribution center on shelf, et cetera. So -- as you pivot to the second question that you had, we still have tons of opportunity when you talk about margin growth. And we're not going to get to the point of giving you margin, we don't share margins. But we're bringing things in-house that we're outsourcing. Production capacities are threefold with the new equipment. And so we've still got a lot of gains to make there, and I think that will be represented as we go forward. Kurt Yinger: Got it. And that $100 million, you said a lot of that was decking. I mean that's off, what, like $190 million kind of decking base this year? Is that kind of in the ballpark? Michael Cole: Yes. I think decking this year was about $165 million with mineral-based composite Surestone technology being a little bit more than the wood plastic composite. And then we had another $80 million in railing sales. That's another number you guys are usually interested in. Kurt Yinger: That's super helpful. And then on the SG&A line, are there any other kind of facility consolidation or rationalization opportunities you're considering just kind of given the tepid demand environment continues to drag on? Or how might we think about potential upside levers to that $60 million target you guys outlined for this year? William Schwartz: Yes. Kurt, I guess I would answer that with saying the heavy lift is done. We did a lot of work, but we're constantly looking at that, looking for opportunities to control capacity where we don't need it. And so that's an ongoing effort, but I think the heavy lift is -- has been done. Michael Cole: Yes, from my comments, you can tell that we feel like we're going to surpass the cost-out goal with the capacity consolidations this year. We accomplished the SG&A goal in '25. I mean, if there's one other area I suppose where there's some profit improvement that we're looking to mine out of this is maybe on the greenfield side. We still have some greenfields that take time to get to the level where you want them at in terms of profitability. So we do -- and then you always have a few operations that are kind of performing to expectations. So those are another -- those are additional kind of upside opportunities in addition to the Deckorators growth, which is the biggest lever. Kurt Yinger: Got it. Okay. Perfect. And lastly, just on M&A. Is there anything to kind of read into the meaningful comment in terms of maybe the size of opportunities that you're looking at today? And then secondly, what's kind of shifted in terms of the pipeline being so much fuller today than maybe the last couple of years? Is it just different businesses coming to market, maybe selling price expectations? Just trying to understand that piece. William Schwartz: Yes. I think there's a lot of the work we're doing internal. I would tell you, one, we're building on the team both from strategy and M&A, and that's to really drive. We're doing more outreach than we've done in the past in prospecting, but that is for strategic priorities. We're laser-focused on where we want to go. And so we're doing the outreach where in the past, we probably waited for a lot of things to come to us that were for sale. We're trying to encourage that activity today. Operator: One moment for our next question, and that will come from the line of Reuben Garner with Benchmark. Reuben Garner: Just to start, I've lost you a little bit on the Deckorators comments. Can you just clarify, did you say that you guys did $165 million in decking business split between Surestone and Composite in 2025 and you're expecting to add $100 million to that in '26. Is that right? Michael Cole: Yes. Yes. And I further went on to say $165 a little more weighted to the mineral-based in decking. And then there's $80 million in railings, so $245 million total. And then to get to the business unit total, there's another $70 million in fence and deck accessories. So those are -- that's kind of the breakdown for '25. And then yes, the $100 million in growth in Deckorators is predominantly on the decking side. Reuben Garner: Okay. And just -- so maybe the follow-up to clarification of that is like it sounds like you have a lot of visibility into that. How much kind of the load-in did you benefit from in '25 and what of that $100 million is sort of load in, in '26? And is it sort of just one specific retail? You mentioned distribution. Are there others? I know you picked up one, I think, out in the West Coast last year. Is there more external distribution that you've had access to that you can kind of quantify where you are in that process as well? William Schwartz: Yes. So Reuben, there's certainly a load-in exercise, and you'll see that in the first and second quarter, leading into the selling season. But I would tell you, it's across all the areas that we do business. And the main thing to think about is we were really limited in 2025 from a capacity standpoint. And so whether it was our internal distribution, distributors, all areas, we were limited and our sales would have been better in 2025. So you're going to kind of see that materialize in 2026 with those additional capacities. And kind of as a reminder, between Selma and Buffalo, there's $250 million of capacity between the 2 once they're both running totally. Michael Cole: I should mention. We don't want to lose sight of the margin here either. Reuben, we -- I would say we experienced very little margin lift because the capacity wasn't fully optimized. And so really, the large -- almost all of the margin lift we see coming and then we had to sell through those inventories, right? So we see the margin lift coming in '26. Reuben Garner: Okay. And to be clear, where are you at in terms of like how much of that new capacity? What percentage of it is up and running today? How much more work do you have to do to get it fully optimized? Is it a quarter away? Are we already there and the benefits are going to start flowing through as soon as the first quarter? William Schwartz: Yes. So think of the 2 plants, Selma, fully operational. Everything is in place and operating. There's still optimization that happens with new equipment, et cetera. Buffalo comes online end of Q1, early Q2. So give it a quarter to really get up and ramped up. So back half of the year, you're starting to see full capacity. Reuben Garner: Okay. Great. And then switching gears on the packaging business. It seems like another good quarter of stabilization. What about like actual green shoots or leading indicators of any kind? Do you see anything internally that would suggest we might actually -- I know your outlook kind of talked about flat to down. I guess I'm curious how conservative is that? It seems like there has been some encouraging metrics we would have historically looked at for you guys? Like is it just too early to call that we're inflecting to growth but those signs are there? Or are you not seeing the same kind of signals? William Schwartz: Yes, it's still early. I would point to our structural packaging group. The work that our strategic sales teams are doing with multinationals and things of that nature, really starting to make progress there. And the near-shoring opportunities that we believe will come. So we're seeing some green shoots, but it's still early. Operator: One moment for our next question, and that will come from the line of Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: I appreciate all the color on Deckorators' expectations. That's been very helpful. And I just wondered, is it fair to assume the pace of share gains should accelerate in 2026, especially with the new capacity coming online to meet the elevated backlogs you spoke of. And also, do you see additional opportunities moving forward to further expand your distribution partnerships to complement your direct business, given some of the changes we've seen with the 2 market leaders over the last year? William Schwartz: Yes, I think that's a very fair assessment. And yes, we're extremely excited, as you can tell that internal distribution side is big for us. And honestly, we didn't really get to capitalize on that last year, again, going back to the capacity challenges. So yes, in the market today, there's excitement around the brand, excitement around the product. And we're trying to decide who the right partners are from a distribution perspective to really expand the brand. Jeffrey Stevenson: Great. That's good to hear. And shifting to site built. Obviously, it's been a challenging year of deflation headwinds. And do you think you could see any signs of price stabilization in the first half of the year, especially if the builder spring selling season comes at least in line with the current expectations? William Schwartz: Yes. Certainly, that remains probably the cloudiest and most challenged market. Mike, do you want to add any color to that? Michael Cole: Yes. I think thinking about the site built group, midyear seems to be about the point where we lap the really difficult comparisons. We saw some sequential pricing challenges, I guess, going from Q3 to Q4. We know that year-over-year, the first half of the year is going to be tough comparisons. But it's about midyear last year, where we really saw volumes begin to drop pricing become even more challenging as the large builders, in particular, worked hard to reduce their inventory. So -- the back half of the year, I think we've got an opportunity to maybe comp a little better, but the first half of the year is going to be tougher. Jeffrey Stevenson: Got it. Got it. Makes sense. And then one clarification question. The $300 million to $325 million you announced in capital project investments this year. Just for clarification, will this be primarily in the retail business, just given you've announced future organic growth investments in all 3 of your primary operating segments? Michael Cole: Yes. That is most heavily weighted towards building out -- finishing the build-out with Deckorators. And we talked about the Buffalo plant a lot, but also adding capacity in [indiscernible] to produce the wood plastic composite. Operator: One moment for our next question, and that will come from the line of Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe to start with on the balance sheet side, clearly, it's really strong. Can you talk about -- a little more about the M&A pipeline and where you see the most opportunity? It sounded like that in 2026, you are skewing more to M&A versus 2025, which was more share repurchases focused. William Schwartz: Yes. The pipeline is really -- it's better than it's been in the last 3 years, for sure. And some of that's intentional and because of the efforts we're putting in, where I see the best opportunities, we're going to continue to strengthen the core of our business. That's where we're going to go and remain return-focused, Ketan. That's key to everything we're looking at. And they've got to match up to the strategic priorities that we're going after. So we're talking to companies and creating outreach that drives that. Ketan Mamtora: Understood. And just related to that, has your view changed at all on through-cycle profitability on the packaging business? I know in the past several years, that has been a growth -- M&A growth focused area. How are you thinking about packaging in terms of just M&A opportunity? William Schwartz: Yes, that's certainly a highlight area for us and one that we think is extremely fragmented and a place that we can make a real difference. It's a good business for us. We understand it. And so that's definitely an area of target. Ketan Mamtora: Got it. And then just switching to ProWood and just broad R&R. Can you talk to some of the trends that you are seeing? We know and you've read so much about new resi being weak. I'm curious -- on the broad repair and remodeling side, what sort of trends are you seeing? William Schwartz: Yes. We're -- we continue to see -- I mean, it's -- right now, it's just a soft market. Consumer confidence is challenged, affordability is challenged. But we feel strongly that our portfolio and mix of businesses allows us to capture wherever those opportunities come from, Ketan. Michael Cole: Yes. Maybe it makes sense to kind of break down the ProWood numbers too. The 13% decline, the way we estimated that, that storm-related demand, which really you had that in '23 and '24, I didn't have it obviously in '25. We think that was about and 8% of the unit decline. So if units were off 13% in ProWood, 8% of that we think was storm related, which takes it down to mid-single digits on the rest of the business. And we think that's just soft demand generally with higher interest rates and weaker sentiment. Looking forward -- we haven't lost any share or anything like that. Looking forward, we would probably look to our customers' outlooks for the year there. And I think those are flat for the most part. Ketan Mamtora: Got it. That's helpful. And then just last one on factory build, 2025 was a pretty healthy year. Curious what kind of trends you're seeing so far this year and your expectations for '26? William Schwartz: Yes. That's an area that we believe and continue to believe has the ability to tackle some of the affordability challenges in housing. And so we've committed to it. We've talked about bringing products to that market that enhance the visual appeal, bring it closer to a traditional Site-Built home. And I think it's a place we can really capitalize. I think there's some opportunity there, especially in an affordability challenged market. Michael Cole: I should also mention, we did lose a little bit of share on some commodity business. So the units there could be a little challenged for that. I don't want you to be surprised by that, but there's been really good momentum on the new product side. So there could be a positive mix change with some new product momentum. Will had mentioned in the dropdown deck, the Endurable drop-down deck and then branding efforts on our -- some of our other products, the BRAWN brand within Factory Built. Operator: One moment for our next question, and that will come from the line of Andrew Carter with Stifel. W. Andrew Carter: So what I wanted to ask is, I know you don't want to give explicit guidance, but given that you have a more manageable unit decline line this year, low single digits, you talked about the cost savings coming through the $100 million of incremental Deckorators, I'm assuming that will be margin accretive -- or I'm sorry, expenses look normalized but correct me on that. Why wouldn't EBITDA margin stabilize this year potentially through the year? And any kind of guidance about -- will go a deeper decline first half second half? Anything you'd give us there on kind of the stabilization of the margin in this business? Michael Cole: Yes. You can tell that we feel like with stabilization in packaging, Site-Built is going to continue to be a challenge, but we feel like we have some offsets in the concrete forming and in the commercial side and then factory build, as I mentioned, with new products. And then on retail, there's lots of opportunities for margin improvement in retail, and that's our expectation with the -- with not only Deckorators but also with ProWood. ProWood also has with the ability to capture that, that incremental margin from the distribution but also not selling into a down market, hopefully, in the primary selling season and some other initiatives that are in play for cost out on cost of goods sold. There's a lot of things to be excited about from a margin standpoint. So the one challenge I guess I would point to is we expect Site-Built to be a challenge, particularly in the first half of the year. But otherwise, we are optimistic about the margin profile moving forward. W. Andrew Carter: I want to focus on that back on the construction gross margin in the quarter. I mean it was down 67 basis points year-over-year, significant improvement from minus 251. Builders FirstSource margins dropped actually got a little bit worse sequentially. I guess, I would say is that was more stable versus my expectations. You still have the headwind from Site-Built underperforming the rest of the portfolio. But is there anything to call out in that stability? And would we expect any of that stability to continue in the next year? I know you just told me Site-Built will be tough, but I just want to -- I'll stop there. William Schwartz: Yes. Sequentially, it was under pressure from Q3 to Q4. But hopefully, we've hit a bottom here. We know that when it comes to the year-over-year in Q1 and Q2, it's going to be a tougher comparison, right, because we've stepped down throughout the year this year, the entire year. So hopefully, we've reached the bottom here. And once we get to the point where we lap in middle of the year, that will no longer be a drag. W. Andrew Carter: Just a final question around kind of Deckorators, the $30 million in advertising investment. Could you remind us among that $30 million, how much is dedicated to contractors? How much is dedicated to consumers? What metrics you have to keep that investment in place? And how long do you expect to sustain that $30 million investment through '27 to '28? Will there be a big step down? Or are you going to wait for the business to just grow into that level of advertising support? William Schwartz: Yes. We do not expect to step that down anytime soon. I think the brand is gaining momentum, as evidenced by the sales and demand for the product. And we've got to reach that end consumer to describe and explain the attributes associated with that product, what makes it different. And so right now, we're really hitting on all fronts and attacking all markets from a marketing perspective and strategy perspective. But we've got to get to that end consumer. So they understand the value around that product. And -- but you should expect to see that continue into the future. And at some point, we'll probably become a percentage of sales type marketing spend. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Schwartz for any closing remarks. William Schwartz: Thank you all for joining us for our fourth quarter call. It's clear that we rose to the challenge and navigated a tough year, and that's because we have the right team in place. Thank you to our employees, to our customers and vendor partners who make our success possible. I'm optimistic about what 2026 will bring. Thank you, and take care. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Jonathan Mason: Okay. Well, good morning, everybody, and welcome to ConvaTec's 2025 Financial Results Presentation. Press harder. Usual disclaimers apply. So I'm going to start with an overview of 2025 and a little bit of what to expect 2026. Fiona will present the financial results and guidance, and then I'll come back and talk about where we are on our strategic journey and what to expect next. And then we'll be very happy to take any questions you've got at the end. 2025 was a year of strong delivery. It was the fifth consecutive year that we delivered organic revenue sales growth within our target range. That was supported by 8 new product launches that we've got underway at the moment. It was the fourth consecutive year of margin expansion, and it was the second year we grew EPS growth by double digit, and there's more to come on that. And the strong cash we generated enabled us to invest more to grow for the future and also to do some return to shareholders. So the growth is starting to compound. The flywheel is turning, and we are well set for the future. In 2025, there were some headwinds, and we delivered despite them, which demonstrated the resilience of this business. As set out on the chart, we're in 4 chronic care categories. These markets are growing structurally independent of the economic cycle, and that provides a broad base for growth. There's a high proportion of recurring revenues, especially where we deliver excellent customer retention, loyalty, satisfaction based on the service we provide. And we have strong market positions, which gives stability to the earnings. We make differentiated products and solutions. We're innovating to satisfy unmet customer needs. We're investing in the fastest-growing segments of our categories. And we've got the richest product pipeline in our history, which benchmarks pretty well with the industry. The growth is broad-based. We're not dependent on any one category or product or geography for our growth. And there are reimbursement dynamics in this sector. There always have been, there will continue to be, but we build in an expectation of those in our plans, and we grow through them. New product launches help us to overcome reimbursement pressures, and they help us to grow consistently ahead of the markets, strengthening in the results and the delivery. The increased cash we're generating is enabling us to invest more in CapEx steadily throughout the FISBE strategy period. And the operating margin, we've delivered consistently 4 years in a row of margin expansion. EPS growth was double digit for the second year in a row, and there's more of that to come. You can see starting from the bottom, operational cash flow -- excuse me, operational CapEx has been consistent at about 2.5% of sales. Last year, growth CapEx increased significantly, and we have a real opportunity here to invest to meet the strong demand. Dividend grew slower at the start of the period until profits caught up. Now that profits are growing faster, we are in our target payout range, and you can expect dividend to grow in line with profits going forward. On M&A, we've invested over $500 million over the period. Last year was a bit smaller. We will continue to be disciplined in acquiring only bolt-on investments, which increase our competitive strength in our focus areas. But this remains a priority area for us, and you should expect to see more investment here to increase growth going forward. And then last year, we managed to return $300 million by way of share buyback within our prudent leverage target of 2x EBITDA. So to summarize this introduction, what I'll say is we are consistently delivering against the targets we've set in the FISBE strategy and the targets we set 3 years ago at our last Capital Markets Day. The turnaround of the business from the poor state it was in when Karim arrived in 2019 has been delivered, and we're now ready to accelerate. With the rich pipeline of new product launches we've got underway and coming, supported by higher investment to grow the pipeline and capacity, we're increasing our target growth rate to 6% to 8% per annum from 2027. And we're looking forward to explaining how we're going to do that at the Capital Markets Day in 6 weeks' time. Thanks very much. I'll hand over to Fiona and to talk about the financial results and see you again shortly. Fiona Ryder: Well, thank you, Jonny, and good morning, everybody. While I haven't -- while I have met many of you here today, for those who I haven't, I'm Fiona Ryder. I've been the CFO for about 6 months, and I've been at ConvaTec for about 4 years, working closely with Karim and Jonny on the delivery of our strategy. I'm delighted to be here today to present a summary of our 2025 financial performance plus our outlook for 2026 before handing back to Jonny for the strategic review and Q&A. We are pleased to report another strong financial performance for 2025. Organic revenue growth was broad-based across all 4 categories. Excluding InnovaMatrix, which I'll talk about shortly, revenue growth was 6.4%. Operating margin expanded by 110 basis points to 22.3%, taking our cumulative margin expansion over 4 years to 460 basis points. We delivered double-digit EPS growth at 16%. Our cash flow was strong with free cash to equity conversion of 101% under our new definition, which I will come back to later. This strong cash flow enabled us to increase investment for growth and for return to shareholders. Growth CapEx more than doubled, a 13% increase in dividend, a $300 million share buyback while delivering our net debt-to-EBITDA at target of 2x. These strong results demonstrate our track record under the FISBE strategy and are further evidence of our ability to deliver sustainable, profitable growth. In ConvaTec, we are really proud of this slide that shows our turnaround. Excluding InnovaMatrix, it's 5 consecutive years of organic revenue growth above 5% and 3 years above 6%. Margin is continuing to expand, accelerating EPS growth and strong cash conversion. In 2025, sales growth was broad-based across all 4 categories as this chart demonstrates, Infusion Care was the standout performer. On the right, you can see the impact of the significant market uncertainty in skin substitutes with InnovaMatrix sales down around $30 million year-on-year. Now let's look at sales by category, starting with Advanced Wound Care, where sales were up 4.1%, excluding InnovaMatrix or flat including. We saw good growth in North America and Latin America with an improving performance in Europe in H2. Our flagship brand, Aquacel Ag+ Extra delivered another good year, and we are very pleased with the launch of ConvaFoam, which is gaining share. InnovaMatrix sales decreased $30 million to $69 million, with H1 down about 13% and H2 down about 44%. As you know, from the 1st of January 2026, CMS has included -- has introduced a price rate of $127 per square centimeter, which represented about an 80% reduction for InnovaMatrix. As previously guided, this equates to a headwind in 2026 of around 2% of group revenue. As a result of the estimated impact on future forecasts, we have recorded a noncash accounting impairment of $72 million for our InnovaMatrix platform, equating to about 20% of the acquisition consideration. We still believe that InnovaMatrix is a highly effective product. beneficial for patients and trusted by HCPs. We look forward to it returning to growth in 2027. In Ostomy Care, organic growth was 4.5%. The highlight of the year was the performance of Esteem Body, our 1-piece soft convex pouch, which grew ahead of expectations and where we anticipate further strong growth in 2026. Growth was also supported by our updated Esenta accessories range. We were also delighted to secure our first group purchasing organization win in the U.S. in 5 years, and we followed this up with a further GPO win post year-end. Good U.S. growth was supported by continued new patient starts from our Home Services Group. Growth in Europe increased during the year and Latin America performing really well. In Continence Care, organic growth of 6.6% was driven by further volume increases in the U.S.A., backed by our outstanding customer service and our broadening product portfolio. We saw faster growth in sales of ConvaTec product relative to other manufacturers, which is now 59% of our sales mix given our improved product -- portfolio of products and faster growth of hydrophilic product, which was again over 60% of our revenue. We grew strongly outside the U.S.A. from a low base and international again contributed over 1 percentage point to the category growth rate. And then Infusion Care, where organic growth was double digit at 12.5%. Growth was faster in H1 as expected. There was continued strong demand in diabetes across both long-standing and newer customers as the penetration of automated insulin delivery over multiple daily injections is increasing. Outside diabetes, growth was excellent, led by infusion sets for AbbVie's Parkinson's disease treatment. Other therapies now represent 15% of our Infusion Care revenue, up from about 10% in 2024 with scope to grow further as a share of the category. We have a strong position in Infusion Care with increasing diversity across customers and products. We are confident that 2026 will see another strong year with high single-digit growth. Moving on to profitability. 2025 was another year of improvement. Operating margin expanded by 110 basis points or 100 basis points in constant currency, in line with progress over the last few years, where margin has increased 460 basis points since 2021. The strong growth in Infusion Care and the reduction in InnovaMatrix contribution results in movements in margin mix and OpEx, which broadly offset each other. Price and productivity contributed 30 and 130 basis points, respectively. Inflation was around 3% as expected, a headwind to margin of 110 basis points, and I would expect a similar level of inflation in 2026. We saw further material cost benefits from our simplification and productivity programs. G&A was down a further 50 basis points to stand at 6.8% of sales. This slide shows how we have delivered mid-teens growth in earnings per share. With operating profit up 12%, finance costs were down about $2 million, and our tax rate was steady at 24%, leading to a 15% increase in net profit, which with a reduction in shares led to 16% increase in earnings per share. Turning to cash. We had a strong year with free cash flow to equity of $362 million and a conversion of 101%. We have redefined cash flow to equity to better reflect the free cash available for capital allocation. We have separated operational and growth CapEx, increasing disclosure transparency, and we've adjusted for some small noncash items. Using our previous definition, free cash flow to equity was 61%. The main points to highlight are: EBITDA increased 12% from our improved operational performance. Working capital increased by about $40 million, in part due to the fourth quarter being our highest sales quarter. As this unwinds, we expect working capital growth to be lower than revenue growth in 2026. Operational cash payments of $64 million were unchanged year-on-year and cash adjusting items of $16 million were slightly below our guide of $20 million. Growth CapEx of $121 million more than doubled year-on-year as we identified compelling organic investment opportunities at high returns given strong demand for our products and our exciting product pipeline. We paid dividends of $140 million, and we completed a $300 million buyback in the second half. Net debt increased by $272 million with leverage landing at our target of 2x. Here is our outlook for 2026, reiterating our early guidance from November. We continue to expect 5% to 7% organic growth in group revenue, excluding InnovaMatrix. Group revenue will be second half weighted as product launches build. Following the significant CMS price reduction, we expect InnovaMatrix sales of around $20 million for the full year, strongly H2 weighted. On operating margin, we expect further progress in 2026 to reach at least 23%, irrespective of InnovaMatrix headwinds. This will be further underpinned by simplification and productivity improvements across operations, commercial and G&A. On profit phasing through 2026, I expect us to make modest margin improvements H1 '26 on H1 '25 and greater margin progress in the second half. This sales growth and margin improvement, coupled with largely unchanged finance and tax costs and the reduction in our average share count from our buyback translates to another year of double-digit EPS growth. Cash generation will be strong, targeting around 100% of free cash flow to equity conversion. Operational CapEx will continue to be around 2.5% of sales with growth CapEx increasing to drive organic growth. To wrap up, 2025 was a year of strong financial delivery. We hit our targets across sales, margin and EPS. 2026 will be another year of double-digit EPS growth as well as significant investments to accelerate future growth. From 2027, we are set to sustainably deliver 6% to 8% per annum organic growth, a mid-20s operating margin and double digit in EPS and free cash flow to equity. Our financial results are starting to compound. Thank you. And I'll now hand back to Jonny. Jonathan Mason: Right. Thanks, Fiona. So we've said that ConvaTec is delivering against the FISBE strategy and that now is the time to evolve that strategy. We're not going to get into the details of the strategy evolution today. That will be at the Capital Markets Day. But I'll just spend the next few minutes expanding on the delivery to date and why now is the right time to evolve. This is a slide which Fiona just showed. It's known internally as my favorite slide. I'm not going to go through each metric, but just to show how the momentum is building. On sales, on margin, on EPS, on cash, momentum is building. We are becoming a stronger business with more to invest, and that sets us up really well for the future. And we've also shown before how that growth is broad-based. All 4 categories are contributing to the growth, as you can see from the chart, 4 strong categories working together, and that's despite the reimbursement headwinds that they have faced along the way. That growth is supported by new product launches into each category, as you can see from the colors on this chart. We've got 8 products in the market now launching underway, and we've got 8 more to come across 2026 and 2027. And then at the end of 2027, guess what, we're not going to stop. There's more to come. There's more in the plans, and we will be describing what that is at the Capital Markets Day. So let me just take a moment to reflect on where we are now. ConvaTec is a strong and growing business. We've got strong leadership positions in markets that are fundamentally growing with high levels of recurring revenue. And that makes us very resilient as a business. And we've established a track record for delivering on what our targets were. But -- it isn't always right first time. It hasn't been as smooth as it could be. Growth last year was good. It was strong. But if we had executed seamlessly, it could have been even stronger, and that's what gives us confidence that we can grow faster in the future. We are learning as we go. This intensity of new product launches and this faster growth, these are new muscles for ConvaTec. The FDA letter that we received just recently was very disappointing. It relates to the management of our complaints handling and our corrective and preventative actions. We're working on that, but the FDA said it's not good enough. And we agree. So this is now top priority. We've got our best internal team working intensively on it. We're working with the FDA, with our customers and with external advisers because we're determined to become best-in-class in this area as quickly as possible. And our execution is improving. I mentioned that just now. Last year, as I said, growth was strong. It could have been even stronger. And the opportunity ahead of us is substantial. We're in these 4 categories that we are experts in. They benefit from a common set of technologies across operations and research and development. They are synergistic together. And the demand out there in the market is very strong. Our new product launches are working and they're winning share. And that's what gives us confidence that now is the time to be accelerating those sales growth targets. So going forward, based on this rich pipeline of new products and strong demand, we're going to be executing smoother, sharper, simpler, faster. And we're going to be backing our growth with investment in more pipeline and in more capacity in order to drive that faster growth. So let's look at that by category, starting with Wound Care. So in 2026, we expect mid-single-digit growth for Wound Care, apart from InnovaMatrix, which Fiona has talked about, and that's a special case. Mid-single digits is based on continued growth of our market-leading strong brand, Aquacel Ag Extra. Strong market share still growing very nicely. ConvaFoam is winning share now in Europe and in North America, and that will scale up. And we'll be launching through 2026, ConvaNiox, ConvaFiber and ConvaVac. And we'll be repositioning InnovaMatrix to win in the years ahead. In addition to those product launches, generating and disseminating clinical evidence is becoming a bigger feature of our product launch pipeline, and we'll be doing that for all of these products through 2026. And then from 2027, the growth is going to accelerate because all of these new product launches will be scaling up and InnovaMatrix will return to growth. If we look at Ostomy Care, in 2026, we're targeting mid-single-digit growth. Esteem Body is proving to be a really successful product launch, our one-piece soft convex new ostomy bag product growing very nicely. And in addition to that scaling up in Europe, U.S.A. and other markets. We'll be launching Flexi-Seal Air, our new fecal management product, and we'll be continuing to improve commercial execution across the continuum of care. That's where we've been really successful over the last couple of years. That's what's led to the winning of GPO contracts for the first time for a long time. Folks are saying, as regards ostomy, ConvaTec is back. And we're very proud of that. And in 2026, we'll start to build on those GPO contract wins. And then going into 2027, growth will accelerate because we'll win some more contracts Esteem Body will keep scaling up. We'll be growing our Esenta accessories portfolio. And very importantly, we'll be launching Natura Body. This is the 2-piece equivalent of Esteem body important for the U.S. market, which is more of a 2-piece market. We'll be very happy to see Natura Body launched, expect it to be just as successful as Esteem Body, and that will support our faster growth going forward. In Continence Care, in 2026, we're expecting mid-single-digit growth there, too. This business, we're very big in the U.S. As we've said before, this is based on excellent service. Our Home Services Group has customer satisfaction scores, which are really world-class, high customer retention, high customer loyalty, and we continue to grow share to grow volume despite being clearly the market leader. Through that growth, the proportion of ConvaTec products that we sell is increasing because our product portfolio is improving. We launched GC Air for women a while ago. It's growing. We're going to be launching GC Air Pocket, which is for men and GCS Air Set, which is Unisex in 2026 in Europe first and then 2027 in the U.S. and we'll also be launching Cure Aqua, which is starting in the U.S. So new product launches coming in Continence Care, which will underpin that growth. And then it will accelerate from 2027 as these new products build and as we expand the excellent customer service model outside the U.S., where it is still very small. And then Infusion Care. We're targeting high single-digit growth in Infusion Care in 2026, which is consistent with what we've been targeting over the last few years, although we have delivered a bit higher than that, but the plan is high single digits for the year ahead. It's going to continue with further diversification of products and customers. The technology in this area is evolving. Our customers' technology in pumps is evolving very quickly, and our infusion sets can service the whole spectrum of pumps across the industry. It's strong demand out there. And whilst we grow through 2026, and as I've just referenced with regards to the FDA's observations, we'll be improving our system for complaints validation and for corrective and preventive actions, following up on those customer observations. And then from 2027, we will be accelerating growth in Infusion Care. We'll be investing significantly in more capacity, and that will be in Inset Guard to service the diabetes sector. And in Neria Guard, for the other therapies, principally Parkinson's. But there are other therapies in addition to Parkinson's that we will be developing as well. So very strong demand for Infusion Care, strong growth to come. So let me conclude then by saying that ConvaTec is delivering. This -- we've described a resilient business model, which is delivering through the headwinds, and that growth is sustainable going forward. The simplification and productivity agenda that we have been running for the past few years has got further to run. That's what will lead us to be able to expand operating margin further in operations, in commercial and in G&A to get to our target of mid-20s, which we're still focused on. And growth is starting to compound. Double-digit growth in EPS is what you should expect going forward. And that will be based on an acceleration of the top line. So really pleasing that this rich pipeline of products that we're launching into the market, they are working. They're gaining share. And this pipeline is the richest we've ever had. And we think, as I've said, it benchmarks very well against anyone else in the industry. And as we learn with all of these products, as we grow faster, our execution is strengthening. And that plus the CapEx that we will commit to supporting more pipeline and more capacity is what will underpin our faster growth rate. So we're increasing our target growth rate from 2027 to be 6% to 8% per annum. And we'll tell you more about how we're going to deliver that at Capital Markets Day on the 9th of April, and I hope to see you all there. Thanks very much for your attention. We'll be happy to take any questions you got. Unknown Executive: Jonny, just we'll take questions from the room. Then there's 65 people on the call. We gather there's been some issues with the website streaming. We apologize for that, but the call is live. So we'll go room, then call and then website. First question, Hassan. Hassan Al-Wakeel: Hassan Al-Wakeel from Barclays. A couple, please. So firstly, on Ostomy Care, can you talk about how you're seeing new patient capture and share dynamics in the U.S. and how you see some of these GPO wins to change that in '26 and then Natura in '27? And then secondly, on the margin, you expect to lose around $50 million of InnovaMatrix revenue in '26, a 2% headwind versus the 1% to 2% expectation that you talked about. Can you talk about some of the offsets to this loss of revenue and your confidence in the building blocks in being able to drive that at least 70 basis points of margin expansion in '26? Jonathan Mason: Sure. Ostomy development in the U.S. is building nicely. We were declining for some years until our new leadership took over and our commercial execution improved. In the last few years, our new patient starts have been stable, and we've been building share through an improved product pipeline. That's been helped by the improvements to the Esenta accessories range and now most lately by the launch of Esteem Body. But it's the improvement in commercial execution, the education offer to health care providers, the me+ service support to patients, which has been leading our relationships to strengthen and to us gaining those GPO contract wins. We expect this to build further going forward. We expect to be gaining share, gaining share in new patient starts as well and for that to accelerate when Natura Body is launched in 2027. But it's a steady build. We've said mid-single-digit growth for Ostomy Care in 2026. That's what we are confident of delivering, and then it will accelerate after that for those reasons described. Do you want to talk about? Fiona Ryder: Yes. Thank you, Hassan. So we are guiding in 2026 to at least 23% operating margin. We have delivered 460 basis points over the last 4 years. And our top line will be growing, excluding InnovaMatrix, 5% to 7%. That, coupled with the simplification and productivity programs that we continue to drive will underpin the margin expansion. We have a track record there. Sebastien Jantet: It's Sebastien Jantet from Panmure Liberum. Two questions, if I may. So first of all, just on the medium-term margin kind of guidance of between 24% and 26%. We're kind of in the early months of '26. That's not that far away now as we look into '27. So I'm wondering what are the things that make it land towards the top end of that guidance versus the bottom end of that guidance? And then the second question is just you've talked about factoring in reimbursement headwinds in your guidance. You've upped your revenue guidance. Perhaps give us a sense of what are you factoring in for reimbursement headwinds within that revenue guidance? Jonathan Mason: Do you want to take the first one? Fiona Ryder: Yes. So we are guiding or have guided to mid-20s by '26 or '27, and we still hold to that. Now it's likely to be at the lower end of that. In '27, it will be closer to 24%. I think we've said that a number of times. And we think mid-20s is the right place for our margin. We think that benchmarks well. It allows us to continue to invest in top line growth. Jonathan Mason: Yes. And as regards to the detail of the reimbursement headwinds, I don't want to get into the specifics product by product. Over many years, the headwind has been quantified as roughly 1 point of headwind. And we've used a point of headwind per year across all the categories. Now it varies depending where different countries at different times. We've had different examples of where that's come from. The intensity of it in the U.S. has been more than normal over the last couple of years, and the headwind has been a bit higher than that. But before that, we had tenders in the NHS. We've had the French hospitals reducing the quantum of products that they have issued. We've had German pressure on silver reimbursement. So there's always been something with the new product launches and with the pricing COE that we have introduced and has been delivering now for a few years, we've managed to counteract these reimbursement headwinds. And in our targets of 5% to 7%, we include the headwinds in there and that we will deliver through them. And likewise, for our accelerated growth, 6% to 8%, that is after absorbing whatever the reimbursement headwinds will be in the future. Kane Slutzkin: It's Kane Slutzkin from Deutsche. Just guys, on the growth side, I'm just wondering, are you being a bit conservative on the Infusion Care guide? I mean you've sort of been beating it for a while. On Ostomy, just following up from Hassan, just you were sort of saying you're going to accelerate from '27. You've got obviously another GPO win. Are we looking at sort of a mid- to high single-digit grower in time? Is that kind of what you're implying? And then just on the M&A story, how is that pipeline looking? And in the absence of anything, are you -- I mean, would you be considering further buybacks? Or do you have enough on your hands in terms of the increased CapEx? Jonathan Mason: So are we being conservative on Infusion Care? It's quite interesting to compare 2 years ago when GLP-1s came out, although stories were around, everyone thought the Infusion Care business was in trouble. Far from it, really strong demand. Our products, as I mentioned in the presentation, are able to service all sorts of different pump technologies and the prevalence of pump technologies in the market is increasing significantly, both the penetration of pumps in diabetes compared to multiple daily injections. That's growing nicely, but also in Parkinson's therapy and in other therapies, too. So strong demand pipeline going forward. we have delivered more than high single digits over the last couple of years, just about in Infusion Care. The customer orders are predictable, but not uniform, right? They are a bit lumpy, but we know what they are because we talk very closely, work very closely with our customers. And as we look out into 2026, we think it will be high single-digit growth. So I don't think we're being unduly prudent there. I think that's the best basis to plan on. Thereafter, we do think there's an opportunity to accelerate because we'll have more capacity coming on stream and the therapy application areas will be growing. And then you asked about Ostomy Care. Look, yes, I think that is a reasonable expectation. It's mid-single digits in 2026, and we think we will accelerate growth thereafter when we have the full portfolio of products with which to compete in the markets in U.S. and in Europe. So I think you can expect a bit stronger growth than that going forward from 2027. Fiona Ryder: And then I'll pick up the question, sorry, on M&A. So we have really clear capital allocation priorities, invest organically in the business, pay the dividend, which we are in the middle of our range for this year. M&A opportunities when they are attractive and accretive to growth and returning excess capital to shareholders. So every year, we go through the process of looking for the right M&A opportunities. We look at the opportunity to invest organically. For 2026, we see great opportunities to invest organically in the business, as we have said, with the increased growth CapEx. And if we don't find any M&A opportunities, we will return capital as we did in 2025, but we continue to look. Jack Reynolds-Clark: Jack Reynolds-Clark From RBC. The first is on the midterm guidance. So what are your expectations for the kind of the phasing of that new revenue or updated revenue guidance beyond 2026? And Fiona, you mentioned that you still see mid-20s is the fair level of margin for the business. I guess, would you expect it to trend towards the upper end of that range over the next few years? What are your expectations for margins in a few years' time for the business? And then my next question was on ConvaNiox. You mentioned the slow launch in Europe initially ahead of a more accelerated launch later on. Kind of what feedback are you getting? How is the launch progressing versus your expectations? And what pricing are you able to take there? Jonathan Mason: Do you want to take the... Fiona Ryder: Start with the first. So midterm guidance, well, we're upgrading that today to 6% to 8%. I'm not going to guide any more specifically about what that will look like in those years. You asked about the margin being at mid-20s. Yes, we think that margin at mid-20s is about right for us. So we're guiding to at least 23% for 2026. You can expect that to increase a little more over the next couple of years. But then we think staying in the mid-20s would be right for us. And then on ConvaNiox? Jonathan Mason: Yes. Yes, prioritizing investment in growth going forward. Once we get to mid-20s, then there's plenty of things to invest in. ConvaNiox, yes, it is going really well. We've got a few hundred patients now who have been treated. We are deliberately taking that slow and building evidence. We're working with key opinion leaders, and we'll build the network of health care professionals from there. Everything we've seen so far reconfirms the strong performance of the dressing. We believe this is a dressing that does things that nothing else in the market does. It's that combination of antimicrobial action and also accelerating the wound healing. We've got one RCT, as I'm sure you've seen from a while ago in the U.K., which showed twice as fast healing rates and 3x as fast wound surface reduction as standard of care. We're now running another RCT in the U.S. to build further evidence. But don't expect material sales in 2026. It's about building that evidence base and then sales will grow thereafter. I think -- and we don't want to talk about reimbursement levels at this stage. Graham Doyle: It's Graham from UBS. Can I just ask 2? One on Infusion Care, to the point on the CapEx expansion. And obviously, the -- you alluded to the acceleration potential. Is it reasonable to say, given historically, you've had these minimum volume contracts that it's very visible as in this CapEx is for something very tangible and visible that you can see in the next few years, and that's the inflection. And then on that, could you maybe talk to the return on invested capital expectation for that CapEx as well, please? Jonathan Mason: Yes. Well, let me start. I think what you might be asking in terms of visibility is, yes, we work closely with our big customers in expansion plans and have got with them long-term contracts. And so -- and in particular, that contract base has been strengthening as the demand in the market increases. So we're very sure that we'll be getting good returns on this CapEx that we're committing on the basis of those long-term contracts. Fiona, do you want to... Fiona Ryder: Picked up the returns. Yes, we assess all of our projects and ensure that the returns are accretive to our group returns. So yes, these Infusion Care ones certainly fit that criteria. Graham Doyle: And maybe a really quick one. On the -- you mentioned earlier, if the execution is better, the growth would have been better. What wasn't like super hard? What's like the key learning point from last year? Jonathan Mason: Look, as I said, we're learning as we go. And I think the main area is handoffs between different functions within the organization. We've got a really great team of scientists doing R&D. We've got a great team of operations executives running our factories. We've got great teams in commercial out in the markets themselves. The handoffs, it's a bit like a relay race, handing that baton over wasn't as smooth as it could have been in all cases. We ended up with a few isolated back orders here or there, which if we hadn't had, we'd have sold even more. So I don't want to make this a big deal, but it's just to say we grew strongly despite learning. Now we are learning and we're getting better, we'll grow even faster. Beatrice Fairbairn: Beatrice Fairbairn with Berenberg. So I had a few on InnovaMatrix. So firstly, what level of confidence do you have in reaching the $20 million in sales guided for 2026? Also in the release, you noted that you are reorganizing your sales team. Just to clarify, has this now been completed? And could you provide some color on what changes have been made and how you expect it to impact? And then kind of finally, how do you see InnovaMatrix sales in inpatient channel developing in the midterm given the changes we have seen in the outpatient setting? Jonathan Mason: Yes, let me take that. So it's obviously a highly uncertain situation in the market as regards to all skin substitutes. InnovaMatrix is a great product, and we are pleased to be able to report that volumes are strong still. Our volumes are, despite the uncertainty, as strong as they were last year and have been, if anything, building a bit since Q4. So the sales have come down a lot because of the price, of course, they have, but we are still getting strong response from health care professionals and patients really like the impact of these dressings. We have finished the reorganization of the sales force. That was an unfortunate necessity. We've always said there was a very high level of variable cost in this sector of the market. And in particular, some of the commercial execution was very expensive. So we've resized that to be appropriate to the target markets going forward. We've got national coverage now, which is a bonus for the InnovaMatrix. And so our sales force is spreading out further across the U.S. to sell where we can. Last year, we started to sell beyond the indications of venous leg ulcers and diabetic foot ulcers. Those are still the 2 biggest, but sales are starting to grow outside of that area, too. We're still primarily focused in physicians' offices. But I think one of your questions might have been about hospital channels. That's an area we will get to, but it's still quite small. Unknown Executive: Thank you. I think that is the questions in the room. I know we have, certainly Veronika has a question online. Jonathan Mason: Okay. Unknown Executive: So if you could go to that, please. As a reminder, if anybody would like to ask a question on the phone line, the moderator will inform them how to. Jonathan Mason: Can we go to the telephone questions now, please? Operator: [Operator Instructions] Our first question comes from Veronika Dubajova from Citi. Veronika Dubajova: I'm going to try to sneak in 3, if I can. The first one is just trying to reconcile the InnovaMatrix guidance for $20 million. Just if you can help us understand the price versus volume expectations that you have. I think just simplistically on my math, if price is down 80%, you'd be assuming volumes are up 50%. Obviously, I appreciate, Jonny, you said you feel like the volumes are maybe picking up a little bit versus where they were in November and December, but that would be a pretty substantial pickup that's necessary through the rest of the year. So if you can just kind of help us through the building blocks of that, that would be super helpful. Then my second question is just on Wound Care. Obviously a bit surprised by where the growth rate ex-InnovaMatrix came in, in the back half of the year. I think there was maybe some hope of some acceleration moving from H1 to H2 instead we sort of ended up at sub-4% stripping out InnovaMatrix on an organic basis. Kind of what gives you confidence that you can accelerate that growth rate there? And I guess, especially if foam is performing well, can you talk through the things that are not and your ability to kind of influence that growth and drive some improvement there that's clearly important to your midterm ambitions? And then my final one, obviously, I appreciate that tariffs today might not be the same as they were tomorrow. But as we head closer to the end of the Section 232 investigation, I'm just curious what your thoughts are on what's the most likely outcome there? And what you would be able to do should the Nairobi Protocol not hold? Jonathan Mason: Okay. Quite a range there, Veronika. Thank you. Look, let me start and then maybe you'll see if you want to add, Fiona. On InnovaMatrix, first of all, $20 million of sales, yes, that does anticipate that our volumes grow significantly later in the year. And you've done the math, price down around 80%, sales down less. Where the volume growth is going to come from later in the year. And as we've just said, we have already reorganized the sales force is, I guess, 3 areas. First of all, we have a wider geographic scope now that we're covered for the whole country. That's one part of the growth. We're growing in other indications outside VLU and DFU as well. That's another part of the growth. And we are anticipating that some of the competition is going to fall away as the year goes by. Now we haven't seen that yet in any material way. People still have inventory. People are still running legal challenges to the price change that was made. But we are planning on the fact that, that price change will stick. And when it is confirmed as sticking, some of the operators in the human tissue area who have higher cost of sales than us, significantly higher, they will fall away, and that will provide a volume growth opportunity. So that's how we're planning on InnovaMatrix. And it does mean, I think as Fiona referred to before, that we see the InnovaMatrix sales as being stronger in the second half than the first for those reasons. On Wound Care, Volume, it was hard to catch exactly the question. But I think it was how are you going to accelerate wound care from where it delivered in 2026? I think that seems obvious to us anyway. We're launching 3 new products. So Aquacel is still growing. ConvaFoam is building and gaining share nicely now. It took a while to get started, but it's gaining share nicely now in Europe and in North America. And then we've got ConvaFiber coming. ConvaFoam and ConvaNiox are going to be very small in 2026, but they will start to build through 2027. So that's where we see the accelerated growth in Wound Care coming from over the next few years? Do you want to talk about tariffs? Fiona Ryder: Sure. Thank you, Veronika. So yes, tariffs are a moving piece at the moment, but we do expect the Nairobi Protocol to hold for our products that are currently covered by it. The Nairobi protocol has held since the 1970s, I believe. So I think it is unlikely to be challenged. If it is, we would be in a similar position as our peer group, and we would deal with it then. But as I say, we are expecting the Nairobi Protocol to hold. Unknown Executive: Any more questions on the phone? I think there's 2 more. Operator: Our next question comes from Susannah Ludwig from Bernstein. Susannah Ludwig: I have 2, please. And I guess apologies in advance if you've already addressed them as I was on the webcast and as I highlighted, there is a disruption. But first, would be on Infusion Care, which was the fastest-growing category. Could you quantify what percent of Infusion Care growth in 2025 was driven by nondiabetes versus diabetes? And how should the mix between diabetes and nondiabetes evolve over the medium term? And how as nondiabetes grows, does that impact margins from that business? And then second, on the FDA warning letter, in the press release, you highlighted that there was not an issue related to product safety. However, the warning letter does cite 5,000 complaints related to leakage and potential under-delivered -- insulin. What makes you comfortable that there is not a leakage problem with some of your infusion sets? Fiona Ryder: Thanks, Susannah. So I'll take the first question, then I'll hand to Jonny for the question about the FDA. So look, we're really pleased that the share of nondiabetes product in our Infusion Care category continues to grow. It was 10% in 2024. It was 15% of the category in 2025. And we expect it to continue to grow as a proportion of the category. And you're right, the margins for nondiabetes are slightly higher than those in diabetes. And so it will continue to support our margin growth for the group. Jonathan Mason: On the FDA commentary, leakage can be caused by lots of different things, including inappropriate application, reasons that are not to do with product inadequacies. What the FDA commented on was that we were not pursuing rigorously enough these observations from customers to be sure that it wasn't any product-related weakness. So -- and look, we are -- we agree with their observations. We are pursuing more vigorously chasing down every bit of information we can. It's more complicated in this category because any comments from customers -- any comments, excuse me, from people using the devices go to our customers. They don't come to us. And it's through that interface that we have to be more rigorous in making sure that we've chased down every possible piece of information and every bit of learning. We've done some investigations before and -- but more importantly, since then, a lot of evaluations, and we haven't found any deficiencies in products. And as I say, the FDA didn't point to that either. What they said was you're not managing the information flow tightly enough, and we will get better at that. Unknown Executive: I think there's one more online -- one more telephone question. Operator: Our final telephone question is from David Adlington from JPMorgan. David Adlington: So firstly, I just wanted to more specific in terms of the -- what you've assumed in terms of CBP in terms of pricing pressure in 2027. You sort of answered in the around in terms of pricing pressure, but maybe just specifically on CBP, what your assumptions there are? And just on InnovaMatrix and the write-down, I think, again, apologies because the webcast wasn't great, but I think you've written down about 20% of that $72 million. So that leaves about $280 million left. But obviously -- yes, fairly significantly as you're now valuing the asset at 14x sales. I just wondered why you only write it down by 20%. Jonathan Mason: So I take the first one? So CBP, our assumption hasn't changed from what we described last summer, which is that we think if it's implemented, in both Ostomy and Continence categories, then the headwind will be between 1% and 2% of our group revenue. Now 2% is based on the fact that 7% of our group revenue is exposed to the CBP being the Medicare revenue in those 2 areas and that 30% is the average of CBP impacts over the full extent of the CBP process with CMS and also that there isn't any more profit in the industry. We don't think a price reduction of more than that is possible to push through. And then -- so that would give you a headwind of 2%. We think we're in a strong position to gain volume. The CMS has expressed a preference for there being 7 or 8 distributors in each sector compared to the thousands that there are now. Granted some of these thousands are pretty small. But as some of those smaller distributors decide not to participate and wouldn't win anyway because they can't fulfill the national supply objective, which has been required or expressed as a condition for the CBP, there's going to be market share gain opportunities for stronger players like ourselves. So that's why we've expressed a range between 2 and 1. Let's see how it develops. Fiona Ryder: I would just add to that, that the CMS has said that the CBP, if implemented, would be in 2028, not 2027. And then I'll take your second question, David, which I think was -- I was struggling to hear you a little bit, but why did we write down $72 million of our InnovaMatrix assets? Well, we have followed a really clear approach here. We have taken prudent and risk-adjusted forecasts and the impairment that has fallen out is $72 million. As Jonny said, we are still selling the product. The product is selling well. Volumes are increasing, and we believe that we're holding it at the right value at the moment. Jonathan Mason: Any more, David? Unknown Executive: I think that's all the questions. So thank you, everybody, for coming. Jonathan Mason: Okay. Thanks very much indeed. We look forward to seeing you in about 6 weeks' time when we'll have more to share. Thanks for your questions today.
Operator: Greetings. Welcome to OMA's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Emmanuel Camacho, Investor Relations Officer. Thank you. You may begin. Emmanuel Camacho: Thank you, Sherri. Hello, everyone. Thank you for standing by. And welcome to OMA's Fourth Quarter 2025 Earnings Conference Call. We are delighted to have you join us today as we discuss our company's performance and financial results for the past quarter. Joining us today are CEO, Ricardo Duenas; and CFO, Ruffo Perez Pliego. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. And now I'll turn the call over to Ricardo Duenas for his opening remarks. Ricardo Duenas: Thank you, Emmanuel. Good morning, everyone, and thank you for joining us today. This morning, I will briefly discuss the approval of our master development program, then Ruffo and I will review our annual and quarterly operational performance and financial results. And finally, we will be happy to answer your questions. During December, we received approval from the Federal Civil Aviation Agency for a master development program covering the '26-'30 period. The approved investment commitment amounts to approximately MXN 16 billion expressed in December 2024 pesos. This new 5-year program is focused on capacity expansion and quality enhancements at our largest airports in terms of passenger contribution while further strengthening the efficiency of our network. Investments are allocated across terminal expansions, airside infrastructure, equipment upgrades, pavement, rehabilitation, modernization works, environmental initiatives as well as safety and certification programs. Capacity and quality improvements, infrastructure optimization, airport equipment and sustainability-related CapEx represent the main drivers of the program. In this context, our MDP prioritizes projects that enhance passenger experience, improve operational efficiency and incorporate technology solutions that support long-term service quality and cost optimization. Sustainability and decarbonization are embedded in our investment strategy with initiatives aimed at improving energy efficient and supporting our long-term emission reduction targets. Importantly, the total investment commitment of 2026-2030 is comparable in real terms to the investment considered in the 2021-2025 cycle. However, traffic levels today are materially higher than 5 years ago. This implies an improvement in capital efficiency per passenger and reflects the scalability of our existing infrastructure. In other words, this MDP reflects disciplined capital allocation, greater efficiency in the deployment of CapEx and a focus on maximizing the use of current assets. The approval also provides long-term regulatory visibility and reinforces the structural growth outlook of our airports. Moving now to our full year 2025 results. This was a year marked by the continued recovery in operational capacity and a strong performance in our main airport of Monterrey. While the Pratt & Whitney engine inspection program continued to affect certain fleets during the year, capacity constraints eased compared to 2024. This allowed Mexican airlines to progressively restore frequencies and reintroduce routes that had been limited or suspended due to aircraft availability. As a result, seat capacity across our airports increased close to 11% during 2025, reflecting improved aircraft deployment and network adjustments. During 2025, we opened 35 new routes, of which 24 were domestic and 11 were international, further strengthening connectivity across our airports. Supported by higher seat availability and route expansion, total passenger traffic reached 28.8 million passengers in 2025, representing an 8.5% increase as compared to 2024, with domestic passenger traffic growing by 8% and international passenger traffic by 12%. The expansion reflects a continued diversification of Monterrey's international footprint. In addition to consolidating its position as a key gateway to the United States, Monterrey has progressively expanded its long-haul connectivity in recent years, including overseas service to Europe and Asia. The consolidation of long-haul routes such as Monterrey-Madrid, Monterrey-Tokyo and Monterrey-Seoul reinforces our long-term vision of positioning Monterrey not only as a regional hub within Mexico, but as an increasingly relevant international connecting point linking Northern Mexico with major global destinations. In 2026, we will continue strengthening overseas connectivity with additional operations to Madrid and the launch of Monterrey-Paris route in April 2026, further expanding our presence across diversified international markets. Beyond traffic growth, 2025 was also a year of solid execution across our commercial and diversification businesses. On the commercial front, we recorded growth across three key revenue line items, driven primarily by the opening of new outlets and continued commercial mix optimization. Restaurant revenues grew by 22%. VIP lounges revenues increased by 30% and parking revenues increased by 13% as compared to 2025. From our diversification lines of business, our industrial park was one of the strongest contributions to growth with 44% increase in revenues versus 2024, supported by higher leased square meters. OMA Carga revenues recorded strong results as well with a 9% increase in revenues, mainly as a result of higher volumes and improved operational efficiencies. Regarding our financial performance, aeronautical and non-aeronautical revenues each grew approximately 12% year-over-year. As a result, our adjusted EBITDA for the year was MXN 10.2 billion, and we recorded an adjusted EBITDA margin of 74.5%. I will now move on to our fourth quarter 2025 performance. In the quarter, OMA's passenger traffic totaled 7.5 million, a 6% increase year-over-year. Seat capacity increased by 8% during the quarter. On the domestic front, passenger traffic grew by 6%, driven primarily by the Monterrey Airport, which saw increase on routes to the metropolitan areas of Mexico City, mainly to Toluca and Mexico City airports, Bajio, Puerto Vallarta, Merida and Guadalajara. These routes collectively added for over 300,000 passengers during the quarter, representing 79% of the total domestic passenger growth. International passenger traffic increased by 4%, mainly driven by Monterrey with higher traffic on the routes to Bogotá, Toronto and Panama and San Luis Potosi on the routes to Dallas-Fort Worth, Atlanta and San Antonio. Together, these routes added more than 67,000 passengers during the quarter. In terms of growth by airline, Volaris, which accounted for 24% of our total passenger traffic in the quarter, recorded a 17% increase in passenger traffic compared to the fourth quarter of 2024, while Viva, which accounted for 51% of our total passenger traffic recorded a 5% traffic increase during the quarter. Turning to our financial performance. Aeronautical revenues increased 6%. Commercial revenues grew by 8% compared to the fourth quarter of '24 and commercial revenue per passenger stood at MXN 62. Commercial revenue growth was mainly driven by parking, restaurants, VIP lounges and retail, mainly as a result of higher penetration and the increase in passenger traffic. Occupancy rate for commercial space stood at 93% at the end of the quarter. On the diversification front, revenues increased 5% with OMA Carga contributing most of the growth, mainly due to -- because of higher revenues from our bonded warehouses in Chihuahua, given our successful strategy to further develop this warehouse in previous quarters. OMA's fourth quarter adjusted EBITDA increased by 6% to MXN 2.6 billion with a margin of 73.6%. On the capital expenditures front, total investments in the quarter, including MDP investments, major maintenance and strategic investments were MXN 755 million. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights for the quarter. Ruffo Pérez del Castillo: Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results for the quarter, and then we will open the call for your questions. Aeronautical revenues increased 5.6% relative to 4Q '24, mainly due to the increase in passenger traffic. It is worth noting that the peso appreciation against the dollar resulted in a 1.3% decline in international passenger charges despite a 4.2% increase in international passengers. Non-aero revenues increased 7.5%. Commercial revenues increased 8.4%. The line items with the highest growth were parking, restaurants, VIP lounges and retail. Parking grew by 18.4%, mainly as a result of higher passenger traffic as well as higher penetration across our airports and increased tariffs. Restaurants and retail increased 11.3% and 7.0%, respectively, both driven by higher passenger traffic as well as previously opened or replaced outlets. VIP lounges grew by 17%, mainly due to the higher capture rate, primarily in Monterrey Airport as well as the increase in passenger traffic, partially offset by a stronger peso against the U.S. dollar. Diversification activities increased 4.8%. OMA Carga contributed most to the growth in the quarter, increasing by 14.2%, resulting from a higher level of operation and tons handled during the quarter. Total aeronautical and non-aeronautical revenues grew 6.1% to MXN 3.5 billion in the quarter. Construction revenues amounted to MXN 613 million during the fourth quarter. The cost of airport services and G&A expense increased 11.6% versus 4Q '24, primarily due to the following line items. Contracted services expenses rose 14.7%, mainly due to higher cost of security and cleaning services following contract renewals in prior quarters, reflecting inflationary pressures and tight labor market conditions. Minor maintenance increased 24.1%, primarily due to the timing effect of works performed. However, maintenance for the full year increased by 4.0%. Basic services increased by MXN 11 million, mainly due to higher utility costs, particularly electricity. This includes a onetime MXN 6 million impact related to the temporary use of an alternative power supply line at the Monterrey Airport, which carries a higher tariff than our power purchase agreement. This temporary situation was caused by construction works related to the subway line near the airport. And since the end of December, electricity supply has reverted to our regular PPA contract. Other costs and expenses increased by 9.9% due primarily to higher IT-related requirements and transportation services. Concession tax increased 8.0% to MXN 286 million, in line with revenue growth. Major maintenance provision was MXN 216 million compared to MXN 39 million in 4Q '24. It is important to highlight that this is a noncash item. During the quarter, we reassessed our major maintenance requirements to reflect expenditures included in the recently approved 2026-2030 master development program. This reassessment resulted in an increase in the provision liability. Approximately 17% of the total investments under the 2026-2030 MDP corresponds to major maintenance projects. For 2026, we expect the full year major maintenance provision cost to be approximately MXN 400 million. OMA's fourth quarter adjusted EBITDA grew 5.9% to MXN 2.6 billion and the adjusted EBITDA margin reached 73.6%. Our financing expense decreased 12.7% to MXN 290 million, mainly driven by lower interest expense associated to the major maintenance provision as well as higher interest income resulting from a higher average cash position. Consolidated net income was MXN 1.2 billion in the quarter, an increase of 3.6% versus 4Q '24. Turning to our cash position. Cash generated from operating activities in the fourth quarter amounted to MXN 1.9 billion. Investing and financing activities used MXN 663 million and MXN 2.5 billion, respectively. As a result, our cash position at the end of the quarter was MXN 3.1 billion. At the end of December, total debt amounted to MXN 13.6 billion and leverage measured as net debt to adjusted EBITDA ratio stood at 1.0x. This concludes our prepared remarks. Sherri, please open the call to questions. Operator: [Operator Instructions] Our first question is from Juan Ponce with Bradesco. Juan Ponce: On the MXN 260 million major maintenance provision recognized this quarter, does this reflect higher maintenance intensity or just timing shifts? Any additional color on the change would be helpful. Ruffo Pérez del Castillo: Sure. Juan, it does reflect the next 5 year -- well, the 2026-2030 expected expenditures as well as timing changes versus what we had assumed in the past. Juan Ponce: Okay. And just to clarify, the expectation is that the full year number is going to be around MXN 400 million, correct? Ruffo Pérez del Castillo: That is correct, noncash. And the P&L impact is noncash, yes. Juan Ponce: Yes, yes. Operator: Our next question is from Jens Spiess with Morgan Stanley. Jens Spiess: Yes. I have a question regarding the passenger fleet. And how do you expect to increase them throughout the year. And -- in order to reach close to 100% of your maximum tariff, what's your expectation there? Ricardo Duenas: Yes. Thank you, Jens. So the announced increase is 6.9% increase starting April 10. And we anticipate it will take a couple of years, 2 to 3 years to reach the 100% maximum tariff. Jens Spiess: Okay. So by the end of this year, what percentage do you expect to have completed of the maximum tariff of this year? Ricardo Duenas: Something around the 93%. Jens Spiess: 93%. Okay. Perfect. Okay. If I may, just a second question, like any update on the timing of the investments in Monterrey? Yes, it would be much appreciated. Ruffo Pérez del Castillo: Investment in Monterrey. Operator: Our next... Ricardo Duenas: Yes. For the main -- our main works, as you know, are focused on Monterrey and Culiacan. Monterrey, we are anticipating to finish what we've been mentioning, which is by mid-next year, we should be opening the new commercial area of Monterrey. And for Culiacan, we're expecting to open the new commercial area by the end of this year. Operator: Our next question is from Vanessa Quiroga with Eternal Capital Group. Vanessa Quiroga: So I would like to ask if you can provide the following details. How much of the master development plan investments for the next 5 years is major maintenance? And whether the rule -- the accounting rule is to provision 100% of that major maintenance during the 5-year period? Ruffo Pérez del Castillo: Sure. The total investments related to major maintenance in the approved MDP represents approximately 17% of the total MDP for the next 5 years. And the accounting rule is to provision the present value of such expenditure from today until the day the project is expected to start its execution. Operator: Our next question is from Abraham Fuentes with Santander. Abraham Fuentes Salinas: I wonder if you can give us more color about the excess of concession tax on aeronautical revenues that we had during this quarter. If this is something that could be recurrent going forward or not? Ruffo Pérez del Castillo: So the excess pursuant to 2023 tariff-based regulation, that excess was incorporated as additional reference value that was used in the recent negotiation that occurred in December. So that excess is already being recovered through a maximum tariff starting January 1 of this year. Operator: Our next question is from Gabriel Himelfarb with Scotiabank. Gabriel Himelfarb Mustri: If I may, I have two questions. First, the MDP CapEx on Monterrey, how much do you expect such commercial revenues to ramp in percentage terms -- in terms of EBITDA, how much EBITDA do they -- do you expect they might ramp up for OMA? And the second is, have you seen any -- or what's your view or your color on the Viva-Volaris consolidation in terms of routes and seat allocation? Ricardo Duenas: In terms of the second part of your question, we're still assessing the potential impact. So it's still an analysis, the impact. And in terms of the first part, Ruffo? Ruffo Pérez del Castillo: Yes. So we do expect a bump after the commercial areas of the expanded Terminal A are opened towards the -- starting the second half of next year, and it's a full year effect being reflected in full in 2028. We do expect about a 10% to 15% increase in spending per pax in Monterrey in real terms on an annualized basis once these stores and new outlets are opened. Gabriel Himelfarb Mustri: Okay. And if I may, I have an additional question. Have you been -- well, how is your view towards asset acquisitions like perhaps involving VINCI and the MDP or the future acquisitions, making, I don't know, OMA a consolidation vehicle? Ricardo Duenas: In terms of new acquisitions, we're always looking for opportunities to expand locally or internationally. At the moment, there's no specific transaction that we're looking at. If there were in the future, that was something that will be discussed internally between VINCI and ourselves. We do -- we are -- look, one thing we are looking it at expanding our hotels presence. So we're evaluating a new hotel in Monterrey and another one in Ciudad Juarez. And we're also looking to expand our industrial park in Monterrey. Operator: Our next question is from Alberto Valerio with UBS. Alberto Valerio: I have two here. If you could provide a little bit more details on the line of revenues as well on cost revenues, if -- do you guys have an impact from FX on the international traffic? And on cost, if you could provide a little bit more details on maintenance. You mentioned that will be a big portion of your next MDP. How can we forecast this for the future? And if you could provide any more details on what would expand it? Ruffo Pérez del Castillo: Yes. So the first part of your question was related to the FX impact, correct? Okay. Alberto Valerio: Perfect. Yes. Ruffo Pérez del Castillo: So we basically -- on the revenue line, we have four items that are very closely related to FX, which are international passenger charges VIP lounge, duty-free and industrial park. We estimate that the impact of the peso appreciation in the fourth quarter of '25 as compared to the fourth quarter of '24, which was about an 8% appreciation was between MXN 50 million to MXN 60 million. That was our estimate of the effect of such appreciation. Regarding the second part of your question, we do expect at least for 2026 that the full year provisioning would be around MXN 400 million, and we're still assessing what the impact would be for the following years. And it will depend on both construction costs as well as the interest rate -- long-term interest rates used to discount that provision. Alberto Valerio: And if I may, just one more about the violence that we have seen. I know that the region Jalisco is a little bit different from OMA airports region. But do you have any sort of impact on your airports or cancellation routes and so forth? Ricardo Duenas: All our 13 airports are operating normally. We did see on Sunday during the event, a few cancellations from Guadalajara and Puerto Vallarta Airport. There were some yesterday, but today is operating normally, and it is not something that -- it's not a traffic that we believe will have an impact in our numbers. Operator: Our next question is from Anton Mortenkotter with GBM. Ernst Mortenkotter: Just a quick one. We've heard and we've seen in some newspaper, some of your peers are considering some alternative financing methods such as maybe FIBRA. I was just wondering if you guys are considering something -- an alternative to funding your CapEx similar to those or any special vehicles that you may be looking at? Ruffo Pérez del Castillo: So right now, we are not necessarily considering other type of structures different to what we have used in the past few years. We do have some refinancings of debt that is due this year, and we would expect to tap the CEBURES market as we have done so in the past 4 or 5 years. Operator: Our next question is from [ Julia Arce ] with JPMorgan. Unknown Analyst: So can you comment a bit on your traffic expectations for the year? So on previous call, you were mentioning a low to mid-single-digit growth rate for 2026. Is this still the case? Ricardo Duenas: Yes. For the year, we're anticipating somewhere in the low to mid-single-digit growth in traffic. Operator: Our next question is a follow-up from Vanessa Quiroga with Eternal Capital. Vanessa Quiroga: My question is regarding the increase in the tariffs. The 7% in real terms that you mentioned, what is the base for that? Is the base the average in peso terms achieved in 2025? Or do you assume any FX? What is the base that you're using? Ruffo Pérez del Castillo: Sure. The MDP approved maximum tariff was a 6.9% real increase in all of the airports, and that reflects the 2025 maximum tariff. So 2026... Vanessa Quiroga: So that will increase a few... Ruffo Pérez del Castillo: It's the 2026 maximum tariff as compared to the 2025 maximum tariff. That increase in real terms, that's excluding inflation, is 6.9%. Vanessa Quiroga: So the part that maybe I need clarification, you are in 2026, you are going to have that increase or that's targeting 3 years? Ricardo Duenas: Yes. The increase that we're going to pass through this year is 6.9% starting in 10th of April. That includes inflation as well. So it's a nominal 6.1% increase. Operator: Our next question is from Enrique Cantú with GBM. Enrique Cantú: So as you implement tariff increases under the new MDP, how are you assessing demand elasticity, particularly in routes like Monterrey and tourist destinations? And could you share your outlook for further route additions and whether you see scope for continued expansion based on your ongoing discussions with carriers and route additions? Ricardo Duenas: Sorry, could you repeat the question, Enrique? Sorry. Enrique Cantú: Yes, of course. So it's about demand elasticity. How are you assessing the demand elasticity, particularly in routes like Monterrey and tourist destinations as you implement your tariff increases under the new MDP? Ricardo Duenas: Yes. So in terms of elasticity, we believe that the pass-through that we're implementing this year is not going to have a major impact in terms of elasticity -- traffic elasticity. Ruffo Pérez del Castillo: Yes. Just regarding new route openings, so far, 20 routes have been confirmed. 17 of them are domestic and 3 are international. And they start the vast majority of them in June of this year from airports such as Monterrey, San Luis Potosí primarily. Operator: Our next question is from Andres Radin with TRG. Andres Radin Borrajo: I was curious about commercial revenues per passenger and revenue from diversification for 2026. What kind of growth should we be expecting in any particular lines? Do you see any for this year? Ruffo Pérez del Castillo: Okay. So in terms of commercial revenue per pax, they ended 2025 around MXN 62 per pax. We expect similar amounts for the next few quarters in 2026. And regarding diversification revenues, we don't look at them on a per pax basis, but rather as a whole. We have, as you know, both 2 mature hotels, the NH in Mexico and the Hilton Garden in our Monterrey Airport. So we should expect inflationary increases in the results of those 2 units. And the driver of this year of diversification would be our OMA Carga unit which should have double digit growth. Operator: [Operator Instructions] There are no further... Ricardo Duenas: We would like to thank everyone for participating in today's call. We appreciate your insightful questions, engagement and continued support. Ruffo, Emmanuel and I remain available to answer your questions. Thank you once again, and have a great day. Operator: Thank you. This does conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Greetings. Welcome to OMA's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Emmanuel Camacho, Investor Relations Officer. Thank you. You may begin. Emmanuel Camacho: Thank you, Sherri. Hello, everyone. Thank you for standing by. And welcome to OMA's Fourth Quarter 2025 Earnings Conference Call. We are delighted to have you join us today as we discuss our company's performance and financial results for the past quarter. Joining us today are CEO, Ricardo Duenas; and CFO, Ruffo Perez Pliego. Please be reminded that certain statements made during the course of our discussion today may constitute forward-looking statements, which are based on current management expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially, including factors that may be beyond our control. And now I'll turn the call over to Ricardo Duenas for his opening remarks. Ricardo Duenas: Thank you, Emmanuel. Good morning, everyone, and thank you for joining us today. This morning, I will briefly discuss the approval of our master development program, then Ruffo and I will review our annual and quarterly operational performance and financial results. And finally, we will be happy to answer your questions. During December, we received approval from the Federal Civil Aviation Agency for a master development program covering the '26-'30 period. The approved investment commitment amounts to approximately MXN 16 billion expressed in December 2024 pesos. This new 5-year program is focused on capacity expansion and quality enhancements at our largest airports in terms of passenger contribution while further strengthening the efficiency of our network. Investments are allocated across terminal expansions, airside infrastructure, equipment upgrades, pavement, rehabilitation, modernization works, environmental initiatives as well as safety and certification programs. Capacity and quality improvements, infrastructure optimization, airport equipment and sustainability-related CapEx represent the main drivers of the program. In this context, our MDP prioritizes projects that enhance passenger experience, improve operational efficiency and incorporate technology solutions that support long-term service quality and cost optimization. Sustainability and decarbonization are embedded in our investment strategy with initiatives aimed at improving energy efficient and supporting our long-term emission reduction targets. Importantly, the total investment commitment of 2026-2030 is comparable in real terms to the investment considered in the 2021-2025 cycle. However, traffic levels today are materially higher than 5 years ago. This implies an improvement in capital efficiency per passenger and reflects the scalability of our existing infrastructure. In other words, this MDP reflects disciplined capital allocation, greater efficiency in the deployment of CapEx and a focus on maximizing the use of current assets. The approval also provides long-term regulatory visibility and reinforces the structural growth outlook of our airports. Moving now to our full year 2025 results. This was a year marked by the continued recovery in operational capacity and a strong performance in our main airport of Monterrey. While the Pratt & Whitney engine inspection program continued to affect certain fleets during the year, capacity constraints eased compared to 2024. This allowed Mexican airlines to progressively restore frequencies and reintroduce routes that had been limited or suspended due to aircraft availability. As a result, seat capacity across our airports increased close to 11% during 2025, reflecting improved aircraft deployment and network adjustments. During 2025, we opened 35 new routes, of which 24 were domestic and 11 were international, further strengthening connectivity across our airports. Supported by higher seat availability and route expansion, total passenger traffic reached 28.8 million passengers in 2025, representing an 8.5% increase as compared to 2024, with domestic passenger traffic growing by 8% and international passenger traffic by 12%. The expansion reflects a continued diversification of Monterrey's international footprint. In addition to consolidating its position as a key gateway to the United States, Monterrey has progressively expanded its long-haul connectivity in recent years, including overseas service to Europe and Asia. The consolidation of long-haul routes such as Monterrey-Madrid, Monterrey-Tokyo and Monterrey-Seoul reinforces our long-term vision of positioning Monterrey not only as a regional hub within Mexico, but as an increasingly relevant international connecting point linking Northern Mexico with major global destinations. In 2026, we will continue strengthening overseas connectivity with additional operations to Madrid and the launch of Monterrey-Paris route in April 2026, further expanding our presence across diversified international markets. Beyond traffic growth, 2025 was also a year of solid execution across our commercial and diversification businesses. On the commercial front, we recorded growth across three key revenue line items, driven primarily by the opening of new outlets and continued commercial mix optimization. Restaurant revenues grew by 22%. VIP lounges revenues increased by 30% and parking revenues increased by 13% as compared to 2025. From our diversification lines of business, our industrial park was one of the strongest contributions to growth with 44% increase in revenues versus 2024, supported by higher leased square meters. OMA Carga revenues recorded strong results as well with a 9% increase in revenues, mainly as a result of higher volumes and improved operational efficiencies. Regarding our financial performance, aeronautical and non-aeronautical revenues each grew approximately 12% year-over-year. As a result, our adjusted EBITDA for the year was MXN 10.2 billion, and we recorded an adjusted EBITDA margin of 74.5%. I will now move on to our fourth quarter 2025 performance. In the quarter, OMA's passenger traffic totaled 7.5 million, a 6% increase year-over-year. Seat capacity increased by 8% during the quarter. On the domestic front, passenger traffic grew by 6%, driven primarily by the Monterrey Airport, which saw increase on routes to the metropolitan areas of Mexico City, mainly to Toluca and Mexico City airports, Bajio, Puerto Vallarta, Merida and Guadalajara. These routes collectively added for over 300,000 passengers during the quarter, representing 79% of the total domestic passenger growth. International passenger traffic increased by 4%, mainly driven by Monterrey with higher traffic on the routes to Bogotá, Toronto and Panama and San Luis Potosi on the routes to Dallas-Fort Worth, Atlanta and San Antonio. Together, these routes added more than 67,000 passengers during the quarter. In terms of growth by airline, Volaris, which accounted for 24% of our total passenger traffic in the quarter, recorded a 17% increase in passenger traffic compared to the fourth quarter of 2024, while Viva, which accounted for 51% of our total passenger traffic recorded a 5% traffic increase during the quarter. Turning to our financial performance. Aeronautical revenues increased 6%. Commercial revenues grew by 8% compared to the fourth quarter of '24 and commercial revenue per passenger stood at MXN 62. Commercial revenue growth was mainly driven by parking, restaurants, VIP lounges and retail, mainly as a result of higher penetration and the increase in passenger traffic. Occupancy rate for commercial space stood at 93% at the end of the quarter. On the diversification front, revenues increased 5% with OMA Carga contributing most of the growth, mainly due to -- because of higher revenues from our bonded warehouses in Chihuahua, given our successful strategy to further develop this warehouse in previous quarters. OMA's fourth quarter adjusted EBITDA increased by 6% to MXN 2.6 billion with a margin of 73.6%. On the capital expenditures front, total investments in the quarter, including MDP investments, major maintenance and strategic investments were MXN 755 million. I would now like to turn the call over to Ruffo Perez Pliego, who will discuss our financial highlights for the quarter. Ruffo Pérez del Castillo: Thank you, Ricardo, and good morning, everyone. I will briefly review our financial results for the quarter, and then we will open the call for your questions. Aeronautical revenues increased 5.6% relative to 4Q '24, mainly due to the increase in passenger traffic. It is worth noting that the peso appreciation against the dollar resulted in a 1.3% decline in international passenger charges despite a 4.2% increase in international passengers. Non-aero revenues increased 7.5%. Commercial revenues increased 8.4%. The line items with the highest growth were parking, restaurants, VIP lounges and retail. Parking grew by 18.4%, mainly as a result of higher passenger traffic as well as higher penetration across our airports and increased tariffs. Restaurants and retail increased 11.3% and 7.0%, respectively, both driven by higher passenger traffic as well as previously opened or replaced outlets. VIP lounges grew by 17%, mainly due to the higher capture rate, primarily in Monterrey Airport as well as the increase in passenger traffic, partially offset by a stronger peso against the U.S. dollar. Diversification activities increased 4.8%. OMA Carga contributed most to the growth in the quarter, increasing by 14.2%, resulting from a higher level of operation and tons handled during the quarter. Total aeronautical and non-aeronautical revenues grew 6.1% to MXN 3.5 billion in the quarter. Construction revenues amounted to MXN 613 million during the fourth quarter. The cost of airport services and G&A expense increased 11.6% versus 4Q '24, primarily due to the following line items. Contracted services expenses rose 14.7%, mainly due to higher cost of security and cleaning services following contract renewals in prior quarters, reflecting inflationary pressures and tight labor market conditions. Minor maintenance increased 24.1%, primarily due to the timing effect of works performed. However, maintenance for the full year increased by 4.0%. Basic services increased by MXN 11 million, mainly due to higher utility costs, particularly electricity. This includes a onetime MXN 6 million impact related to the temporary use of an alternative power supply line at the Monterrey Airport, which carries a higher tariff than our power purchase agreement. This temporary situation was caused by construction works related to the subway line near the airport. And since the end of December, electricity supply has reverted to our regular PPA contract. Other costs and expenses increased by 9.9% due primarily to higher IT-related requirements and transportation services. Concession tax increased 8.0% to MXN 286 million, in line with revenue growth. Major maintenance provision was MXN 216 million compared to MXN 39 million in 4Q '24. It is important to highlight that this is a noncash item. During the quarter, we reassessed our major maintenance requirements to reflect expenditures included in the recently approved 2026-2030 master development program. This reassessment resulted in an increase in the provision liability. Approximately 17% of the total investments under the 2026-2030 MDP corresponds to major maintenance projects. For 2026, we expect the full year major maintenance provision cost to be approximately MXN 400 million. OMA's fourth quarter adjusted EBITDA grew 5.9% to MXN 2.6 billion and the adjusted EBITDA margin reached 73.6%. Our financing expense decreased 12.7% to MXN 290 million, mainly driven by lower interest expense associated to the major maintenance provision as well as higher interest income resulting from a higher average cash position. Consolidated net income was MXN 1.2 billion in the quarter, an increase of 3.6% versus 4Q '24. Turning to our cash position. Cash generated from operating activities in the fourth quarter amounted to MXN 1.9 billion. Investing and financing activities used MXN 663 million and MXN 2.5 billion, respectively. As a result, our cash position at the end of the quarter was MXN 3.1 billion. At the end of December, total debt amounted to MXN 13.6 billion and leverage measured as net debt to adjusted EBITDA ratio stood at 1.0x. This concludes our prepared remarks. Sherri, please open the call to questions. Operator: [Operator Instructions] Our first question is from Juan Ponce with Bradesco. Juan Ponce: On the MXN 260 million major maintenance provision recognized this quarter, does this reflect higher maintenance intensity or just timing shifts? Any additional color on the change would be helpful. Ruffo Pérez del Castillo: Sure. Juan, it does reflect the next 5 year -- well, the 2026-2030 expected expenditures as well as timing changes versus what we had assumed in the past. Juan Ponce: Okay. And just to clarify, the expectation is that the full year number is going to be around MXN 400 million, correct? Ruffo Pérez del Castillo: That is correct, noncash. And the P&L impact is noncash, yes. Juan Ponce: Yes, yes. Operator: Our next question is from Jens Spiess with Morgan Stanley. Jens Spiess: Yes. I have a question regarding the passenger fleet. And how do you expect to increase them throughout the year. And -- in order to reach close to 100% of your maximum tariff, what's your expectation there? Ricardo Duenas: Yes. Thank you, Jens. So the announced increase is 6.9% increase starting April 10. And we anticipate it will take a couple of years, 2 to 3 years to reach the 100% maximum tariff. Jens Spiess: Okay. So by the end of this year, what percentage do you expect to have completed of the maximum tariff of this year? Ricardo Duenas: Something around the 93%. Jens Spiess: 93%. Okay. Perfect. Okay. If I may, just a second question, like any update on the timing of the investments in Monterrey? Yes, it would be much appreciated. Ruffo Pérez del Castillo: Investment in Monterrey. Operator: Our next... Ricardo Duenas: Yes. For the main -- our main works, as you know, are focused on Monterrey and Culiacan. Monterrey, we are anticipating to finish what we've been mentioning, which is by mid-next year, we should be opening the new commercial area of Monterrey. And for Culiacan, we're expecting to open the new commercial area by the end of this year. Operator: Our next question is from Vanessa Quiroga with Eternal Capital Group. Vanessa Quiroga: So I would like to ask if you can provide the following details. How much of the master development plan investments for the next 5 years is major maintenance? And whether the rule -- the accounting rule is to provision 100% of that major maintenance during the 5-year period? Ruffo Pérez del Castillo: Sure. The total investments related to major maintenance in the approved MDP represents approximately 17% of the total MDP for the next 5 years. And the accounting rule is to provision the present value of such expenditure from today until the day the project is expected to start its execution. Operator: Our next question is from Abraham Fuentes with Santander. Abraham Fuentes Salinas: I wonder if you can give us more color about the excess of concession tax on aeronautical revenues that we had during this quarter. If this is something that could be recurrent going forward or not? Ruffo Pérez del Castillo: So the excess pursuant to 2023 tariff-based regulation, that excess was incorporated as additional reference value that was used in the recent negotiation that occurred in December. So that excess is already being recovered through a maximum tariff starting January 1 of this year. Operator: Our next question is from Gabriel Himelfarb with Scotiabank. Gabriel Himelfarb Mustri: If I may, I have two questions. First, the MDP CapEx on Monterrey, how much do you expect such commercial revenues to ramp in percentage terms -- in terms of EBITDA, how much EBITDA do they -- do you expect they might ramp up for OMA? And the second is, have you seen any -- or what's your view or your color on the Viva-Volaris consolidation in terms of routes and seat allocation? Ricardo Duenas: In terms of the second part of your question, we're still assessing the potential impact. So it's still an analysis, the impact. And in terms of the first part, Ruffo? Ruffo Pérez del Castillo: Yes. So we do expect a bump after the commercial areas of the expanded Terminal A are opened towards the -- starting the second half of next year, and it's a full year effect being reflected in full in 2028. We do expect about a 10% to 15% increase in spending per pax in Monterrey in real terms on an annualized basis once these stores and new outlets are opened. Gabriel Himelfarb Mustri: Okay. And if I may, I have an additional question. Have you been -- well, how is your view towards asset acquisitions like perhaps involving VINCI and the MDP or the future acquisitions, making, I don't know, OMA a consolidation vehicle? Ricardo Duenas: In terms of new acquisitions, we're always looking for opportunities to expand locally or internationally. At the moment, there's no specific transaction that we're looking at. If there were in the future, that was something that will be discussed internally between VINCI and ourselves. We do -- we are -- look, one thing we are looking it at expanding our hotels presence. So we're evaluating a new hotel in Monterrey and another one in Ciudad Juarez. And we're also looking to expand our industrial park in Monterrey. Operator: Our next question is from Alberto Valerio with UBS. Alberto Valerio: I have two here. If you could provide a little bit more details on the line of revenues as well on cost revenues, if -- do you guys have an impact from FX on the international traffic? And on cost, if you could provide a little bit more details on maintenance. You mentioned that will be a big portion of your next MDP. How can we forecast this for the future? And if you could provide any more details on what would expand it? Ruffo Pérez del Castillo: Yes. So the first part of your question was related to the FX impact, correct? Okay. Alberto Valerio: Perfect. Yes. Ruffo Pérez del Castillo: So we basically -- on the revenue line, we have four items that are very closely related to FX, which are international passenger charges VIP lounge, duty-free and industrial park. We estimate that the impact of the peso appreciation in the fourth quarter of '25 as compared to the fourth quarter of '24, which was about an 8% appreciation was between MXN 50 million to MXN 60 million. That was our estimate of the effect of such appreciation. Regarding the second part of your question, we do expect at least for 2026 that the full year provisioning would be around MXN 400 million, and we're still assessing what the impact would be for the following years. And it will depend on both construction costs as well as the interest rate -- long-term interest rates used to discount that provision. Alberto Valerio: And if I may, just one more about the violence that we have seen. I know that the region Jalisco is a little bit different from OMA airports region. But do you have any sort of impact on your airports or cancellation routes and so forth? Ricardo Duenas: All our 13 airports are operating normally. We did see on Sunday during the event, a few cancellations from Guadalajara and Puerto Vallarta Airport. There were some yesterday, but today is operating normally, and it is not something that -- it's not a traffic that we believe will have an impact in our numbers. Operator: Our next question is from Anton Mortenkotter with GBM. Ernst Mortenkotter: Just a quick one. We've heard and we've seen in some newspaper, some of your peers are considering some alternative financing methods such as maybe FIBRA. I was just wondering if you guys are considering something -- an alternative to funding your CapEx similar to those or any special vehicles that you may be looking at? Ruffo Pérez del Castillo: So right now, we are not necessarily considering other type of structures different to what we have used in the past few years. We do have some refinancings of debt that is due this year, and we would expect to tap the CEBURES market as we have done so in the past 4 or 5 years. Operator: Our next question is from [ Julia Arce ] with JPMorgan. Unknown Analyst: So can you comment a bit on your traffic expectations for the year? So on previous call, you were mentioning a low to mid-single-digit growth rate for 2026. Is this still the case? Ricardo Duenas: Yes. For the year, we're anticipating somewhere in the low to mid-single-digit growth in traffic. Operator: Our next question is a follow-up from Vanessa Quiroga with Eternal Capital. Vanessa Quiroga: My question is regarding the increase in the tariffs. The 7% in real terms that you mentioned, what is the base for that? Is the base the average in peso terms achieved in 2025? Or do you assume any FX? What is the base that you're using? Ruffo Pérez del Castillo: Sure. The MDP approved maximum tariff was a 6.9% real increase in all of the airports, and that reflects the 2025 maximum tariff. So 2026... Vanessa Quiroga: So that will increase a few... Ruffo Pérez del Castillo: It's the 2026 maximum tariff as compared to the 2025 maximum tariff. That increase in real terms, that's excluding inflation, is 6.9%. Vanessa Quiroga: So the part that maybe I need clarification, you are in 2026, you are going to have that increase or that's targeting 3 years? Ricardo Duenas: Yes. The increase that we're going to pass through this year is 6.9% starting in 10th of April. That includes inflation as well. So it's a nominal 6.1% increase. Operator: Our next question is from Enrique Cantú with GBM. Enrique Cantú: So as you implement tariff increases under the new MDP, how are you assessing demand elasticity, particularly in routes like Monterrey and tourist destinations? And could you share your outlook for further route additions and whether you see scope for continued expansion based on your ongoing discussions with carriers and route additions? Ricardo Duenas: Sorry, could you repeat the question, Enrique? Sorry. Enrique Cantú: Yes, of course. So it's about demand elasticity. How are you assessing the demand elasticity, particularly in routes like Monterrey and tourist destinations as you implement your tariff increases under the new MDP? Ricardo Duenas: Yes. So in terms of elasticity, we believe that the pass-through that we're implementing this year is not going to have a major impact in terms of elasticity -- traffic elasticity. Ruffo Pérez del Castillo: Yes. Just regarding new route openings, so far, 20 routes have been confirmed. 17 of them are domestic and 3 are international. And they start the vast majority of them in June of this year from airports such as Monterrey, San Luis Potosí primarily. Operator: Our next question is from Andres Radin with TRG. Andres Radin Borrajo: I was curious about commercial revenues per passenger and revenue from diversification for 2026. What kind of growth should we be expecting in any particular lines? Do you see any for this year? Ruffo Pérez del Castillo: Okay. So in terms of commercial revenue per pax, they ended 2025 around MXN 62 per pax. We expect similar amounts for the next few quarters in 2026. And regarding diversification revenues, we don't look at them on a per pax basis, but rather as a whole. We have, as you know, both 2 mature hotels, the NH in Mexico and the Hilton Garden in our Monterrey Airport. So we should expect inflationary increases in the results of those 2 units. And the driver of this year of diversification would be our OMA Carga unit which should have double digit growth. Operator: [Operator Instructions] There are no further... Ricardo Duenas: We would like to thank everyone for participating in today's call. We appreciate your insightful questions, engagement and continued support. Ruffo, Emmanuel and I remain available to answer your questions. Thank you once again, and have a great day. Operator: Thank you. This does conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Hello, and welcome to the Coca-Cola FEMSA Fourth Quarter 2025 Conference Call. My name is Sophia, and I'll be your moderator for today's event. Please note that this conference is being recorded. [Operator Instructions] I would now like to hand the call over to Jorge Collazo, Investor Relations Director at Coca-Cola FEMSA. Jorge, please go ahead. Jorge Alejandro Pereda: Thank you, Sofia. Good morning, and welcome to this conference call to review our fourth quarter and full year 2025 results. Before we begin, let me remind all participants that today's conference call may include forward-looking statements and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties that can materially impact the company's performance. For more details, please refer to the full disclaimer in the earnings release that was published earlier today. Joining me this morning are Ian Craig, our Chief Executive Officer; Gerardo Cruz, our Chief Financial Officer; and the rest of the Investor Relations team. After prepared remarks, we will open the call for Q&A. [Operator Instructions] With that, let me turn the call over to Ian, our CEO, to begin our presentation. Ian, please go ahead. Ian M. Craig García: Thank you, Jorge. Good morning, everyone. We appreciate you joining us for today's call. 2025 tested our business in multiple ways, which provided the opportunity to learn and adjust to changing conditions. It also underscored the resilience of our core business and reinforced our conviction in our strategy of following a sustainable long-term growth model. Throughout the year, we implemented decisive measures to react to the short term while ensuring we continue progressing towards our long-term objectives. Among other actions, in Mexico, we adjusted our promotional grid and strengthened our affordability initiatives to address a weaker-than-expected consumer and the effects of temporary unfavorable brand sentiment early in the year. We focused on recovering our competitive position and protecting profitability with swift and decisive actions that became a best practice within the global Coca-Cola system. On the other hand, our markets in South America enjoyed more favorable consumer dynamics that coupled with market execution, investments behind capacity and the full reopening of our plant in Porto Alegre resulted in volume growth across most of our territories and an improved competitive position. Notably, gradual sequential improvements during the last quarter of the year led to consolidated volume growth year-on-year. Indeed, volume performance in December marked the strongest month in our company's history. Despite the many headwinds faced, our full year 2025 results demonstrate top and bottom line growth with resilient operating and adjusted EBITDA margins. We were also successful in reinforcing our relative scale across our markets, supported by progress in installed capacity and the rollout of our digital initiatives. As we look to 2026, we are confident that we will deliver both opportunities and challenges, including the impact on our consumers and customers of the excise tax increase in Mexico. This makes it more important than ever that we adhere to our sustainable growth model to best navigate these challenges and emerge with a stronger relative competitive position. We expect to follow the same strategic playbook, leveraging Coca-Cola FEMSA's differentiated strength of an unmatched portfolio of brands, the largest distribution footprint, consistency in investment above the line and below the line, relentless execution and leading -edge digital enablers. For the year, our key priorities remain unchanged. First, to continue growing our core business by leveraging our big bets, accelerating Coke Zero, improving our competitive position in flavors and developing profitable noncarbonated beverages. Second, to capitalize on Juntos+ AI capabilities and continue to roll out and leverage Juntos+ Advisor across our 4 largest markets. And third, to continue fostering a customer-centric and psychologically safe culture for Coca-Cola FEMSA. With that, let's review in detail our consolidated results for the fourth quarter. Our consolidated volume increased 1.3% in the quarter to reach 1.09 billion unit cases. Gradual sequential improvements in Mexico, coupled with solid volume growth in the rest of our territories supported this positive performance. Total revenues for the quarter grew 2.9% to MXN 77.7 billion, led by revenue management initiatives that were partially offset by unfavorable mix effects and headwinds related to currency translation from most of our operating currencies into Mexican pesos. On a currency-neutral basis, our total revenues increased 6%. Gross profit increased 1.8% to MXN 36.3 billion, leading to a margin contraction of 60 basis points to 46.7%. This margin performance was driven mainly by an unfavorable mix and hedging positions, coupled with fixed costs such as labor and depreciation. On the other hand, these effects were partially offset by better sweetener and PET costs. Our operating income increased 13.3% to reach MXN 13.7 billion, with operating margin expanding 160 basis points to 17.6%. This increase is positively impacted by the recognition of insurance claims recovered in Brazil and Mexico, net of expenses for MXN 1.1 billion. By excluding insurance recovery and related expenses in both the fourth quarter of 2024 and 2025, our operating income would have declined by 2.1%, resulting in an operating income margin contraction of 90 basis points to reach 16.1% -- this normalized operating margin contraction is explained by higher depreciation and labor expenses that were partially offset by expense controls such as maintenance and freight, coupled with an operating foreign exchange gain. Adjusted EBITDA for the quarter, including insurance recoveries, increased 12.8% to MXN 18.2 billion, and EBITDA margin expanded 210 basis points to 23.4%. Excluding insurance effects and related expenses at the EBITDA level, normalized adjusted EBITDA grew 4.4% with a margin expansion of 30 basis points to 21.9%. Finally, our majority net income increased 3% to reach MXN 7.5 billion. This increase was driven by operating income growth that was partially offset by an increase in comprehensive financial results and in the effective tax rate. Now let me expand on the main operational and strategic highlights across key markets. In Mexico, despite facing what is still a soft consumer environment, our volumes improved sequentially, resulting in a 0.9% contraction year-on-year, aided by adjustments to our price pack architecture, coupled with revamped affordability initiatives in multi-serve refillable packs. Regarding categories, Coke Zero maintained its solid growth pace with 14% volume growth year-on-year. Our initiatives to recover share allowed us to fully recover our competitive position and enter 2026 with positive share momentum in both the colas and sparkling flavor segments. Notably, our stills portfolio grew 7.4% year-on-year, driven mainly by the solid performance achieved in Monster, FUZE Tea and Santa Clara, which grew 41%, 33% and 28%, respectively. We also positioned our Mexico operation for significant market execution improvements in 2026 with more than 100,000 new cooler doors installed by year-end 2026. Regarding digital, as I mentioned last October, we began the rollout of our state-of-the-art sales force tool, Juntos+ Advisor in Mexico. We are encouraged to share that with a strong focus on usability. We have completed its rollout and today, its overall performance is improving geo efficiency or visitation, as is also known, by 5.5 percentage points from 91% to 96.5% and offering value-added functionalities to our sales force that are helping them strengthen customer relationships and increase sales. I also want to underscore the swift and decisive nature of our Mexico team's reaction to a difficult first half of the year by implementing top line productivity and cost control measures that reversed a negative trend in volume and profitability. As we enter 2026, we are well positioned to navigate the challenges related to the excise tax increase and continued soft economic growth. We have bolstered our portfolio with key affordability initiatives and are in the process of increasing our returnable pack offerings to capture key price points and defend household penetration. We have also developed an ambitious plan together with the Coca-Cola Company to capitalize on being a host country for the FIFA World Cup. Additionally, we continue with a keen focus on productivity and cost control initiatives, together with a prudent CapEx investment level to navigate the short term while we gain visibility on how the year develops. Moving on to Guatemala, where our volumes increased 3.5% to reach 48.9 million unit cases. During the quarter, we continue seeing a macro environment that decelerated versus the previous years, driven by shifts in consumer behaviors as consumers increased their savings from remittances from 11% up to 40% on average, coupled with reductions in mobility because of rising in security in the country, which is now the #1 public concern in Guatemala. Amid this backdrop, we were able to continue growing volumes and share, although at a lower-than-anticipated pace. In addition, during the second half of the year, we implemented productivity initiatives to put in place a leaner operating model. As we enter a new year, we aim to accelerate top line growth with initiatives to continue our colas momentum while capturing share opportunities in flavors. In colas, we continue to have opportunities to gain share through entry price points, leveraging the FIFA World Cup and increasing availability, while we double down on efforts to boost [ Pride. ] We continue to have ample space to develop profitable stills categories with Powerade and Monster as well as continuing to bolster our Juntos+ platform by unlocking new clients and improving executions. With the ambitious investments that we have completed in Guatemala, capacity constraints are no longer a concern. Our priority now is to continue optimizing our cost structure through disciplined expense management and operational excellence. Now moving on to our South America division. In Brazil, our quarterly volumes increased 2.6%, driven mainly by a historic month of December, outstanding market execution on the back of our digital enablers, coupled with higher average temperatures and significantly lower precipitation drove this growth. Notably, this is the highest fourth quarter volume on record for our second largest operation. As has been the case throughout the year, we continued gaining share in all relevant categories within the nonalcoholic ready-to-drink industry. Importantly, we have recovered the vast majority of the share that was lost in Rio Grande do Sul due to the temporary closure of our plant, which fully reopened last May. Aligned with our strategic intent to accelerate growth in non-caloric and single-serve beverages, we delivered strong growth with Coca-Cola Zero, which grew 44% during 2025 and Sprite Zero, which achieved accelerated growth of 93% year-on-year in 2025. Notably, our Sprite Zero playbook is following a similar script as Coke Zero. As a result, Sprite Zero now represents more than 20% of our total Sprite volume. Regarding steels, we have leveraged our portfolio and commercial capabilities to achieve growth across all categories. For instance, energy drinks continue seeing double-digit growth from Monster, driven by portfolio innovation, execution and availability. In line with these positive performances, juices grew 9% and Powerade grew mid-single digits. Finally, within the alcoholic ready-to-drink category, we achieved more than 50% growth year-on-year, driven by Jack & Coke and Absolut Sprite. Our digital enablers, Juntos Plus monthly active user base continues expanding, surpassing our goal of 303,000 monthly active users, while continuing to increase average ticket size. Importantly, our Juntos+ premier loyalty customer base increased 73% year-on-year. Juntos+ Advisor, which is a game changer for our sales force and is supporting Brazil's positive share performance, increased its efficiency by more than 9.2 percentage points to reach 95.6%. Finally, on the supply chain front, we increased our manufacturing capacity by 8.2% year-on-year, supported by 5 new production lines. In addition, our warehouse capacity increased by more than 25,000 pallet positions, representing a 6% increase year-on-year. This was achieved through state-of-the-art projects such as a vertical automated warehouse located next to our Itabirito plant in the state of Minas Gerais. As we look to 2026, we are encouraged by the growth rate at which we closed the year. We anticipate that election-related spending, social programs and the FIFA World Cup will represent important tailwinds for our operation in Brazil. In this environment, we expect to continue executing against our strategic priorities, striving to outperform the industry, leveraging our digital initiatives and our customer-centric culture. Now moving on to Colombia. Our volumes grew 4.5% as the macroeconomic environment gradually recovers and we cycle the effects of the excise tax increase in the country. As was the case in Mexico, we implemented portfolio initiatives to adjust our price pack architecture in brand Coca-Cola, providing attractive price points aimed at growing transactions. In addition, we're managing price gaps in multi-serve presentations to provide affordability and an attractive value proposition. At the same time, Coke Zero, which achieved double-digit growth during the quarter, remains a growth engine with ample headroom. As I mentioned during our last earnings call, Quatro, our grapefruit flavor, is now the #1 flavored sparkling beverage in the country, and we aim to continue expanding our competitive position in flavors with increased innovation and availability. On the digital front, Colombia closed the year with more than 320,000 monthly active buyers. Importantly, average ticket grew more than 4% and digital orders increased more than 15% year-on-year. We anticipate that our Premier loyalty plan will continue driving adoption and frequency as its use expands during 2026. Finally, I want to recognize our team in Colombia for their cost control measures and the cost to serve reductions they have achieved, aided by our capacity investments in the country, which have enabled us to reduce primary freight costs and third-party warehouse expenses. As we look to 2026, we expect to add another distribution center in Medellin, which will alleviate warehouse saturation and bring additional efficiencies. In Argentina, our volumes increased 3%. Our agile response to a volatile environment ensured our sustained positive performance throughout the year despite a heterogeneous recovery across different sectors of the economy. We have remained consistent with our strategy, enhancing our affordability plans and accelerating our single-serve mix, all while maintaining a lean and flexible cost structure. This strategy resulted in an improved competitive position and single-serve mix that reached 26.3%, a 2.3 percentage point increase year-on-year. Regarding our digital initiatives, we continue driving digital client adoption with the rollout of the latest version of Juntos+, resulting in a 71% increase in digital orders year-on-year. As we look to 2026 for Argentina, we expect to continue executing against the strategy that has been successful thus far, sustain an affordable value proposition in brand Coca-Cola and flavors, boost single-serve and Powerade by leveraging the FIFA World Cup and unlock Juntos+ and Premier Juntos+ full potential while keeping a lean and flexible cost and expense structure. Let me close by emphasizing that we are encouraged to be a part of a vibrant beverage industry within a region with positive growth prospects. The support of our long-term sustainable growth model from our strategic shareholders, FEMSA and the Coca-Cola Company is one of our fundamental strengths. With that in mind, I would like to take a moment to recognize and thank Jose Antonio Fernandez Carbajal and James Quincey for their exceptional vision, leadership and partnership as CEOs of FEMSA and the Coca-Cola Company, respectively. Their vision to grow the Coca-Cola system, combining the unique strengths of both the Coca-Cola Company and the bottlers has been fundamental to our company's success. Additionally, both Jose Antonio and James have personally taken a stake in the system's talent development, leaving a legacy of a deep management bench. We're grateful for the transformational impact they have had over the years and wish them both continued success in the roles as Chairman. We are equally excited to welcome Jose Antonio Garza-Laguera to the role of CEO at FEMSA and Henrique Braun to the role of CEO at the Coca-Cola Company. Their leadership marks the beginning of a new growth chapter in our strategic partnership, and we look forward to continuing to transform the beverage industry and create long-term value together. With that, I will hand the call over to Jerry. Gerardo Celaya: Thank you, Ian, and good morning, everyone. I appreciate you joining us today. I will begin by summarizing our division's results for the quarter. In Mexico and Central America, our volumes were even as a slight volume decline in Mexico was offset by growth in Guatemala, Nicaragua, Panama and Costa Rica. Revenues increased 1.6% to MXN 42.2 billion, driven mainly by revenue growth management initiatives that were partially offset by unfavorable mix and currency translation effects into Mexican pesos. On a currency-neutral basis, revenues increased 3.3%. Gross profit increased 2.6% to reach MXN 20.8 billion, resulting in a gross margin of 49.2%, a 40 basis point expansion year-on-year. This margin increase was driven mainly by lower raw material costs such as sugar and PET, coupled with the appreciation of the Mexican peso as applied to our U.S. dollar-denominated raw material costs. These effects were partially offset by unfavorable mix effects and fixed costs. Operating income in the division declined 1.1% to MXN 6.9 billion, and our operating margin contracted 40 basis points to 16.3%. As described in our earnings release, our operating income includes the recognition of insurance recoveries in Mexico, net of expenses for MXN 116 million. By excluding this effect and related expenses in the same period of the previous year, normalized operating income would have declined 8.1%, resulting in an operating margin contraction of 170 basis points. This contraction was driven mainly by an increase in marketing, depreciation and labor, coupled with a lower operative foreign exchange gain as compared to the previous year. These effects were partially offset by operating expense efficiencies such as maintenance and distribution. Finally, our adjusted EBITDA in the division increased 1.3% with a flat margin as compared to the previous year to reach 22.9%. Importantly, by normalizing insurance claims and related expenses at the EBITDA level, normalized adjusted EBITDA increased 0.5% year-on-year and EBITDA margin contraction of 20 basis points. Moving on to South America. Volumes increased 3% to 504.1 million unit cases. This increase was driven by volume growth across all territories in the division. Revenues in South America increased 4.6% to MXN 35.4 billion, driven mainly by our revenue management initiatives, offsetting unfavorable currency translation effects into Mexican pesos from most operating currencies in the division. On a currency-neutral basis, total revenues in South America increased 9.5%. Gross profit in the division increased 0.6% and gross margin contracted by 170 basis points to 43.7%, driven mainly by an unfavorable mix and higher fixed costs such as labor and depreciation. On a currency-neutral basis, gross profit increased 5%. Operating income in South America rose 32.8% to MXN 6.8 billion, with operating margin up 410 basis points to 19.2%. As Ian previously mentioned, this margin expansion was positively impacted by insurance recovery in Brazil for approximately MXN 1 billion. By normalizing insurance effects and related expenses in 2024 and 2025, our operating income increased 6%, resulting in an operating margin expansion of 20 basis points to reach 16.3%. This improvement was driven by expense efficiencies such as freight, marketing and maintenance. Finally, adjusted EBITDA in the division increased 29.5% to MXN 8.5 billion for a margin expansion of 460 basis points to 23.9%. Excluding the effects of insurance recoveries and related expenses in 2024 and 2025, at the EBITDA level, normalized adjusted EBITDA increased 9.6% year-on-year and EBITDA margin expansion of 90 basis points. Now let me expand on our comprehensive financing results, which recorded an expense of MXN 1.4 billion as compared to an expense of MXN 980 million during the same period of the previous year. This increase was driven mainly by a reduction in interest income, resulting from a lower cash position in key markets and lower interest rates in Mexico, coupled with higher interest expenses driven by the issuance of a U.S. dollar-denominated bond through 2035 and its related derivative instruments. These effects were partially offset by: first, a gain in financial instruments of MXN 162 million as compared to a loss of MXN 33 million in the fourth quarter of '24. Second, a higher foreign exchange gain; and third, a higher gain in monetary positions from inflationary subsidiaries. I would like to briefly comment on our recent financing activity that further reinforces our balance sheet with attractive funding conditions. On February 12, we successfully priced the bond issuance in the Mexican market for a total amount of MXN 10 billion. The transaction was executed through a dual tranche structure, allowing us to balance duration and interest rate exposure. The first tranche consisted of MXN 7 billion with a 10-year maturity priced at a fixed rate of 9.12%, equivalent to a [indiscernible] plus 43 basis points. The second tranche amounted to MXN 3 billion with a 3-year term priced at a floating rate of funding TA plus 38 basis points. This structure reflects both strong investor demand and our disciplined approach to liability management. Importantly, the transaction received the highest national credit ratings from S&P and Moody's, reaffirming our solid credit profile and the confidence that the local capital markets continue to place in Coca-Cola FEMSA. Overall, this issuance strengthens our financial position, extends our debt maturity profile and provides us with continued financial flexibility. Finally, I'd like to take a moment to comment on sustainability, which remains a core element of our long-term value creation strategy. Our disciplined and consistent execution translated into tangible improvements across the main sustainability benchmarks used to assess our performance. Most notably, our S&P Global Corporate Sustainability Assessment score increased by 11 points year-over-year, reaching an all-time high of 81. As a result, we were included in the 2026 Sustainability Yearbook as the highest scoring company in our sector in the Americas, an achievement that underscores the strength of our sustainability strategy and governance practices. In addition, we achieved a record score of 4.1 out of 5 in the FTSE4Good assessment, while also posting improvements across our key evaluations, including MSCI, ISS ESG, Bloomberg ESG and CDP. These results reflect particularly strong performance across climate action, water stewardship and supplier management. Taken together, these recognitions reinforce our conviction that the disciplined integration of environmental and social factors, along with robust risk management across our operations and value chain is a critical enabler of sustainable long-term growth. With that, operator, we're ready to open the floor for questions. Operator: [Operator Instructions] Our first question comes from Ben Theurer with Barclays. Benjamin Theurer: I wanted to get some incremental color, if you can, as to the performance, particularly in Mexico over the course of the fourth quarter and then heading into the first quarter. What have you seen in regards to the volume behavior, October through December and particularly now with taxes being in place early on, what are like the early signs of sensitivities that you've been seeing amongst key customers? And how have you been reacted on that as it relates to the tax and then ultimately, your pricing strategy throughout the year? That would be my question. Ian M. Craig García: What you saw during last year, if you remember, I think in Mexico in the first quarter was around a 5% decline. Then the second quarter, when we really had the impact of the consumer sentiment around the 15% decline -- no, sorry, around 10%, if I remember more or less. And then third quarter, 3.7%. And finally, by the fourth quarter, it was almost flat, declining 0.9%. So you saw a sequential improvement. And I mentioned in the prepared remarks that December was the strongest December on record for Mexico in terms of volume growth. So you can see how the underlying trend was improving to the point of having a December that was the highest on record in terms of volume. That being said, we continue with the same guidance for 2026, which is a low to mid-single-digit decline in Mexico simply because we had to transfer the impacts of the IEPS excise tax, and that was a large price increase that we had to transfer through for the IEPS tax. So we're not changing our guidance there, and we are seeing the impacts of that tax increase in the first quarter. Benjamin Theurer: As expected, like the volume declines or very much... Ian M. Craig García: As expected. Operator: Our next question comes from Ricardo Alves with Morgan Stanley. Ricardo Alves: Ian, I remember the cycle of investments in 2024, the focus on growth and then you have 2025 with all the challenges and one-offs, IEPS came through. And I think that to credit Coke FEMSA, the company was very fast in adjusting the cost structure as needed, the price hikes. So when you think about -- the question is your strategic views into 2026. When you think about everything that you have in place, right, I think that since 2024, all the investments or the major investments at least were made, even rebuilding plans. The costs were adjusted in Mexico, a big discussion that we had in the first half of last year. You priced through the tax issues or IEPS issues into 2026. So with -- assuming that all of that is kind of behind you, what would be for this year and the next 2 years, your main strategic ambitions for 2026, not necessarily Mexico only, but across the board. What is keeping you awake as big opportunities ahead? And then just one other question for Jerry. Just a quick update on the shareholder remuneration would be much appreciated given the below 1x EBITDA leverage. So I think that an update on shareholder distribution would be appreciated. Ian M. Craig García: Thank you, Ricardo. Well, just to be clear, as you mentioned, we're very proud of the adjustment that our Mexico team or the reaction, let's say, the rapid reaction that our Mexico team had when we were facing the change in consumer sentiment and the sluggish demand, coupled together with weather, by the way. So it was a quick and swift reaction, and that's behind us. Going into 2026, we are already with a lean structure, and we adjusted our CapEx primarily in Mexico because the rest of the territories are growing as expected. So we adjusted our CapEx there. And our key priorities remain the same. I mean, -- we want to continue growing our core business. It's amazing what's happening with Coke Zero even within this environment in Mexico, even with the tax, we're continuing to accelerate Coke Zero. There are opportunities to improve our position in flavors. What I'm seeing with Sprite Zero in Brazil is nothing short of amazing. What we have done with Quatro in Colombia is very positive. And that's something that we want -- what we're doing with the heritage brands in Mexico. So that's something that we want to continue to leverage this year and also on profitable NCVs, which continued to gain mix and grow at very attractive rates. So that would be my first priority. The second one is we will have Juntos+ Advisor in our 4 largest markets this year. We already have it in Mexico and Brazil, where it's maturing, where it's giving us improved visitation, improved combined coverages. I mean those things are growing 3 to 2 percentage points, and those translate directly to increases in share. You see that in Brazil, more compliance on the guided missions. So I think we expect to continue to scale that and leverage those enablers. And finally, we continue working on the culture piece. It's very important for us that we continue improving on our customer centricity journey, improving our customer-centric measures. We believe that's key to the fundamental long-term health of the business. And that's what we're driving, Ricardo. We've talked about this in our conversations. This is a scale business. It's important that we continue growing relative scale. It's a year that we need to be prudent because of the tax increase in Mexico. It's not a minor tax. It's a very large tax increase. So we need to be prudent. But that only reaffirms our commitment to our sustainable long-term growth model. We need to come out of this stronger and continue accelerating what all of our territories outside of South America. Jerry? Gerardo Celaya: Yes. Thank you, Ricardo. And to briefly complement Ian, I would like to just connect a few of the points that Ian mentioned regarding first, our grow the core strategic initiative as well as our digital enablers as our second most important growth strategic priority. because it came -- or it's coming at the right precise moment that we can leverage those digital capabilities and the AI-enabled capabilities that our platforms have to take the best advantage of our revenue growth management initiatives at a moment where specifically in Mexico, we're facing important challenges with the IEPS tax coming online. Going to capital allocation, Ricardo, I think we are very -- or following very closely our capital structure situation. We understand that we are pending to give information to the market regarding what we're doing. with our dividend strategy. Given that we're facing this challenge in Mexico with IEPS, we're holding on a little bit to see how cash flow behaves during the year. We'll certainly try to do our best to have the less disruption possible from this effect in our cash flow generation. But we're being a bit cautious, just waiting out and see how the first half of the year develops with the World Cup coming on and see how our projection for cash flow for the remainder of the year progresses. So we'll give you a bit more information as the year moves on. Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. We are going to move on to the next question that comes from Rodrigo Alcantara with UBS. Rodrigo Alcantara: Can you hear me? Ian M. Craig García: Hello Rodrigo. Rodrigo Alcantara: Nice to hear from you. One question for Ian to elaborate on the very encouraging momentum observed in Brazil, right? I mean we discussed here in terms of the 0 concepts momentum, but also judging on competitors' performance, looking -- your performance is quite strong as well. So I'm not sure if we're -- if it's a matter also of price relativity, allowing you guys to give better performance, digital tools. Just wanted to understand the drivers behind not only the strong category growth momentum, but also the relative performance versus competitors in Brazil. That would be for nonalcoholic beverage. And the other question for Jerry, and this is a topic that to tell you truth, I mean, we were asked as writing the review today, what happened to cash flow? I mean, there was a meaningful outflow in working capital, Jerry, that actually burn all the gains that we saw at the EBITDA level. So I just wanted to -- I mean, investors wanted to understand precisely this and what happened to working capital. And if I recall correctly, I mean, -- it's something to do with payables and stuff like that, but it's a topic that we have previously discussed in the past. So I thought that we have turned the pitch on that. So just curious on this and when can we expect some sort of normalization on working capital? Those would be my 2 questions. Ian M. Craig García: Rodrigo, so just in terms of the market performance, Brazil is the perfect example of having decided to adopt a long-term sustainable growth model where we are leveraging a top-notch portfolio of brands, consistent investment year-over-year over-year above the line and below the line. with the widest distribution in network, focusing on expanding our customers, improving our customer service metrics and also rolling out digital enablers. So it's a combination of that consistency year-over-year. And you end up improving your relative competitive position that fits into more scale. It fits into a more orderly market. You can end up continuing to leverage again your scale. And you see it where we have decided to focus. I mean, the Coke Zero playbook worldwide for the system is called the Brazil playbook for a reason. So it was developed there. It's working for Coke Zero. It continues to work, and now we rolled it out across other geographies, and it's working as well. Sprite Zero, nothing short of amazing what we're doing there. The growth that we saw in Sprite Zero last year and has continued again into this year, which is also, by the way, great news when we think of the impact that is going to, at some point, start to flow through on the GLP-1s. It's great for us to improve our non-caloric mixes. So in Brazil, I would say it's a story of consistency behind our strengths that I mentioned in the prepared remarks. And it's just feeding through. And we're very fortunate to now be at a stage where we have very advanced AI enablers, all rolled out and scaled in Brazil, and we just continue to fine-tune them. and that continues to show through. I mean when you look at the share that we are winning and exclude the effects of Rio Grande do Sul, so if you look at mature territories of Sao Paulo and Minos, I mean, these are very large share gains, and they come from that consistency. Gerardo Celaya: Rodrigo, thank you for your questions and for your time. Regarding working capital, it's exactly accounts payable, the effect that you're seeing, and it's an effect in the base. Just to remind everyone in the call, we are in the process of rolling out and deploying the implementation of our new ERP, SAP/4HANA. Due to delays last year, we had a significant increase in accounts payable that were a big effect in fourth quarter of '24. So when you compare to a normalized fourth quarter of '25, you see that large reduction in accounts payable, which basically is the hold effect that you're seeing in working capital. We have normalized that for the year and don't expect to see any further disruptions coming from accounts payables or receivables for 2026. Rodrigo Alcantara: Awesome. And so just to confirm, starting 1Q '26, we should go back to normal on those outflows or inflows on working capital. Gerardo Celaya: That's correct. Even since fourth quarter '25, I would say, is the normal, that the disruption comes from the base fourth quarter '24 when we had unusual increase in accounts payable back then. Rodrigo Alcantara: Okay. No, that's encouraging. I mean excluding -- I mean, that said, I mean, it was a great quarter, guys. Congrats. Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. Thiago Bortoluci: Can you hear me now? Ian M. Craig García: Yes Thiago. Thiago Bortoluci: I would just like to move the conversation back into Mexico with 2 follow-ups. The first one, I know you mentioned January moving in line with expectations, and it's still too early to call for a more aggressive capital allocation. But I remember having prior conversations on pricing. Obviously, the industry as a whole has been pretty clear in passing the IEPS, but we had some diverging views on whether to go for a second round of increase to cover the underlying raw materials inflation, right? So the first question is, with the elasticities that you're seeing so far in Mexico, how comfortable you are or not in implementing another round of price adjustments this time to cover your underlying cost inflation? This is the number one. And then the number two is with the level of hedges that you have so far, particularly on the FX line, what's the visibility that you have in the direction of your gross margins and cost inflation for the next 12 months? That's the question. Ian M. Craig García: I'll take the first half, Thierry. It's still too early to tell. We need to let the first half -- the first quarter flow through. If you remember, January of last year was very strong. Then we have February where we started seeing changes in sentiment. And in March, we started seeing both the change in sentiment as well as weather. So it's too early to tell. We need to be a little more cautious. From what I see today, I can tell you this, the elasticity is behaving as we have imagined. The consumer is still sluggish in Mexico. So it wouldn't be prudent to venture into an additional increase today. At least I need to see how we end up closing the quarter and things are reacting. And that gives us plenty of time in any case, before we could do any sort of adjustment, additional adjustment. Gerardo Celaya: And Thiago, connecting my answer to Ian's, I would say, gross margins for Mexico, we are seeing a bit of pressure. We're certainly going to follow up on any pricing decisions that we have to make. We're being very cautious, but we are very concerned with maintaining sustainable growth for the long term and following up on that promise to the market. But we are seeing a bit of pressure in gross margins, even though we see a benign raw material environment with the exception of aluminum, we see flattish to favorable prices in sweeteners, in plastic, but we do see a bit of pressure in aluminum that should result in some pressure in gross margins that we're aiming to try to compensate in fixed cost and expenses to try to deliver as close to flat EBIT margins as possible. It's still a work in progress, but that's what we're expecting for the year... Ian M. Craig García: For the full year. Gerardo Celaya: Exactly. Operator: Our next question comes from Renata Cabral with Citi. Renata Fonseca Cabral Sturani: My questions are about the Brazilian operations, some follow-ups. So the first one is regarding the supply chain improvements. We have discussed in the previous quarter, the improvement because of the normalization of the operation in Rio Grande do Sul. My question is how much of incremental savings potential remains in the distribution cost to serve for 2026? Or if it -- in this specific line, we are getting to a peak? And my second question is a follow-up regarding CapEx investments in Brazil. Is Brazil still receiving incremental capacity investment? Or does the current footprint support the growth in the upcoming years without incremental fixed cost improvement or investments this year? Ian M. Craig García: Renata, I would say we still have a couple of months where we're cycling still the Porto Alegre plant closure. So most of the improvements you're going to see really in freight come from that extra freight that was occurring there up until May. In terms of capacity, I think we put in over 4 -- over 5 lines in Brazil. So we've done a lot for the short term in Brazil in terms of lines, and that should not be an issue. Given the growth that we're seeing, if this continues as strong, and we have to see, remember, 2027, a new tax is going to come into effect. So it's a little early to say whether we'll need -- when we'll need the new plant in Brazil. So our projections today is that we will need one to start around 2030. And so investments for that will be in 2029. So I would say from here to 2028, things are at a lower level of investments because we have already invested quite a bit. So from having invested around 8% of revenues we should go down to around 6.5% over the following years, and then it steps up again in 2029 with the start of a new plant. That's the base scenario. But we have to see what sort of impact we see in 2027 from the tax, okay? Operator: Our next question comes from Alvaro Garcia with BTG. Alvaro Garcia: I have 2 questions. I have a bigger picture question on affordability in Mexico. In the context of -- you've stated your long-term sustainable growth model. If you zoom out, is it fair to assume that we could be entering just sort of a longer period of affordability? And we obviously had a phase, let's say, in the 2015, '16, '17, where you probably passed a little too much price, and we've discussed that in the past. given your price gaps today, so maybe some commentary on that would be helpful relative to your competition. And just given the tax and given what the consumer is feeling, is it fair to assume that we could be entering just a multiyear cycle where you're maybe favoring volumes in the context of your long-term sustainable growth model. So any thoughts there would be greatly appreciated. And then just one quick one, Jerry, on CapEx levels for 2026. I think last quarter, you mentioned potentially lower CapEx levels. I'm not sure if you've mentioned it on this call yet or not. I know you cleared up sort of capital allocation, but any comments on specific CapEx levels for '26 would be helpful as well. Ian M. Craig García: Hello Alvaro. I think your general read is some point. We believe this model is the one that delivers the best results, not only in terms of share of volume or even share of value, but also in terms of sustainable bottom line growth. So we saw this, like you mentioned, we lost too much share in the 8 to 10 years prior to 2022. We adjusted the strategy then. It reacted very quickly in 2023, so much so that then we had an availability issues in 2024. I'm talking about Mexico. Then last year, I would say, was a bit of an outlier with everything that happened with the consumer. The reaction again recovered the impact that we have, but that was, I would say, an event-driven strategy to quickly recover the changes in consumer sentiment. when we look at what's going to happen and what is transpiring in 2026 in Mexico, we're very convinced that it's the right strategy because when you're passing through the IEPS price tax increase, it's sort of a similar effect to what we saw in Argentina from there from the economic crisis or in Panama after having to adjust our portfolio, the consumer, we don't want to lose household penetration. It's very important that we maintain that penetration. And it's really a 12-month thing. We don't see it as longer term than that. So we need to come out and we're planning to come out of this yes, impact stronger with a stronger relative position. I think we're very the price gaps are manageable where they are. So the strategy should pay off. It's worked in the other markets. It worked in Mexico as well. We're missing one price point where we're going to be launching a new returnable presentation, but we're keeping that under wraps until that's in the market. But outside of that, we're where we need to be positioned where we need to be, and it's starting to show. So I think it's a 12-month thing, Alvaro, where we reposition this. And then we will grow in terms of RGM initiatives and pricing as much as the market gives us while maintaining increases in competitive position. It's really dictated by that. Gerardo Celaya: Alvaro, I would like to highlight very quickly 2 aspects that I think are very relevant for the implementation of the strategy that Ian was elaborating on, which is our digital capabilities, the ability that we have now to capture and process information from the market and act on that information quickly through our revenue growth management initiatives, I think, is -- puts us in a very strong position to address both the situation that we're facing in Mexico this year and the situation that we will be facing next year in Brazil with the start of the excise tax there as well. The other component, I think, that is worth mentioning is -- we have the learnings from the experience we had in 2014 with -- when the YES was originally enacted. So that will allow us to -- or is allowing us to take more informed decisions with respect to the market to address our growth opportunities in the best way selectively throughout the market. Regarding your question on CapEx, as we were talking about the last couple of years, last year, we invested 8.2% of revenues for the whole year with a big increase coming from deploying capacity, both in manufacturing and distribution. For this year, we're expecting, given the phasing out that Ian already mentioned in our Southeast plant in Mexico as well as our plant in Brazil. We're able to generate a little bit of savings in our investments for this year, dropping our CapEx to revenues from a range of 7% to 7.5%, probably ending in the lower end of that range for the year with the expectations that we have in our business plan. Operator: Our next question comes from Froylan Mendes with JPMorgan. Fernando Froylan Mendez Solther: Can you hear me? Ian M. Craig García: Yes, Froylan. Fernando Froylan Mendez Solther: You mentioned December was the highest monthly volume in Mexico. Was there any overstocking, probably a reaction from the different channels with the upcoming hike on the taxes. Also, you mentioned that price gaps are manageable. Does that mean that the price gap was reduced? And is that a sense that you have been gaining share so far with the IEPS implementation in the industry? That would be great if you could give us some color on how competitors have reacted. Gerardo Celaya: So I don't -- we don't believe there's a stock effect in those -- in that December figure, firstly, because we never used all channels at the same time. And in this case, we adjusted the traditional trade mid-month. So any event of overstocking was, let's say, flow through within the month. So that was done around the mid-December. And the modern trade, as you know, has a huge incentive to improve their working capital in year-end. So they did not really stock in any major form entering into January, and that price flowed through in January. So I don't see that major effect in the Mexico December volumes. It was the highest December on record for our 4 largest operation. and it was the highest fourth quarter on record for Guatemala, Colombia and Brazil. So those are like underlying green shoots that tell you about the strength of the NARTD market that we serve. And in terms of the price gap, it varies a lot by competitor, region and channel. So what I can tell you is the overall mix, it's either the same or very slightly improved than what we have before. But it's very different by competitor and channel geography. It's not a homogeneous thing. Fernando Froylan Mendez Solther: You mentioned a bit about -- no competitor doing anything crazy, right? Ian M. Craig García: No, no deterioration in the price gap. You could say there are some competitors that are being aggressive in certain channels and geographies. What I'm giving you is the blended overall picture. Gerardo Celaya: I mentioned, Froy, a bit about share performance. I think we're very proud of the job, as Ian mentioned in prepared remarks, of the job that the Mexico team did recovering from the backlash effect that we had in the second quarter of last year. And we're very excited of the base from where we're starting this year having recovered that share. So this should be a good position, a good platform to start this year that we're facing the challenge of IEPS with the pricing strategy and RGM initiatives that we elaborated on. Operator: Our next question comes from Antonio Hernandez with Actinver. Antonio Hernandez: Just a quick one regarding -- I mean, you mentioned the different tailwinds for Brazil, especially for this year and next year might be a little bit more complicated. But more specifically, how are you seeing in terms of any volume guidance or sales guidance in Brazil for the year? Ian M. Craig García: Sales guidance, Antonio, what I can say is the year started off this first by [indiscernible] continuing on the back of the strong trend. We've seen no changes there. We had good weather in January. We have social programs. We have election-related spending. So everything moving on strong in Brazil anything that you want to share on that? Jorge Alejandro Pereda: Yes. Maybe to complement on that part, Ian, I would say that with all the tailwinds that we're seeing and so far, Brazil has been to a good start of the year, both January and February have been good months. Some of these tailwinds are already materializing from the social spending, even weather has been positive. So with all things considered, I would say that we expect to grow volumes in Brazil this year, which, as you know, when you zoom out and you see Brazil over the past couple of years, all years have been quite strong. And we have been able to outperform even to initial expectations that was -- or has been what has been happening in Brazil. So all things considered, I would say that if we were to put a number, and please consider this as an early take for the year, I wouldn't call it guidance. But I think we can work with positive volumes probably on the low to mid-single digits range. But we will progressively update you on that as the year progresses. But I think that's a fair assumption for you guys to model. Gerardo Celaya: If I may add, Antonio, I think we're cautiously optimistic and a bit excited of what we've been seeing in terms of share gains in Brazil. I want to highlight this because it's a particular situation. Ian mentioned in one of the earlier questions. But one of the big boost that we're getting from the launching of our adviser tool in Brazil that is also online in Mexico and are excited for what we may see in Mexico as well. But a good result that we've seen has resulted in share improvement through improvement in combined coverage, both in CSDs and stills. This tool allows us to better execute at the point of sale, reducing out of stocks as much as possible, and this has resulted in good share trends in all of the categories, which is especially exciting when we see the breakdown. So we're optimistic of what this tool will bring for the rest of our business, especially with the late last year launch in Mexico and the expectation of launching in Colombia and Guatemala this year. Operator: Next question from Gabriela Martinez with [indiscernible]. Unknown Analyst: Do you already have an estimate of the impact of the World Cup? And could you share more details on your strategies to capitalize the opportunities it will bring? Jorge Alejandro Pereda: Gabriela, yes, it's Jorge here. I think as Ian and Jerry have mentioned in previous earnings calls, we are very excited about the opportunity that the World Cup brings, not only because of the local aspect of being a host country, but perhaps most especially for the power that it has for our brands. creates a lot of opportunities for us to engage with the consumers, with the customers, with activation and not only for brand Coca-Cola, Coke Zero, but also in other categories as Power it, for example. So we're, as I said, very excited about that. It's hard to put a number like to put a number on the model, let's say, for the World Cup. But I would say the most important upside that we see for the World Cup is regarding to brand engagement, the opportunities on frequency. That is a great opportunity for us to capitalize. And I would say not only in Mexico, in other markets as well. It's a great opportunity to gather. It brings more consumption occasions, and that's a great, great opportunity that we have. We have, for example, not only during the tournament, -- but even before and even after the tournament, we have a lot of activations happening. We have the trophy tour ongoing. It's coming to Mexico as well. So those are the kind of opportunities that I would highlight for the World Cup. Gerardo Celaya: If I may add, Gabriela, as well, regarding the World Cup and the expectations for the year, we are particularly proud of the strength and depth of our portfolio of products because we can offer a product for all of the different consumption occasions that our consumers will have around this event, be it at home, be it on the road or be it on the venues occurring during the event itself. So we offer a consumption occasion and a brand and an SKU that allows us to capture all of these opportunities, be it hydration, be it energy, be it indulgence. All of this is -- has a lot of synonyms with the World Cup, and we're proud to be able to serve the Coca-Cola portfolio of products around this event, which is a good engagement -- brand engagement event for us. Operator: Our next question comes from Fernando Ferreira with Bank of America. Fernando Ferreira: Just a quick follow-up regarding volumes. You have mentioned or you share some outlook on Mexico and Brazil. But maybe if you can give us some color about what you're expecting on a consolidated basis, mainly given the strong recovery that we have seen in Argentina, Colombia and the very good performance of Guatemala, that would be great. Jorge Alejandro Pereda: Yes. Thanks for the question. Look, when we put it all together, as I mentioned, we already mentioned low to mid-single-digit decline in Mexico. low to mid-single-digit growth in Brazil and the rest with the -- putting it all together with the rest of the markets, I would say consolidated volume for 2026 will be more of a flattish year, of course, flattish to slightly positive, I would say, if we were to give a range. That's what the team is working on. Of course, we will, as I mentioned before, progress you along the year as the year progresses. Ian and Jerry highlighted the effect of the excise tax that is ongoing, and we still need to get a feel on that. So consider this like an early take on the outlook. But there are several moving pieces, but this is what we have for now, what we've been working on. And of course, the team is very focused on achieving growth this year. Gerardo Celaya: So Ian mentioned, Fair, our sustainable growth model, and we've been talking about this for the past few years. I highlighted performance in share that we are seeing positive performance in share across our territories. So our teams are striving to get -- to return to this path of growth in all of our operations. And I think this year, we certainly will be aiming to deliver slight volume growth across our territories. Operator: This concludes the question-and-answer section. At this time, I would like to turn the floor back to Mr. Jorge for any closing remarks. Jorge Alejandro Pereda: Well, just to thank everyone for your interest in Coca-Cola FEMSA and for joining us on today's call. As always, we are available to answer any remaining questions, and we look forward to meeting with you, hopefully, in person throughout the year. Thank you very much. Operator: Thank you. This does conclude today's presentation. You may disconnect now, and have a nice day.
Steve Foots: Good morning, everyone. So many thanks for joining us for today's presentation, and it's great to be with you all. As well as running through our financial results, we're going to do a deeper dive on the plan we're expecting to grow -- executing to grow earnings and improve results. And we will also set out our financial framework for the next 3 years. So a slightly longer presentation than normal, which Stephen and I will carve up between us before taking your questions at the end. So starting with our performance in 2025. Overall, we're pleased with how the business has performed in a very uncertain environment. Sales grew 7% in constant currency, reflecting the benefits of a much stronger portfolio. And sales of patented ingredients were up 9%, with demand for innovation at its highest level since before the pandemic. And our Net Promoter Scores increased by 11 points as service, collaboration and more importantly than that, trust continue to improve across our customer base. And whilst margins remain well below where we want them to be, they improved both in Consumer Care and in Life Sciences, contributing to an 8% increase in profits with PBT in line with our guidance. Free cash flow also improved in the second half due to lower working capital and CapEx, strengthening our balance sheet. So good progress. There's much more to do, but our actions are beginning to bear fruit, which is encouraging. So more from me shortly, but first, over to Stephen for the numbers. Steve? Stephen Oxley: Thank you, Steve. Good morning, everyone. I'll start with the financial headlines for the full year before taking you through our sales for the fourth quarter. So in constant currency, sales were up 7% to GBP 1.7 billion. Adjusted operating profit was up 8% at GBP 295 million, and adjusted profit before tax also grew 8% to GBP 276 million. Free cash flow was GBP 162 million, supported by reduced CapEx and lower working capital in the second half. Net debt was GBP 524 million with leverage of 1.3x EBITDA. And we proposed a final dividend of 63p, bringing the full year dividend to 111p, a small increase on the prior year. Turning to sales for the fourth quarter. These were up 5% in constant currency, slightly stronger than we expected. Our Consumer Care business was up 9%, driven by another strong quarter in Fragrances and Flavors and supported by higher growth in Beauty Actives. Life Sciences were up 8%. Within this, Pharma delivered its strongest quarter of the year, driven by higher excipient sales. And momentum continued in Crop Protection with sales up 12%, though we expect this to slow going into 2026. Industrial Specialties was down 19% against a particularly strong quarter in the prior year. The trends we saw in the third quarter continued into the fourth with volume growth moderating, a more favorable mix than the first half and like-for-like prices largely consistent with the previous year. Turning to sales now for the full year. We delivered growth of 7% in constant currency despite an uncertain trading environment. Consumer Care sales finished up 8% with another standout year for F&F, which grew 15%. Beauty Actives was up 6% and Beauty Care grew 4%, supported by higher volumes. Life Sciences grew 8% with Crop Protection up 14% as demand returned after an extended period of destocking. Seed Enhancement continued to deliver good growth of 8%. Pharma sales grew 4%, which was below our expectations as U.S. policy impacted sales of vaccine adjuvants. Finally, Industrial Specialties was down 2% as direct sales growth largely offset a decline with Cargill, which now represents just 20% of IS sales. There was growth across all regions, led by EMEA, where sales were up 9%. Asia lagged other regions as customer exports in pharma and industrial markets were impacted by U.S. tariffs. And growth in North America improved in the second half, supported by a recovery in Beauty. As Steve said, we're starting to see early progress from our business transformation. This chart shows how operating margin progressed over the year from 17.2% to 17.4%. Sales growth delivered an uplift of 0.7 percentage points as higher volumes were partially offset by price/mix, which was mainly mix. There was also a 1.6 percentage point benefit from transformation cost savings. This more than offset inflation and the costs associated with recent investments coming online. Unfortunately, a foreign exchange headwind of almost 1% masked this margin recovery. With cost savings gaining momentum, second half operating margin was 17.6%, giving us confidence margins will continue to expand over the coming years. Turning now to profit. This shows a bridge of adjusted profit before tax of GBP 276 million to reported profit before tax of GBP 91 million. In addition to recurring amortization of acquired intangibles, there were exceptional charges of GBP 150 million. We incurred exceptional cash costs relating to transformation of GBP 26 million, including redundancy charges. The rest was largely noncash. This includes a GBP 45 million full impairment of our lipid site at Lamar in the U.S. with an associated onerous contract provision of GBP 16 million for standby costs. We've carried out a detailed review of our pharma lipid capacity across our 4 sites. And whilst we remain excited about the future, we have adequate capacity across 3 sites to satisfy medium-term demand. So we've started -- decided not to start commercial production at Lamar and have instead placed the facility in standby mode. This eliminates future financial exposure and cost while fulfilling our commitment to the U.S. government, who provided most of the site's funding to produce lipids in the event of another pandemic. Other noncash charges of GBP 62 million include a GBP 29 million write-off for assets under construction, which will save CapEx following a detailed review of future investment requirements. A GBP 22 million impairment for closure of our U.K. distribution center, which we announced last summer as we optimize our European supply chain and an GBP 11 million impairment of acquired technology intangible assets where we've discontinued certain development programs. There are likely to be further impairments as we continue to optimize our footprint. Moving now to free cash flow and net debt. EBITDA increased 5% to GBP 397 million. As you can see, there was a working capital outflow of GBP 8 million compared to an inflow of GBP 21 million in the prior year when we benefited from the settlement of a GBP 48 million one-off COVID receivable. Typically, I'd expect a working capital outflow of between GBP 20 million and GBP 30 million to fund growth each year, but we can reduce this by making structural improvements, which I will come back to later. Following a detailed review of current and future investments, CapEx reduced from GBP 138 million to GBP 108 million, below our guidance of GBP 135 million. Combined with stronger earnings, this supported free cash flow of GBP 162 million. After paying the dividend and purchasing shares for our employee share ownership plan, net debt reduced slightly to GBP 524 million. Leverage improved from 1.5x EBITDA at the end of June to 1.3x at year-end. Turning to guidance, where my comments are in constant currency. We expect adjusted operating profit to be in line with current market expectations with organic sales growth of 3% to 6% and a further increase in operating margin. First quarter sales are expected to be similar to the same quarter in 2025, which is a strong comparator with growth of 9%. And we expect sales to split roughly 50-50 between the first and second half. So in summary, we delivered good growth in 2025 despite uncertain end markets, and we're encouraged by early signs that the transformation program is improving both margin and returns. Now back to Steve to take you through our plans. Steve Foots: Many thanks, Stephen. So the plan we're executing builds on the 5 points we talked about last year. It combines growth actions with transformation initiatives to drive improved performance. And it's all about growth and efficiency. We need them both. And that's starting to happen, and we expect that to continue. I'm going to spend some time on what we're doing to deliver more consistent growth. So what we're specifically doing to refocus innovation, improve customer experience and maximize returns from investments to drive consistent growth in key markets such as beauty and pharma. I'm really pleased with the progress being made, executing on our transformation initiatives. The whole business has responded well. And as we pushed hard to deliver change quickly, the organization has responded. And by implementing permanent structural improvements, we're becoming a more efficient company. We are streamlining our supply chain and procurement, digitalizing key processes and exploiting the use of AI and data in the business. So it's all about simplifying, modernizing and standardizing the way we do things across the business to make both the customer and the employee experience a much better one. This is leading to an improved financial performance, which Stephen will expand on in a moment. So before I come back to our actions, I want to talk through the foundations of our plan, which are Croda's core strengths. There's 3 things that sets us apart, I believe, from our competitors. Firstly, it's our business model. It's fundamentally a differentiated model built on the importance we place on customer intimacy through direct selling. This allows us to better understand the unmet needs of our customers and drive innovation, and you're starting to see that come through. Secondly, it's our core capabilities. We have a leadership position in both innovation and sustainability across all key markets, and we make it very difficult for our customers to formulate out our products. And thirdly, not last, on the right, there is our portfolio. We've come to the end of a period of significant portfolio investment, and it's now pointed to higher growth and focused on niche markets with compelling long-term trends. This has enabled good year-on-year growth over the last 18 months, even in these tough conditions. So coming to each of those strengths in turn. This slide outlines how our business model actually works in practice. At its heart, Croda is a specialty ingredient company, where we refine and purify natural raw materials and supply thousands of ingredients to thousands of customers that are included in their products, often actually at very low inclusion levels. The pictures across this slide show each step of the model and what our teams are doing to create performance difference through imagination, creativity, but above all, exacting science. And we're selling the benefits of our ingredients, not the chemistry. And whether that is applying our unrivaled purification expertise for drug delivery, utilizing high throughput screening to create new beauty claims, tailoring ingredients to meet the demands of our crop customers or using our expertise in formulation development to combine ingredients into solutions for high-profile brands. And we bring all of that together with world-class claims, which often transform the value of our customers' brands. Next is our core capabilities. We leverage common science with common processes and common products. And the diagram on the left illustrates how smart science is the starting point for everything that we do. It touches the areas -- all areas of our business, and the same can be said for our processes as well. Ingredients sold to beauty, home care, crop protection, industrial specialties as well as many pharma customers are produced at our shared manufacturing facilities. It accounts for 60% of our sales and 70% of our volumes. And many of our ingredients are sold in different markets. So what might start out as a product in beauty can often end up in a crop application as well, the same product. And we optimize the exact specification by ensuring that our sales teams work in close collaboration with R&D to create solutions for our customers. Our ingredients portfolio is unique with 1,700 patents and sales of patent ingredients increased by 9% last year. We also lead the way in sustainability as validated by our external rankings, including our long-standing AAA rating from MSCI. Look, these capabilities are fueling our ability to serve fast-growing niches, each with compelling and common characteristics, which I'll discuss in more detail later. So following a period of heightened investment over the last 5 years, our portfolio is aligned with the higher growth and long-term sustainable niches. 89% of our total sales now come from consumer, pharma or agricultural markets. That's up from 73% in 2019. These are the areas where customers value our innovation the most, and those industries have got big megatrend structural drivers behind them. We have invested in exciting high-growth niches like plant stem cells, fragrance and flavors and biologics to access faster growth and they're all growing twice as fast as the market. And we're also selling to faster growth customers, notably local and regional customers and now represent 82% and 56% of sales, respectively, for consumer and Crop. Geographically, 48% of our sales are now from outside of Europe and North America, up from 37%. Half of our business is in fast-growing countries. So from a market, customer and regional perspective, there has been a material shift in our portfolio towards faster growth, and you're starting to see the early signs of that coming through. This slide explains operating margin development over the last few years, with each column accounting for approximately 1/3 of recent margin dilution. Firstly, on the left, it was a consequence of lower volumes, which was mainly macro driven due to volatile demand post pandemic, but compounded by the divestment of most of our industrial business in 2022. Secondly, it was driven by a higher cost base, as shown in the middle column. And whilst product and gross margins have remained relatively stable, reflecting the quality of our business, our cost base, particularly SG&A, became significantly higher. And thirdly, on the right, whilst this period of heightened investment has positioned us for growth, it's also increased our invested capital base, contributing to lower returns on invested capital and resulted in more incremental costs as new investments come online. So some of our acquisitions are also high growth but lower margin, notably F&F. So until recently, our margins have set us apart from our peers, a leading position that we are determined to recover. And encouragingly, 2023 was the low point of sales and profit with progress in '24 gathering further momentum in '25 and as we ramped up our growth and efficiency program. So there have been 4 major challenges that we've learned in the last few years, and we're stepping up this execution around them. Firstly, customer behaviors changed post the pandemic, and they temporarily prioritized supply and demand challenges ahead of innovation. And secondly, we allowed our cost base to run ahead of sales. We were slow to address this, and now we're dealing with it. Thirdly, our strategic investments need to make a bigger contribution to profits. And finally, we were too concentrated on higher growth opportunities, notably in pharma, where we focused on vaccines ahead of our heritage business. And our growth and transformation actions are a direct response to these learnings. We're a curious company, we must learn as we go. And we've increased our focus on execution, and you can start to see this coming through in our results. There's also more to come given the natural lag between action and outcome. So we finished the year in '25 much stronger than we started the year. We expect to finish '26 much stronger than the start of the year in '26. So I'm going to go through each of the 4 growth areas that -- and what we're doing to differentiate our performance. Importantly, our business is very well invested. So we're not having to ramp up investments to deliver consistent growth. It's already there. So starting with innovation, with consumer and regulatory trends changing quicker than ever, customer demand for innovation has rebounded, but customers now want different things. And we've responded by implementing a more rigorous innovation framework, rebalancing R&D resource making it more customer-centric and focused on 3 big things: firstly, launching new ingredients, which is the DNA of Croda. Historically, this is where we focus the hardest. Secondly, creating new benefits for our existing ingredients; and thirdly, increasing co-creation activity with customers. So running through each of these in turn and starting on the left, sales of new ingredients increased 10% in '25. And last year, we launched KeraBio developed from a new scalable technology platform for hair repair that enables brands to compete with market leaders. We're the first to market with a groundbreaking ingredient. And with the last batch we produce selling out within a day. Next, we're opening up big opportunities by creating new benefits from our existing ingredient range to meet unmet needs. For example, we've developed our existing lipid range to address new markets for pharmaceutical generics. And finally, we're doing much more with our customers to tailor individual ingredients and formulate multiple ingredients to meet their specific requirements. The average pipeline value of each customer co-creation project increased by 12% in 2025. So a good example of this is a peg-free rheology modifier that we developed in collaboration with a global beauty brand. So turning to customer experience and what we're doing to improve that. Our direct selling model and our co-creation expertise cement strong levels of trust and loyalty. Over 90% of our customers have stayed with us over the last 5 years despite the market volatility. We are now deepening those relationships by building a more granular understanding of different types of customers through the new segmentation program that we've got, introducing more tailored solutions and bespoke service packages for local and regional customers, regional giants and multinationals. They all want different things now. And for local customers, we are now globalizing claims testing and formulation support. So for example, in Beauty Actives, this has historically been done exclusively from our Sederma site in Paris. We're now replicating this capability in key locations across Asia. And last year, sales to this consumer -- this customer segment grew by 9% in Consumer Care. We're also deepening the relationships with Asian giants across beauty, pharma and crop protection, helping sales to top the 5 -- helping sales to the top 5 Asian beauty giants grow by 19% CAGR over the last 2 years. And crop sales to Tier 2 customers were also up 36% in 2025, partly driven by the rise of Chinese generic pesticide manufacturers. We're powering the world's biggest brands across our key markets and are a core supplier of beauty actives for every multinational company globally. And in 2025, we grew sales with 4 out of 5 top beauty customers and by 14% with our major crop protection customers. And our Net Promoter Scores, which we value very highly, prove that we're doing the right thing. We're benchmarking at the top of the industry for product quality, the most important driver of customer preference, but we're also in the top quartile for innovation, sustainability and above all that, trust. And we're driving best practice in order delivery, customer service and access to information. And with 89% of total sales now in strong and niche positions in these structurally advantaged markets, we're in a good position to continue the early growth momentum that is coming through. Turning to investments then. We're scrutinizing future commitments and past performance with much greater rigor, and Stephen will explain how we're applying our capital allocation framework shortly. We're also driving all of our recent strategic investments much harder, leveraging our global distribution network, maximizing sales and broad scientific expertise to accelerate technology transfer and development. And starting on the left with growth-focused CapEx, which was largely spent on assets in Asia and scaling up pharma lipids. Last year, we commissioned our new low emissions production center in Dahej, India, further rebalancing our global manufacturing footprint to higher-growth countries. It will support faster growth in Asia this year and its lower cost per unit will enhance profitability. Capital expenditure to enable large-scale pharma lipid manufacturing was joint funded by the U.S. and U.K. governments. The investment has positioned us for breakout growth in due course, but it's going to take more time. So we've decided to put our new U.S. lipids facility on standby to minimize costs. In hindsight, we should have invested in scale-up facility, not 2, and that's the learning here. But we have world-class facilities that can quickly ramp up when needed and enough lipid capacity to satisfy near- and medium-term demand. Moving across to M&A, acquisitions made during this period are delivering good growth, and we have rigorous plans in place for each of these businesses to support continued growth in the year ahead. So over the last 5 years, we've shifted to highly attractive markets primarily small niches, which offer prospects for above-market growth. It's the principle that runs through Croda for many years. And we've also allocated resources to higher-growth geographies. Our Beauty business has a circa 10% share in the $8 billion addressable market, as you can see on the left. Ingredients space with top 3 positions in niches that are growing faster than the market as a whole. In Beauty Actives in the second -- in the left-hand column, we have #1 or 2 positions in niches growing at 4% to 7% a year, and we're a top 3 player in Beauty Care Ingredients in niches growing at least 3% annually. Turning to our F&F business. It's -- we're a small but fast-growing player in a $25 billion addressable market. We focus almost entirely on local and regional customers in emerging markets, a segment that is growing twice as fast as the broader market. That unique positioning will continue to drive above-market growth in the years ahead, which we will support through light touch CapEx following more significant investment recently. Our agricultural business has a circa 9% share of a $4 billion addressable market. All of these markets have got good growth in them. And we have a top 3 position in niches growing at least 1.5x market growth. And as regulations tighten and crop care formulations become ever more complex, customers have significant development needs, providing us with opportunities to innovate. And this is reflected in strong demand for the highly differentiated ingredients at the top end of our portfolio, which have grown at 10% CAGR since 2019. And finally, pharma is a top 3 supplier of delivery systems in niches, growing at least 5% CAGR. And I want to quickly update -- provide an update to some more detail on the actions that we're taking to reinvigorate Beauty and rebalance Pharma. Both these businesses has margins above the Croda average. So driving consistent growth here, of course, helps enhance group profitability. Starting with Beauty, where we're looking to drive a more consistent performance in both the top and bottom line. In Beauty Care, following the pandemic, many of our big customers prioritized tactical competitive activities like resetting supply chains ahead of innovation. This impacted industry innovation, causing it to slow temporarily. Well, ingredient innovation is now firmly back, and we've seen that pick up over the last 18 months, particularly with the multinationals. On top of this, customers want different things from our innovation programs. And at the start of last year, we responded by implementing this more rigorous innovation framework I just explained, ensuring spending is well controlled by reallocating resources to maximize the value we can create for our customers and, of course, ourselves. In Beauty Care, we have 2 key priorities. Firstly, capturing exciting new near-term opportunities in commercializing our advanced biotechnology pipeline. KeraBio is the first -- you should see this as the first of a number of new platforms ready to be commercialized. And secondly, showcasing Beauty Care as a delivery system for actives, leveraging our ability to deliver tailor-made solutions to customers comprising multiple ingredients, and that supported increased growth last year. In Actives, we're seeing greater demand coming from outside of Europe. So again, we have 2 clear priorities there. Firstly, internationalizing our actives capabilities beyond the traditional center in Paris. This will include regionalizing testing and claim substantiation capabilities, particularly in Asia. Our new class of ceramide ingredients is helping to accelerate active sales as we globalize our offer as well. Secondly, we're taking advantage of new markets opening up. Our Actives have traditionally been used in high-end brands, and that is continuing, but they are now starting to go into more mainstream markets as well. So we're delivering benefits to masstige products, affordable luxury, you may say. That's helped support higher sales growth in the second half of the year, particularly in North America. And we expect Beauty to contribute to organic sales growth of 3% to 6% to 2028 for Consumer Care, with Beauty Actives growing faster than Beauty Care. And the sales growth across Beauty is accretive to group margin, it will enhance profitability at the group level. And finally, Pharma. We've improved our focus and the customer experience by splitting our Pharma business into 2 portfolio-led focus areas. These are pharmaceutical ingredients, which many of you will know, which represent over 2/3 of pharma sales, but wasn't our priority during the pandemic. And as we concentrated on higher growth opportunities, we've now organized this business on a regional basis, leveraging long-standing customer relationships through our regional model. It comprises 2 things: ingredients for Consumer Health, where we're benefiting from Croda's broader skin care expertise for topical applications and advanced ingredients such as high-purity excipients that are used as delivery systems across the full range of current generation drugs. And to strengthen our leadership, we're creating new high-purity excipients for injectables and new bioprocessing aids as well, new market opportunities for us. And for example, our recently commissioned super refining process at our site in Leek has supported the launch of a super refined Poloxamer uses both an aid to sell growth during upstream processing as well as an excipient, great new growth opportunities. And moving across to the right, Pharma Solutions provides lipid technologies and vaccine adjuvants, which together represent less than 1/3 of pharma sales. Here, we have the opportunity to accelerate overall pharma growth, albeit with a more volatile year-on-year performance as illustrated by its exceptional growth during the pandemic, followed by a reset in demand. This is now organized as a specialized global business, working closely with customers and partners, principally on new drugs in development. In lipid Technologies, we're targeting new applications for lipids in generics and expanding our range of more than 2,000 lipids for drug research, for example, with Certest and to accelerate development of sustainable vaccine adjuvants as well, an important part of our R&D program. We are working with external partners with recent portfolio additions, including sustainable squalene, which has demonstrated extended stability compared with the competitors shark-based alternatives. Pharma will contribute to organic sales of 4% to 7% each year for Life Sciences, a growth rate, which excludes any breakout growth projects that could represent a potential upside. So growth across all pharma platforms is accretive to group margin and will help enhance the group profitability. So let me pause there, hand over to Stephen, who can talk about our transformation program and how all of this translates into our near-term performance. Stephen Oxley: Thank you, Steve. Right. So moving on to our transformation program. So last summer, we set out a program designed to enhance growth, drive stronger execution and deliver cost efficiencies. So what are we doing? First, we're optimizing value by reducing complexity in our product portfolio and customer base. We're also delivering commercial excellence through improved pricing discipline, customer segmentation and account management. Second, we're transforming our supply chain, where there's a significant opportunity to reduce cost and working capital by optimizing our procurement, manufacturing and distribution. Third, we're simplifying our organization by streamlining management layers, headcount and support functions. This is underpinned by actions to enhance our performance culture, aligning incentives to our financial framework as well as a program to leverage AI, digitalization and better use of data. Collectively, these steps are expected to deliver total annualized savings of GBP 100 million and a working capital reduction of GBP 50 million for full year 2028. Though it's still early days, we've made good progress in each area. So let me give you some examples, starting with optimizing our portfolio. Our customers value the breadth of our product range, which includes over 100,000 individual SKUs. However, this brings complexity and cost to our supply chain with a long tail of low-volume items where we don't always make money. So we're rationalizing our product SKUs with a minimal impact on sales, which will allow us to focus on the most important products, save costs and improve working capital. We've completed a pilot for one global product group and we'll now apply this to the rest of the portfolio. We've also segmented our customer base so that we can tailor our service better. For example, we're improving account management for our multinationals. We're setting minimum order values for smaller and regional customers, and we're accelerating adoption of our digital portal, reducing cost to serve. We're also driving best practice in pricing across the portfolio. As we told you at the half year, we're closing and outsourcing our U.K. distribution center as part of our supply chain transformation as well as fast tracking an operational improvement program for our 11 shared manufacturing sites, which account for around 70% of volumes and 60% of sales. By the end of the year, we've begun to realize savings in 6 sites with a further ramp-up this year as we benchmark and standardize best practice. We're also starting to consolidate manufacturing processes into fewer locations. For example, we currently produce alkoxylated products at 8 sites around the world, and we'll halve this by the end of the plan. In total, we have more than 40 manufacturing plants and most of our costs are not associated with the 11 shared sites. So we'll also focus on the rest of the footprint in 2026. Centralizing procurement is a major part of our transformation program, rebalancing local agility with the need to exploit our purchasing power. At the moment, Croda largely buys products and services on a site-by-site basis. We're establishing regional and global procurement by cost category, starting with raw materials, packaging and logistics. We've also launched a working capital improvement program and have identified structural savings of around GBP 50 million across inventory, receivables and payables. Looking at simplifying the organization, we reduced headcount by around 5% in 2025, excluding F&F. In our back office, we've begun to transform finance, HR and IT with a greater use of shared services and outsourcing as well as better use of data and automation. Now this slide aligns the savings we set out last year with the pillars of the transformation I've just outlined. GBP 65 million comes from optimizing our operations and procurement as we transform our supply chain and GBP 35 million comes from simplifying the organization through headcount reduction and streamlining our support functions. In total, we still expect to deliver recurring savings of GBP 100 million in 2028 at a cash cost of GBP 80 million. As you heard earlier, we delivered GBP 28 million of savings in 2025, slightly ahead of our plan. This offset underlying inflation and the cost of recent investments coming online. From 2026 onwards, we expect transformation cost savings to more than offset inflation and investment costs, contributing to margin recovery. Of course, we'll continue to identify new transformation opportunities, particularly in our supply chain, and we'll keep you updated on progress. So turning now to our financial framework for 2028. As Steve said, we have leading positions in attractive markets and are well positioned to deliver consistent growth. Assuming prevailing economic conditions continue, we expect organic sales growth of 3% to 6% in Consumer Care and 4% to 7% in Life Sciences, both underpinned by growth in all our business units. Industrial Specialties is not a priority for capital allocation, though we will selectively target growth opportunities. We expect sales here to be broadly flat as modest growth in direct sales is offset by reductions with Cargill. Together, this amounts to average organic sales growth for the group of 3% to 6%. Volume growth will moderate from 10% in 2025 as we increasingly focus on our most highly differentiated higher-margin products with price/mix turning positive. So how does this all translate into margins? We expect to increase adjusted operating margin from 17.4% in 2025 to more than 20% for full year 2028. A 20% operating margin is equivalent to an EBITDA margin in excess of 25%, which benchmarks favorably against our peers. Our principal cost headwind is salary inflation, which was GBP 12 million in 2025. We also expect a GBP 10 million step-up in depreciation in '26 as recent investments come online, but this should be the final significant increase. Margin recovery will be driven by remaining transformation benefits of GBP 75 million as well as top line growth with growth contributing a slightly larger portion. Turning to free cash flow. I'm pleased with the early progress we made in 2025, generating GBP 134 million of cash in the second half. We expect to make further improvements reducing working capital by GBP 50 million for full year 2028. This will be delivered by improving supplier terms and payments as we centralize procurement, standardizing receivables terms and optimizing collection as well as reducing inventory as we transform the supply chain. Capital expenditure has also been coming down as we complete the pharma investment program and several other large expansion projects. We reduced CapEx to GBP 108 million or 6% of sales in 2025, and we expect it to continue at around that level over the next few years. The benefit of lower CapEx and working capital, together with growing profits, will support a continued improvement in free cash flow. As you can see, we're targeting free cash flow conversion of 12% for 2028. Our definition of free cash is now more prudent as it includes the cash cost of delivering transformation. Turning now to capital. As I said at the first half, our capital allocation framework remains unchanged, but we're applying it with greater rigor. Our first priority is organic investment, where there's been a period of heightened intensity and greenfield site investments, which are now largely complete. We're putting a strong focus on returns, risk and execution in our upfront commercial assessment of future CapEx and we'll prioritize smaller, lower-risk opportunities with faster cash payback. Second, our policy is to pay 40% to 50% of adjusted earnings as ordinary dividends, and we remain committed to at least maintaining the dividend as we grow back into this payout ratio from the current level of 76%. Third is acquisitions. After significant M&A activity in recent years, our focus is now on driving greater returns from these investments. We will continue to look at small technology-led bolt-on acquisitions if we see opportunities to accelerate innovation. But any spend here is going to be modest and typically below GBP 10 million. Fourth, we plan to maintain net debt within the range of 1 to 2x EBITDA, providing the opportunity for additional shareholder returns as we generate free cash flow over and above regular dividend payments. So to summarize, our new financial framework sets out our targets for the next 3 years to 2028 and a scorecard for tracking future progress. Our ambitions, of course, go well beyond this, but let's first get the business back to generating good growth, margins and cash flow. We expect to deliver average organic sales growth of 3% to 6% a year through to 2028 based on current market conditions. Together with benefits of our transformation program, this will result in adjusted operating margins of more than 20%. We're targeting free cash flow relative to sales of more than 12%. And finally, with earnings growth and lower capital intensity, we expect return on invested capital of more than 10%. Many thanks, and I'll hand back to Steve. Steve Foots: Many thanks, Stephen. So as you've heard, there's a huge amount of activity going on right across the business. Our plan is built on Croda's core strengths, underpinned by multiple self-help areas to drive growth and transform our business for the next chapter. It's all about delivery and it's all about transformation. And our performance objectives are clear: to maximize value to our shareholders by delivering consistent growth and enhanced profits alongside increased cash flows with improved returns. Progress is underway. There's much more to do, but we look to the year ahead with confidence, and we look forward to keeping you updated along the way. So let's stop there and take your questions. I think what we'll do just for housekeeping, plenty of questions. When you put your hand up, there will be a mic coming, if you just say your name and firm. And then for those that are dialing in online, just plug in your questions and David will read them out later. Thank you. Steve Foots: Charles, do you want to start? Charles Eden: Charles Eden from UBS. My first question is on margins. And how should we think about the cadence of the margin progression over the coming years? Is there any reason why the progression towards over 20% by 2028 will not be reasonably linear over the next 3 years? And perhaps you could also talk us through how you're thinking about the various contributing buckets to this between operating leverage, transformation cost savings, incremental cost inflation and any other factors you wanted to call out? And I don't want to get ahead of ourselves, but you mentioned your ambitions go way beyond the targets set out for '28. So is it fair to assume that means nothing has changed regarding the EBIT margin trending back towards the mid-20s over the longer term? And then my second question is on price/mix expectations for '26. Can I just confirm, is the expectation still for flattish list pricing with mix negative to start the year, but to see improvement through the year? Is that the right way to think about it? And are there any variances between Consumer Care and Life Sciences to be aware of? Steve Foots: A few questions, sorry. Stephen margins and mix. Stephen Oxley: I'll deal with your last question first. The way you've described that is exactly right. Just think about the momentum that we've got going through '25 into '26. Coming back to margin, I'll talk about the 3-year period, not start thinking too far beyond 2028. But let's think about what we've seen. I think good margin recovery in 2025. There is an FX headwind of 1% that masks that. And that's the progression that we will see going into next year. So exiting second half at 17.6% -- and yes, you should think broadly linearly across the 3 years. And as I set out on the slide, we've got the combination of sales growth and business transformation really driving that, sales growth being slightly more than transformation. And of course, like any business, we then have inflation headwinds and everything else. The key point to make, of course, is that the business transformation benefits are structural, right? So that GBP 100 million of savings continues beyond 2028. Look, our ambition is to get beyond 20%, but let's first get to 20%. When we compare the business now back to 2019, it is a much better business. It's a higher value, higher-margin business, but it's also a different business, a different mix and a more heavily invested balance sheet, but we're not going to rest at 20%. Steve Foots: Lisa? Lisa Hortense De Neve: Lisa, Morgan Stanley. I have 2. I would just like to come back to your capital allocation comments. At the end, you talked a little bit about potential special returns. If you could just provide a little bit of detail or framework around that, that would be great. And then two, you had a quite strong end to the year on the top line. It was quite impressive. How should we think about that trending into the first quarter? I know that you mentioned that comp sales would be broadly flat year-on-year, but it would be good to get some qualitative color on the subsegments, especially pharma and the subsegments of Consumer Care. Steve Foots: Should we start quarter 1 then, just a high-level message on quarter 1, and then we'll come back to special returns as well. Stephen Oxley: Yes. So Lisa, it's unusual for us to guide for a quarter. I did that because what I don't want is a surprise coming out when we report in April, quite frankly. But there's nothing unusual about what's going on. We've exited 2025 actually in the way that we expected. January is looking bang on expectations. It's just for Q1, we're lapping a very strong quarter in 2025, as I said, with 9% growth. But in terms of phasing for the full year, it will be kind of a normal 50-50 split. Steve Foots: Okay. And then on the special returns, I think the capital allocation policy has been there for many years. We're not doing any more big CapEx. It's back to 6%, around 6%. And a lot of it is -- and we're not doing any M&A as well. So we expect to grow the business very hard. I mean a lot of the focus is on EBITDA growth and free cash flow growth. So we need that free cash flow to grow. And we've got options -- we've got optionality on the balance sheet. But Stephen can probably add to that, if you want. Stephen Oxley: Yes. Look, I think for me, it's about running a prudent balance sheet. So we're 1.3x levered at the moment. We've been very, very clear that we'll be generating more free cash flow. I think it's important that we grow back into the dividend. And as a point of discipline, we don't borrow to buy back shares or pay special dividends, all right? So we're very clear that the cash will first cover the dividend. As we generate more cash, we and the Board will obviously look at how we deploy that. Steve Foots: Okay. Sebastian? Sebastian Bray: Sebastian Bray of Berenberg Bank. I would have 2 questions, please. The first is on Industrial Specialties. The company has provided flattish comparable sales growth indication to 28%. Can you talk about the expected margin development over that time because this business used to make double, if not higher, operating margins versus what it does today. Is sitting within that guidance, the expectation that the profitability of the segment will improve on a relative basis faster than the 2 main segments of Croda, the Life Sciences and Consumer Care. And my second question is on part of Consumer Care, which is Flavors. You didn't mention it in the presentation, but it looks like it was the fastest-growing business at Croda in 2025 with, I believe, over 20% growth. What's going on there? And is this an area that let's say, could become a little more important in the future? Steve Foots: Yes. Well, let's do flavors and then back to IS, and we'll both probably chip in on IS. I mean Flavors, it's a good business with minimal distraction at the top of the company. It's part of a very good team in the F&F team. So it's -- we've given it about GBP 3 million or GBP 4 million worth of capital about 2 years ago. It's all it needs to keep growing. So the growth is coming from that capital that's gone into the business. And it's really good growth around the world. So our job there is it's not easy, but it's increasing its EBITDA without distraction from the top of the company. And we like the business, and it doesn't need any more capital for the future. So becoming more important because of the growth, but it's still part of flavors and fragrance business, which is growing very well as well. So this last year, it's done very well. But we shouldn't forget about fragrances, which is growing 13%, 14% as well. So we like the business, and it should continue to grow. IS, I mean, let me start with IS. IS, the majority of IS has got good margins in it. In there, you've heard that 20% of IS is the relationship we've got with Cargill. A smaller percentage of that is the tolling and residue cold stream business. So the majority you can work out is broadly 2/3 of that is good quality quota business, something that I've run for 15 years in Croda. So it's got good margins. We expect that core business to grow. We want it to grow. So we wanted to selectively grow. And I think it will help, of course, that growth to the respective businesses in the front here for Life Sciences and consumer in the shared assets. So it should continue to grow, but a lot will depend on the overall growth with the relationship we've got with our Cargill partner and also cost stream should be just a function of the activity that we do as a business. Stephen Oxley: And Sebastian, margins in IS will recover, but both as we target specific growth opportunities and as the business benefits from transformation, obviously, from a relatively small base. Katie Richards: Katie Richards from Barclays. Just a quick follow-up on the margins. If I remember correctly, at Q3, you said that you felt you'd be able to recover 750 basis point adjusted EBIT decline and are now targeting above 20%. So is there any reason for your conservatism on this slide? And as well, having now disclosed the sort of midterm targets towards 2028, what can we expect from the CMD in the first half of this year, if that's still happening? And my second question would be on the utilization and the winning back of volumes. If I look at the slide on the bottom left on Page 19, it looks like the utilization rate in the second half of this year has been flat or maybe 1 percentage point up. Are you still comfortable with getting back to 100% of utilization rates by the end of 2026? Steve Foots: Okay. A few questions in there, margins, utilization and your point about Capital Markets Day. So Steve, why don't we start with margins and utilization. I'll come back on the Capital Markets Day point. Stephen Oxley: So look, is 20% walk in the park? No, it's not. I think that's a stretch. It's early days on transformation, but we're pleased with progress. We've set out a clear path back to more than 20%. As I said earlier, we're not resting on that as our ambition. What was the utilization? Spot on 93% for the full year. It's up a little bit. Look, we want to get back towards 100%. This isn't an exact science. It's multiple sites. It's multiple processes. When we talk about 93% utilization, that's wonderfully simplistic. What you've seen through the year is the trend of volume coming down and the mix offset coming down as well, all right? So think about 10% volume growth for the full year. Q4 volume growth was 5%. Mix for the full year, 3% against -- and then that's come down, obviously, in Q4. That's the trend that we expect to continue going into '26 and beyond. Steve Foots: And your Capital Markets Day point is don't expect a full-blown Capital Markets Day for us. What we want to do is similar to '22 for many of you in the room that were there is start to do deep dives in our businesses. We've got 4 big businesses, Pharma. We've got Ag, we've got Beauty and we've got F&F. So we're going to start with pharma. So we'll come out with some dates for a deeper dive on pharma in due course. David, we'll take one from David first. David Bishop: It's a question from Martin covering analyst at Kepler, and it's on the margin again. Regarding your framework and your EBIT margin aspiration of over 20% by 2028, to what extent will this be driven by top line growth, including the leverage effect? And how much will cost savings contribute? Is it an equal split? Stephen Oxley: Yes. Thank you, Martin. Look, just to reiterate that growth is driven by both with growth slightly higher than transformation. Steve Foots: I think the wider point we want to make to -- and we make in the business as well is we want every business in Croda where sales value is ahead of sales volume and profits are ahead of sales value. And what we really mean by that is that the growth in margin is driven by innovation, but also with transformation. And we're not far away from that in some of our businesses. Matthew? Matthew Yates: It's Matthew from Bank of America. Sorry to come back to the margin question again. I'm trying to connect what I think is Slide 19, which is the backwards-looking waterfall of effectively what's gone wrong and Slide 36, which is the forward-looking bridge on your targets because I mean you framed it in the way that these 3 equal buckets. And I guess my question is, of those respective buckets, how much of the problem do you think you can fix versus what, for whatever reason, unfortunately, is still a persistent headwind? And the second question is on top line. This idea of delivering consistent growth I think with respect, that isn't necessarily something that Croda has proven in the past. So the question is, why is this time different? Is it a change in culture, a change in asset base? Why should investors have that confidence when the track record has been so inconsistent? Steve Foots: Let me start with top line and Stephen on margin. I mean, hopefully, what you see from the slides, in top line growth, we've had 18 months of good top line growth in an industry that isn't growing. And you can compare us to anybody in the industry. We're growing very well. I think the encouraging sign in second half is that our heritage Croda businesses are growing well as well. So you've got Beauty Care, Beauty Actives and Pharma Ingredients all supporting growth now, which is really important for the group. So that's point one. Point two, 90% of our business, the portfolio is a stronger portfolio today than it was. And if you look at the slide that I presented on virtually 90% of our business is in structurally growth markets with big strong positions. We should grow. We expect to grow. We're pointed to customers with a lot of growth, particularly the local and regional customers and the regional dynamos we call them. And thirdly, virtually half of our business is in fast-growing geographies now versus 37% before. So the shift in the portfolio is significant to faster growth. So we would expect that. So all of those should come together to give us more consistent revenue growth. And we're encouraged. We're not getting ahead of ourselves, but we've had 18 months of good growth. I expect that to continue. So we'll stop there. And then on the margin point. Stephen Oxley: Yes, Matthew, exactly the right way to look at it. So the first slide sets out the margin going down. So that's volume, partly destocking, partly obviously the disposal of the PTIC business. We put a lot of cost into the business, and we've been clear that we were too slow in taking that out. And then finally, the third leg is the cost of investments that are not fully paying back, which is obviously what will drive growth. So that's the past. If you then look forward to the future, we've set out that the margin up over 20%, go back to what I said a moment ago, driven really by growth -- top line growth of 3% to 6% and transformation growth being a slightly larger portion with GBP 75 million of transformation benefits to go. And then, of course, we do have the routine headwinds going the other way. I think Chetan has got. Steve Foots: Yes. Sorry, Chetan from... Chetan Udeshi: Chetan from JPMorgan. Maybe just a bit of a critical question to begin with. I think many of us for the first time is seeing a little bit of -- I think, Steve, you mentioned learnings, which probably we've not heard enough in the past, at least publicly. And I'm just curious, you are now talking about 6% of sales, which still seems high because in essence, we are seeing we've got too much assets or too many assets which are not fully sweated out yet. So I'm just looking at all the impairments. I'm just curious, how are you managing that so that we don't see 4 years from now, new plan with a lot of impairments. Steve Foots: We got another question. Chetan Udeshi: Maybe I have, but if you want to. Steve Foots: Let's talk through that because I'd be to get Stephen. Look, I mean, we're a curious company. We have to learn. We don't like some of the things that happen, but you have to deal with them. And we've lived through 4 years of a very volatile industry. So I think every management team has to deal with it. We are. I think in terms of the focus in the business, we're really pleased with where the growth is coming. We've got 18 months of good growth. I think the other thing that we didn't mention to Matthew's question is you've got innovation coming back in a lot of our industries, which has been temporarily subdued, largely by our customers. That's coming back. And the Croda model is we like innovation, but we need it from our customers as well. And you're getting that. And it's not just -- I'm not just talking about beauty, it's pharma ingredients, it's crop. there's formulation churn back in the industries that we operate in. Croda likes that because we get our next best product in there. So they all won't grow at the same speed. They'll be -- they won't be linear, but they'll grow. And we feel even in these tough markets, as we say, the growth rates that we're posting now, we're encouraged with. And we've got a lot of capacity to grow into. But Stephen, anything else you want to add? Stephen Oxley: Yes. So Chetan, I think as we think about capital investment, capital allocation, the key word for me is discipline, all right? We've been through a period of significant investments. And those investments are largely -- they're big greenfield sites that, by definition, have a longer payback. That's done. We've got all the investments that we need. Growth is being driven by the portfolio and the asset base that we've invested in. We will spend around 5% -- sorry, around 6%. That's a combination of both what I call maintenance capital, sustaining capital with some very small growth unlocks. But what we want there are small investments that are low risk with really fast cash payback. And that bite on cash payback for me is the real discipline. Chetan Udeshi: Maybe if I follow up on the same point. This co-development with customers, is that a new concept at Croda? Because I think historically, you wanted to develop and leverage over a wider customer base? Is that a change that has happened over the recent years? Steve Foots: It's an emphasis change. They all want different things now. And when we talk about customers, there's multinationals, there's regional dynamos and there's local players, they all want different, but we have to personalize our innovation with some of them. And some of the best returns that we get for innovation is through bilateral relationships, and we've got many in the pipeline, some really exciting stuff. But that comes from a position of trust. So when we talk about NPS scores and things like that, we are at a very high level of trust with our customers, and that fosters more and more innovation. So we're at our best when R&D in Croda is speaking to R&D at the customer and you're fostering innovation. And you're starting to see that coming through in all of the businesses. So that's helping us with your point on growth. Innovation will drive us there, but we've got self-help. We shouldn't forget that transformation is in our hands. It's not anybody else's -- it's up to us to deliver that self-help. So we have that as an additional sort of by in our armory. Yes, David has been waiting patiently here, our Head of IR. David Bishop: It's a question from Ranulf, the Citi analyst. Please, can you provide an update on the competitive dynamics, particularly emerging from Asia? Steve Foots: Yes. I mean, look, I mean, probably a China question, but more broadly, I mean, first point we would say is, look, currently, that Chinese competition is pointed to big customers, big products and big volumes. No matter what industry you're in, that's broadly where it is. In our industry, that lends itself to petrochemicals and upstream and some diversified. Some of you call it semi specialties, which fair enough. But it's not anywhere near Croda. We don't see that. I think the second point is, look, we -- we don't take competition for granted. We're not complacent nor are we fearful for that. We would expect competition to move towards us. And the third point in response, it's the Chetan point, it's innovation. It's personalizing our customer activities, and it's giving our customers something different. And we've got that capability through the business model. It's a very effective business model. It's meeting customer unmet needs. And you're starting to see Croda get back to its normal cadence with customers on innovation. So that will keep us ahead of the competition. Stephen Oxley: And Ranulf, just to add, Asia and particularly China are obviously great growth opportunities for us, and you saw some really good examples of that in the presentation. Ming Tang: It's Nicola Tang from BNP Paribas. I just had one just to do a small mini deep dive into your Pharma business. And just can you explain a little bit what's changed versus your previous or historic performance and also previous targets? Because I think you used to talk about low double-digit growth for pharma, if I'm not mistaken, versus this greater than 5%. So is the change a function of changed expectations on end market growth? Or is it more a change in terms of what you've done and how you've rebalanced your portfolio? Steve Foots: Yes. So let me answer that. I mean, firstly, we've got 2 businesses. Pharma Ingredients is 2/3 of the business, which is that business, which you know very well. There's no change in that since 2022. We expect growth rates to be mid-single digit there. We're exiting '25 at those rates actually. So within there is -- and Thomas you can talk to Thomas afterwards. It's all around refocus, innovation, and it's the nuts and bolts of Croda. So we think there's a lot of opportunities with this rebalancing of our innovation framework to drive further growth. So 2/3 of that business hasn't changed. The bit that has changed is the 1/3, which is Pharma Solutions. And all we're saying there is, look, we're not putting any of the breakout growth in our 3-year plan. We are still very excited about the progress. Every time we look at the number of projects that we've got in there, it's not reducing. And there's lots of opportunities there. But we will get significant growth in Pharma Solutions without that. And that's coming from -- at the heart is Avanti. It's research for lipids. We've got opportunities for generics and lipids. And we've also got opportunities for non-mRNA lipids and other new vaccines as well. So we see those growth rates being good. The reason that the headline rates probably come down is because we've taken out some of the 3-year breakout growth because it's not in our hands. It may come through, but we're being cautious with that. David Bishop: I've got a long list, so I can keep going. So again from Ranulf. With regard to the Lamar lipid facility, can you give a view on when operations may resume and what necessary conditions would be... Steve Foots: Yes. I mean I'll take that. I mean, look, we don't like impairments at the best of times. It's not Croda, but we have to respond to market conditions. I think we've mentioned before that, look, everything has been pushed out to the right for lipids, but it hasn't gone away. It's definitely not gone away. And we feel that we've got adequate capacity to meet the near-term and medium-term demand. I think we see that as a very important asset. It's got world-class facilities in there. It's probably more valuable than it was 12 months ago. But back to the question, a lot will depend on breakout growth. If we get something in the clinical programs in the advanced stage that hits the market, and it's something which is more significant than we think, and we can't meet that demand from our current units. And of course, we will bring that back. So we've got plans to step that plant up pretty quickly if we need to. Maurizio Carulli: Maurizio Carulli with Quilter Cheviot Investment Management. Further question on Lamar. If you are mothballing it for the time being, what are the costs involved with that? And the aim is to keep cost at the minimum and then to have a one-off cost when it restart or to keep ready to restart virtually immediately, i.e., having a bit more of cost and then 0 cost when it restarts. And ideally, also to get a sort of a quantitative sense of these costs, if possible. Stephen Oxley: Yes. Okay. Let me put it up. So we've not -- really importantly, we've not mothballed Lamar. We put it on standby, right? And that means that we're ready to fire it up at short notice as and when there is a volume requirement right? So we've made a commitment to the U.S. government that part funded -- majority funded actually the investment. We have the plant up and running in sufficient time for their needs and of course, any other needs that we see. So it is recur having an ongoing standby costs. That's what we've provided for at year-end. So there is no financial -- remaining financial exposure here. That's completely covered. There's no downside risk. It's fully impaired. So from a financial perspective, you should think of this as a great asset actually. It's all upside when we get the volume opportunity. And in the meantime, we'll just rebalance across the other 3 sites being prudent in how we're managing the cost base. Steve Foots: Back to you, David. David Bishop: The question is from Virginie at Deutsche Bank. We're seeing some AI-powered fragrance companies emerging. Why do you think this shouldn't be a threat to your business? Steve Foots: Yes. I mean AI is -- I think every board in the world is looking at AI in different ways, and we're as excited as anybody else about AI. And it's no surprise probably to the room that our focus is on innovation on AI and how does it help us with innovation. And actually, in fragrances, we're working with this and embracing that. And actually, it's a real strength. And we see it as a positive because we're taking fragrances and mapping formulations and vice versa and getting products to market quickly. And our model is getting over 2,500 references to customers on a monthly basis. So we see this as powering our model rather than a threat. And I think AI more broadly is exciting. We see it as a net opportunity for us. It can drive the screening programs. It can help us with thinking about claims. It can get products to market quicker for -- so that's how we view AI. Chetan, with your left hand. Chetan Udeshi: Follow-ups. First one was I heard Stephen talk about raising the minimum order value from customers. Isn't that completely the opposite of what your small customers actually like from you, which is not a commitment on volumes or value? And the second question was there's a little bit of question mark right now on what's happening in the ag ecosystem. And I do know this has been a big driver of volumes for Croda in terms of recovery in the last 18 months. Are you seeing any shift in the momentum in that market? Steve Foots: Yes. Well, let's do the tail. I mean the 2 points, what we're doing in the tail is it's the tail, tail, by the way. It's the small, small, very small. But there's 2 things we're doing there. One is to improve profitability, we think we can, minimum order quantities, we can apply because we can and we should. And separately, it's -- Stephen mentioned, it's the lower cost to serve, putting them on portals and online and scaling that. We are there, but we just want to scale that up. We think there's a better way of managing that. And separately, which is probably more beneficial to us is simplifying the tail as well. And we're talking about product SKU. So for some products, we have -- [ Alexandre ] is not here. We have multiple specifications for individual products, and we have multiple packs for individual products. That's Croda through and through. All we're saying at the tail we're trying to streamline that a bit more because that will be advantageous for us to get better throughput through the factory, nothing more than that. So it's spring cleaning, but there's -- with a target on profitable growth there. Ag, yes, I mean, look, ag has gone through 4 years of unusual trading. So 2 years of boom and 2 years of reset. I think all we're saying there now is, look, we're now -- I think stock levels are broadly where you would expect them to be across the crop environment. Don't forget we're in Europe, North America and Brazil. So we would expect -- as expected, we would see that as a more normalized growth rate now, like you saw from Croda 2010 to 2020, it was growing about 5%. It has the seasonality and the cyclicality, but it's actually quite a normal -- it grows pretty much that similar each year. So that's all we're saying we're expecting that to get moderate to its normal levels. David Bishop: Okay. No further coming analyst questions on the webcast. Steve Foots: Okay. Well, thanks very much. Thanks for coming as well. I mean we'll see you April 22. But also, I mean, look, the big things around for Croda, what you've heard all through the session is it's about growth and transformation. Transformation is in our hands and self-help there, but we have got good growth, encouraging signs. It's early days, but we're focused as a management team on driving that growth and driving returns for everybody. So we'll stop there. We'll come back to you with deep dive timings for pharma through the year. But thanks again. Thank you.
Operator: Good morning, everyone. Welcome to our full year 2025 results media briefing. Today, we have with us our Deputy Chairman and Group CEO, Mr. Wee Cheong; and our Group CFO, Mr. Leong Yung-Chee. As usual, Mr. Wee will begin first by giving a broad overview of how our franchise has performed, the operating landscape we are operating in, and then Mr. Leong will then go into more details on the financials and business performances. After both presentations, we'll be taking questions from the media. So I would now like to invite our CEO to get us going. Mr. Wee, please. Ee Cheong Wee: Good morning. Happy year of the horse. Thank you for joining us today. Well, as we enter 2026, the global environment continued to remain very fluid, geopolitical tensions, ongoing shift in supply chains and evolving trade and tariff. However, operating conditions in our core markets have remained broadly supportive. Across ASEAN, momentum towards deeper regional integration is building up. We look at trade, capital flows and cross-border investments continue to expand, reinforcing the region role as a key growth engine. This create opportunities for well-positioned regional bank like UOB to support clients across ASEAN. Now against this backdrop, we delivered a resilient full year operating profit of $7.7 billion in 2025, 4% down. Our diversified business model remains a core strength. Net interest margins moderated as rates declined but strong fee momentum across wholesale and retail businesses helped to offset the impact, lifting our full year fee income to a record high. On a quarter-on-quarter basis, trends were positive. Net interest income increased 4%, margin rose to 1.84% as we lowered funding costs. Net fee income was up 2%, while expenses remained flat. On the asset quality front, following our portfolio review in the third quarter, we proactively strengthened our provision buffer. Credit trends improved in the fourth quarter and are moving in the right direction with NPL ratio low at 1.5% and total credit cost at 19 basis points. Our balance sheet remained strong with higher CET1 ratio at 15.1% and robust liquidity ratio. The Board has recommended a final dividend of $0.71 per ordinary share, bringing our full year dividend to $1.56 per share. This represents a payout ratio of around 50%. In determining the final dividend, we excluded the preemptive provisions of $615 million recognized in the third quarter last year. In addition to our regular dividends, we also returned excess capital to shareholders through a special dividend of $0.50 per share, paid over 2 tranches during 2025. We remain committed to our capital return plan announced last year ongoing till 2027. Our diversified income stream helped ensure earnings stay resilient even in uncertain conditions. And we see promising momentum in our ASEAN strategy. We see increasing contribution from our ASEAN-4 markets across both wholesale and retail business. In fact, just for your information, if you add the ASEAN-4 total income is up 5% year-on-year versus the group total income down 3%. So the ASEAN is actually positively trending up. Now let me talk a little bit about the wholesale banking. It also delivered a solid growth in trade, transaction-related activities and deposit growth. For trade, I think 2024, we generated $36 billion, 2025, $45 billion, actually a growth of 23% year-on-year. Global markets also benefited from active client hedging amid market volatility. Customer-related treasury income hit a record high. Retail banking delivered healthy growth across card billings, up 6% year-on-year. CASA up 12% and high net worth AUM up 6% as we deepen customer relationship across the region. Our wealth business, our wealth franchise continued to scale with net new money inflow lifting AUM to $201 billion. And the invested AUM mix continued its steady increase. Our digital wealth momentum, this is dealing with the mass affluent market actually remained very, very strong with sales more than double year-on-year. That is actually applied through our TMRW apps. Just to tell you the volume, I think for 2024, we generated $1.57 billion. For last year, we generated $3.84 billion, up by 144%. That is through our digital platform. Now looking ahead, we expect the region growth to continue to be powered by structural trends, including digitalization, infrastructure investments and deepening regional innovation. We are confident that our enlarged regional scale, stronger platform and capabilities, we are well placed to grow in tandem with the region. At UOB, our strategy is clear and consistent. We are deepening our strength in connectivity, enhancing our expertise and digital capabilities to support the flow of trade, capital and investment across ASEAN and Greater China and with the rest of the world. We are also unlocking synergies such as through our One Bank program across wholesale and retail customer base, strengthening our digital wealth platform to enhance our services. With our strong balance sheet, network and franchise, we are well placed to support our customers through cycles and capture emerging opportunities. Our guidance for this year is low single-digit loan growth. Full year NIM of 1.75% to 1.8%, high single-digit fee growth, low single-digit operating cost growth, total credit cost of 25 to 30 basis points. Thank you for continuing to support us. And now I invite my CFO, Yung-Chee, to share more. Yung-Chee Leong: Thank you, Ee Cheong. Good morning, everybody. Let me take you through the financials update. So for the full year 2025, our net profit came in at $4.7 billion on the back of operating profit of $7.7 billion. The fee income for us was at a record high. What you see there is the net fee income number. On a gross basis, that number actually came up to $3.5 billion. On net interest margin, I think this is something that comes up quite often in terms of media and analyst questions. Our full year NIM was 1.89% on the back of continued pressure on benchmark rates. But actually, what's interesting is if you look at on the right side, the fourth quarter NIM for us was at 1.84%. If you recall, our third quarter NIM was at 1.82%. I can discuss more on the NIM in a subsequent slide. On trading and investment income, we have all-time highs for customer treasury income but the overall trading and investment income for the full year came in slightly below $1.6 billion compared to the year before because last year was exceptionally well. Next please. If I go through some of the numbers on this page, maybe specifically for fourth quarter, if you look at the operating profit line, we generated $1.8 billion of operating profit, slightly below quarter-on-quarter. But if you look at the net profit line, it's $1.4 billion. Our expenses remained stable at roughly $1.5 billion. And total credit cost for the quarter was 19 basis points. Next, I'll go through some of the segmental breakdown in terms of the financials. If you look at our group retail operations, profit before tax was at $2 billion. This income was largely supported by double-digit growth in wealth amidst some of the pressures from lower rates as well as market competition. Our credit cards business continued to achieve new highs. On the bottom right, you see that the gross card billings grew by 6%. On the left side, the corresponding cards income, this is net, it's at 1%. But on a gross basis, that figure is actually 8%. So both wealth as well as cards business is demonstrating strong growth. The credit card business for last quarter or for the year effectively was because of our loyalty rewards alignment in Thailand. But that was a onetime cost. So going forward, we expect that to more closely mirror our gross rate. Asset quality for the retail business remains sound. Maybe I'll move to wholesale banking next. On the Wholesale Bank, profit before tax declined amidst lower rates and keen competition. Our transaction bank continues to power about 50% of wholesale bank's income, driven by largely very encouraging trajectory in our CASA business and our trade business. As CEO mentioned earlier on, our trade loans actually grew by 20-over percent in the year. If you look at the bottom of the total gross loans, I think you will see the trade numbers growing from 35% to 45%. That's more than a 25% growth year-on-year. Elsewhere for the wholesale banking business, if you look at our deposit growth as well, at the bottom, you see the deposit growth at 7% but our CASA portion of the deposits grew double digits, leading to overall CASA ratio for the wholesale banking business now at [ 6. ] So retail's CASA is 57%, wholesale at 60%. Overall, the bank's CASA ratio is now at about 58.5%. Next on global markets. Year-on-year, our global markets business grew 23%. This is again an all-time high for us for our global markets business. It's largely led by customer treasury activities from hedging as well as wealth demand. The noncustomer portion of the business was positioned to capitalize on liquidity and trading conditions. So there is some normalization in the fourth quarter but year-on-year, you saw a 23% growth in this line of business. Next, I'll go through some of the specific financial categories. Let's talk about net interest income first. Overall, net interest income inched down by about 3% on the back of largely interest rate movements but it's also negated by the fact that our average interest-bearing assets grew. So at the bottom, you will see $477 billion to $495 million. That's demonstration of the loan assets that we grew over the year but it was not enough to mitigate the pressures from benchmark rates. Net interest margin, however, for the year, even though it's at 1.89%, if you look at the quarter-by-quarter trends, third quarter net interest margin, we reported at 1.82%. Fourth quarter, we reported at 1.84%. The red bar is actually showing the pressures and effects of the asset repricing, both because of rates but also keen competition. The green bar is the actions that we've actively taken to mitigate some of the funding costs. And we've also done some changes in mix in order to balance the requirements of having the right NII versus NIM outcomes. On this page, what's interesting to note as well, a natural question would be, although that's a reported fourth quarter, where is exit NIM today? As of the end of January, our exit NIM is at 1.82%. So you will see that NIMs are sort of bouncing around that level already, giving us some confidence in terms of where NIM and SORA rates are looking like for 2026. Next page. We mentioned earlier on that our fee income is at a record high. This page shows that year-on-year, our fee income grew 10%, and it's consistently across all categories, whether it's in terms of our loan, our wealth, credit cards as well as others. Next. Expenses. We have continued to maintain very disciplined on our cost while prioritizing some of the technology and regulatory investments. Year-on-year, our overall cost actually fell 2%. But when you look at it from a cost-to-income ratio, it picks up because income actually fell. Next. On performing assets. Our NPL ratio remained broadly stable. It dipped slightly to 1.5%. If you look at the bottom of the chart, you will see that our NPA formation has come off from the $800 million in third quarter. It is now just shy of $600 million. The trend is for NPAs to continue downwards for us. We did have some spike in the third quarter but it's now getting better. Next page on the provisions. So again, our third quarter provisions caused a spike in terms of the specific credit cost as well as total credit costs. But for the fourth quarter, this trend has normalized. Specific credit cost is now at 26 and our total credit cost at 19. And if you recall, our guidance previously on total credit cost was a normalized range of 25 to 30. Next, on provision coverage. With the exceptional provision top-up that we did in the third quarter, we brought our coverage up to 1%, and it remains at 1%. What's also interesting is NPA coverage at the bottom from 100% to 97%, but our unsecured NPA coverage actually went up to 254% once you include the collaterals into consideration. Just to give you a snapshot on where the key hotspots are. We highlighted earlier on that the key hotspots for us in terms of credit costs are in Greater China and in U.S. We indicate here the size of the loans in those markets as well as the credit costs associated with it. So on the left-hand side, you would see that for Greater China, the credit cost from 2024 to 2025 went from 40 basis points to 72 basis points, whereas in the U.S. from 173 to 110 is still elevated. But directionally, we have taken active steps to restructure to recover some of the impaired assets in that country. On the right side, it shows you what we have actively done to increase the provision coverage. So for Greater China from 1%, we raised it to 2.1% and in the U.S. from 0.8% to 4.7%. What this goes to show you and to assure our investors is that the provisions that we put aside for these 2 hotspots are more than adequate for us to navigate any potential issues coming from these hotspots. The following page talks about the customer loans going up 4% year-on-year. It's stable quarter-on-quarter. I think I can probably move a bit quicker through this page. Funding. From our liquidity and funding positions for our continued CASA growth, it continues to remain strong with our LCR at 147% and NSFR at 116%. These are all comfortably above minimum requirements. Our CASA deposits, as I mentioned earlier on, on an aggregate basis is now at 58.4%. Next on capital. Capital position remains robust with CET at a healthy 15.1%. Even on a fully diluted basis with Basel IV requirements is 14.9%. This allows us the ability to continue to deliver steady and sustainable returns for our shareholders. On the last page I have is on dividends. As mentioned earlier on by CEO, our core payout ratio continues to be 50% as we committed. And this includes the adjustment that we did, when we did the provision for Q3, we said we would adjust it so that shareholders will not be worse off. Overall, the payout ratio at 50% means a total dividend for us at $1.56. The final dividend component of that is $0.71. I would also mention in terms of the capital return plan that was committed to shareholders in February of last year, $3 billion. Of the $3 billion, we have already done more than 50% executed, $1 billion of which was in the form of special dividends and another $2 billion in the form of share buybacks, of which we have completed 1/3 of the plan. So in total, more than 50% of that capital return plan has been done, and we are well on track to execute on the rest of it across the next 2 years. That brings me to the end of the presentation. Maybe we open up for questions. Operator: Thank you, CFO. We will now take questions. [Operator Instructions] [indiscernible] Unknown Attendee: [indiscernible] with Bloomberg. I have 3 questions today. My first is for Mr. CEO. Why did you revise down fee income growth for 2026 to high single digit from a year earlier, a range of double digit and high digit. Ee Cheong Wee: So what is your question? Yung-Chee Leong: The fee income growth, we had revised down to high single digits. And I think the backdrop of it was our loan growth for the year for 2026, we expect it to be low mid-single digits. But in terms of fee income, there are multiple components. There's the loan component, there's credit cards, there's wealth, both credit cards and wealth and customer treasury, investment banking, all those are all still demonstrating very strong growth. The primary reason for that adjustment was more because of more conservative loan growth outlook. Unknown Attendee: And where do you see UOB's 2026 growth trajectory from here? And what are some of the biggest risks you're anticipating? Ee Cheong Wee: Well, I think the market is very uncertain, right? Because this is something that is a little bit beyond our control. But the ASEAN we are talking about, I feel quite confident. As you can see, the ASEAN-4 actually [indiscernible]. So we continue to focus on connectivity, continue to focus on less capital-intensive activities. Trade. You still need to trade, cash management. So these are all the initiatives we want to make sure that we are able to weather rather than just purely based on loan growth. It is very uncertain. Nobody is sure. Unknown Attendee: And lastly, how you will be using AI to boost productivity? Ee Cheong Wee: I think he's on top of this. I think definitely, we train our 20,000 people. We tied up with the industry expert at Accenture, see how we can spearhead AI initiative. I think it's a tool. I think it's important. It's an important tool. I want to train my people to make sure that they are taking full advantage of the tool to increase productivity. Unknown Attendee: Have there been or do you anticipate any changes to headcount due to automation in the workforce? Ee Cheong Wee: I think certain job, maybe you can't avoid it, right? I think our challenge is we do have HR initiative program to make sure that we are able to convert some of these. I think important is this environment, we -- the last thing we want is to get [ free of cost ] to our staff to give them the opportunity to learn as much as possible. If they learn, I think that will be -- to me, I think that is most important, learn as much as possible, take full advantage of AI. And we have a dedicated unit to look at AI to see how we can transform that. And then if we hit a certain optimum scale, then we know how to reallocate our people, make better use. So at the end of the day, the ownership is the first thing. Yung-Chee Leong: If I could add to that, of our 30,000-over staff, most of them have all been given AI tools at their fingertips already today. And the only countries that have not been rolled out to is because of regulatory considerations. So any country that allows us, we have already rolled those tools out to our staff. And about 20,000 of our staff have already gotten some of the basic training in terms of AI. We have set up an innovation academy to roll out training programs for our staff. Now we see these tools as enablers to enhance productivity, to help us gain insights into customer behavior, to improve service quality for customers, et cetera. It's not a tool for cutting headcount. So the focus continues to be enhancing client outcomes. It's about enhancing our banking relationships with customers. It's also helping our staff with advice-driven solutions so that we can enhance their productivity. Operator: Any other questions? Maybe Asian Banker, Russell. Unknown Attendee: Russell from the Asian Banker. Firstly, congratulations, Ee Cheong and Yung-Chee on the resilient set of results, I mean your strategy on fee -- driving fee income from the retail side and the wealth side has really paid off. My question is on the trade loans. So recently, during last year's ASEAN conference, there's been talk about the global supply chains and how businesses are moving from cost and efficiency to more resilience and responsiveness. Trade loans has been a huge part of your growth. How has that allocation shifted between trade on the intra-ASEAN side and Asia and Greater China? How has that shift changed over the past year? And how has your bigger scale in the region contributed to [ your FOB ] having a greater advantage in this space? Ee Cheong Wee: Well, actually, the trade loan constitute about 13% of our total loan. It's not that big. So we are actually working on that because it's more capital friendly, right? And also short term, right? Even the volatility, this is why we are emphasizing on that. The growth is actually double digit. But in terms of percentage of our total loan is about 13%. Yung-Chee Leong: That's right. So to give you a deeper sense on that, our overall loan portfolio grew 5% but the trade loans component of it, that 13% grew at 26%. So the speed at which trade loans are growing, again, this reflects our connectivity, the whole ASEAN trading economy, that growth remains very resilient. So despite what you hear about the geopolitical tariff situations and so on, I think there's active realignment of supply chains and the trade loans actually demonstrate that. Why we concentrate on trade loans, even though the margins are slimmer is that trade actually encourages a lot of other activities that are cross-selling in nature. For example, if you do trade, they tend to be cross-border. Cross-border requires FX. If you are doing the FX, then you could pretty much package together interest rate hedging, cash management. So the broader wallet associated with trade isn't because of trade alone, but it actually has implications on how we shape the business. So trade continues to be a very active, very important focus for us driving our ASEAN footprint. Unknown Attendee: And then another question, if I could add. On the SME banking side of things, I think you're anticipating single-digit loan growth for this coming year. How is that impacting how you conduct banking with SME clients? Are you pivoting more towards fee income for that? I understand that the UOB has quite a whole entire ecosystem for SME clients. Ee Cheong Wee: I think generally, I would say we are very much market driven, right? SME customer because of the market uncertainty, they themselves also take a wait-and-see attitude. It's not like I want to give them loan to waste. They are also cautious, right? And we also share our experience, our advice, what should they do? And if you look at even today with the latest tariff, right, from Singapore 10% to 15%, that is overnight thing. So they also have to wait and see but it's something that they cannot plan. So this is where you will be, we are right by our customers. We have to help them to how to restructure, how to prolong the tenure, how to help them to grow. This is where our franchise value is, right, rather than just focus on ourselves. Operator: We take a question from [ Wei Han ] from BT. Unknown Attendee: Wei Han from BT [indiscernible]. May question is on the tariffs that you mentioned. And also I think in January, we sort of saw the Venezuela crisis fairly short lived but how does all this sort of impact your ASEAN outlook for 2026 and the opportunities you sort of see there? Ee Cheong Wee: I think definitely, I don't have a final number yet because it just a but [indiscernible]. But the whole intra-regional trade is also irregardless of U.S. look at China trade with ASEAN, I think the number seems to be quite encouraging within ASEAN. So we have no choice. We have to support each other. I still think that is quite robust. You can see from the trade volume. Last year, we started this and this year. And then, in fact, the tariff be even higher. Today, we try to equalize. And the fact is if we equalize everybody, then there's no competitive advantage or disadvantage to understand because now U.S. Supreme Court say everybody is 15% of tariff. There is no advantage to you or disadvantage. Yung-Chee Leong: If I dial back a little bit in history as well. We sat here in April last year reporting on first quarter results, 2 weeks after Liberation Day, and we were like, oh, no, all this tariff being announced, what's going to happen? And if you look what happened in the subsequent quarters was, yes, there was some dampening effect in terms of loan growth because customers in general, corporates took a step back. We had to reassess and realign our supply chains and where do we position our capital and where do we place our factories and so on. So loan growth did dampen. But by and large, the activities continue. Trade continue. The supply chain shifted, which is why you see year-on-year, our trade loans, our growth in those activities continue to be double digit. So fast forward to now, you see realignment in tariffs again. I think there will be some time required for the system to absorb, comprehend and react to it but we are confident those activities will continue. As in the company's business activities, we'll find a way to navigate through that and continue. The important thing is for us to stay focused on helping our customers navigate that. Unknown Attendee: So the credit cost, can we look at Slide 14 again? Because over there, you've broken down your Greater China and your U.S., okay, hotspots. So of the Greater China hotspots, what is Hong Kong CRE? Is it all -- is it -- and what portion you don't have to give us a rough double digit -- low double-digit teens, that sort of thing for Hong Kong versus China itself? And is it all CRE for both those buckets? And also for the U.S. bucket, were they -- were you lending directly -- were they mortgages? Or were they like loans to funds because you had a financial institution group customers. Yung-Chee Leong: Okay. A couple of questions. Maybe I'll deal with the U.S. one. It's a little bit easier. The hotspots have been commercial real estate, right? We do lend. Unknown Attendee: All those billion, whatever billion was the... Yung-Chee Leong: Not all of that is commercial real estate. That's our loan book. Unknown Attendee: The $45 billion and $17 billion is the loan book. Yung-Chee Leong: That's the loan book of our business there, right? That's not the problem loans. If that was problem loans, we will be. No, no, that's the size of our loan book there. But in terms of the problem that we've been facing, specifically in the asset class of commercial real estate. And that's only a small fraction of that. Unknown Attendee: A small fraction as in 1%, 2%. Yung-Chee Leong: Yes. 1% approximately. So it's specifically commercial real estate. And your other part of the question was, are these to clients, are these to funds? It's a good mix. Some of it are to our clients whom we support network clients from Asia who have decided to operate in the U.S. There are some who are our global financial institution sponsor clients as well. So there's a good mix of that. Coming back to Hong Kong, I think the similar question. You mentioned about mortgages and so on. We actually do not have a mortgages -- significant mortgage book from Hong Kong. The problem assets, again, are commercial real estate related. We don't give the breakdown on how much of that is Hong Kong versus China. Unknown Attendee: Okay. So in the -- so what is your outlook for -- I mean, I know you said it's normalized but what is the outlook for the asset quality this year? Yung-Chee Leong: I think given some of the macro conditions, I think there is still some potential challenges to be navigated, right? But that said, I think we have preemptively already anticipated many of these. So what we see in our pipeline, what we see are the potential hotspots, we have, in the last quarter, put aside that $615 million of provisions because we were anticipating some of these. So what I would say is that our buffers that we have put aside today allow us to navigate these potential hotspots for us and stay within our guidance of credit cost between 25 to 30 basis points. Unknown Attendee: Okay. So can I ask one more question. You had a small write-back in 4Q of [ 69 million. ] What was that? I mean, was that a recovery? Or was that... Yung-Chee Leong: Let me check on that. Unknown Attendee: In the fourth quarter. And also, DBS... Yung-Chee Leong: Yes, there was a write-back. Unknown Attendee: Also on the other part, your peer has been very open about how much it has in management overlay. And I think at one point, you also -- one peer but you have also talked about your overlays in the past, which were -- I mean we don't have to give the exact number, $1.358 billion but it used to be above $1 billion towards the $1.4 billion area. So could you just give us an idea of whether it is around there below or above just. Yung-Chee Leong: I think we'll stick with not giving that information as we have not given it before. But again, I'll emphasize that the GP buffer that we put aside is 1%. And if you look between Q3 and Q4, even though we raised it to 1% at Q3, it's 1% at Q4. Unknown Attendee: Okay. So does that have to calculate? Yung-Chee Leong: Yes, it's 1% at Q4, and it's enough to support our guidance. Yes. That's actually something very important to note. The unsecured number, which when you look at credit cost, there are quite a number of metrics to look at, and it looks at different things. The unsecured number is after taking collateral into account, what is the portion that is unsecured? How much coverage do you have against unsecured? So at 25%, we are actually very well covered in terms of the exposures to unsecured. Operator: Any other questions? [ Rei ] from Reuters. Unknown Attendee: I am [ Rei ] from Reuters. Just a question. You mentioned about ASEAN growth. There's also been some headwinds facing the Indonesian market in recent times. How do you see that impacting the business and the outlook for the market? Ee Cheong Wee: I think we have to focus on long term. Every day, you talk about short term, very difficult to manage an organization like this. But short term, I can tell you, Indonesia, our loan exposure is 3% of the total loans, 8% in Thailand. Thailand also going through all the volatility. End of the day, I think we have to take a look at the whole ASEAN, Indonesia being the biggest country in ASEAN, 300 million population. There is enough opportunity for us. Obviously, it's a selective customer choice. And I still think there are opportunity there, okay? And the fact is today, if you look at most of the foreign banks, they already exceeded the market. Most of them all they slowed down. That actually gives us a lot of opportunity being closer to the ground, being able to navigate a lot more nimble and faster. But having said that, our focus is still basically on trade, right, so that we are a little bit more flexible. But unless the customer is good, yes, we're prepared to give a term. So the overall, if you can see the growth despite all these tariffs, ASEAN-4 is actually growing quite well, right? We still can continue to grow because we have a very small market share. If you look at Indonesia, 300 million, 3% I can grow to 5%, right? Thailand, yes, going through the up and down, but I think I believe things are stabilized. You can see the portfolio quality seems to be sustainable. Yung-Chee Leong: And Vietnam, is still exhibiting high single digits in terms of GDP growth. And so I think we look at the region as a whole, there are continuing opportunities for us to.. Ee Cheong Wee: And it's a portfolio, right? It's not like you be only confined to a hope. Yung-Chee Leong: I think just to address Chanya's earlier question on Thailand, not to forget Thailand. I think the stability there actually encourages FDI as well. So it's definitely a country that we are very optimistic about as well. We -- our operations last year, we had onetime credit costs as well as loyalty rewards. Those were behind us. We actually believe that the Thailand operations this year will contribute more significantly for us. Unknown Attendee: You say Thailand will attract more FDI. Yung-Chee Leong: The political stability, I think encourages more FDI. And it will solidify its position as one of the key nodes in the supply chain in this region. Ee Cheong Wee: ASEAN is still generally quite attractive. You look at the family officers coming in. We're talking about trillion. And I think these are the kind of liquidity there. And ASEAN, I think, is a little bit more flexible. Yes, there are some political risk. But in terms of structuring, in terms of union, in terms of -- I mean, and cons. You tell me, which region is better? You tell me, U.S., Europe, where? So we are in this region. So we are -- and it's proven. And we are just dealing with ASEAN, which is within our reach, it's easy for us to. Unknown Attendee: If I can add one question, the net new money has been quite positive. Do you see that much growing in 2026? Ee Cheong Wee: No, I think it will continue to grow. It will continue to. And this is something that the bank is making a big effort to see how we can not only just supporting loans, right, how to -- because we do have a very strong private banking, our investment advisory unit within the private bank has actually done very well. As I -- just now in my speech, the digital platform. These are people, like every one of you, the average size [indiscernible]. People put money, they're able to generate good return, 144% in terms of growth. And this is just the beginning. In terms of number of customers, it's still quite limited. But in terms of volume. So this is where I see the power of distribution and also the trust that the customer have with us, not only just Singapore, the whole region. Yung-Chee Leong: The wealth income grew 14% year-on-year. So that's an area we think continues to be a highlight and bright spot that we want to focus on coming to 2026 as well. Unknown Attendee: Ask about coal financing. Do you still -- do you finance current customers of yours who decided to buy a coal plant? Yung-Chee Leong: We have stopped financing new coal plants or new projects involving coal since a few years ago, I don't remember, which year. Unknown Attendee: Including nickel. But let's just focus on coal for the time. Yung-Chee Leong: So we have stopped financing new coal projects or new clients doing coal projects since a few years ago. We can come back to you on which year.. Unknown Attendee: 2 years ago but we will confirm the year. Yung-Chee Leong: However, that said, if existing customers with existing facilities with coal, our priority is to help them transition out of it. So while not doing anything new or more, the existing facilities that we have to clients, we are actively -- every time we refinance we actually put in encouragement, incentives for them to transition. Unknown Attendee: I think you asked about nickel. Unknown Attendee: No, no, no. I think nickel plant is powered by coal. Unknown Attendee: So how far down the -- what is it? What are those things? Yung-Chee Leong: The problem is a value chain. Unknown Attendee: The value chain you say nickel plants are powered by coal. So do you finance the nickel plant? Yung-Chee Leong: It is difficult to answer that precisely. So let me give you an example, right? So if we finance coal mining equipment companies, they are not doing coal-fired power plants but they're doing equipment. But equipment can be used to mine other types of products as well. So do you not finance that? So I think you have to be quite deliberate here. We are very focused on addressing climate considerations, coal-fired power plants, right, CFPP. So those are areas that we have very specifically deliberately articulated what we will do, what we will not do. But it's a slippery slope to then start broadening that definition out to many others because you need coal-fired power plants to do power generation for power companies and to use start financing power companies. So it's hard. Ee Cheong Wee: So our commitment was made in 2022, about 4 years ago. Unknown Attendee: With what's happened in the U.S., are you still committed to your -- that road map to whatever net zero or... Ee Cheong Wee: Yes. Yes. We are still already withdrawn. We are still -- I think it's the right thing to do. We are facing it. We are doing it in a more practical way. The environment is for the future. It's not because of the regulation we are doing. Operator: Any other questions? Unknown Attendee: I mean just to touch back on the AI. Can you give us some insight as to which parts of the bank are furthest into AI adoption? Is it wholesale? Is it bank retail banking? Yung-Chee Leong: We are going -- I can give you some examples but it cuts across the bank in multiple areas. I think what's important for us is now to focus on foundation and knowledge layers that we built, and we can then use that to quickly replicate across other parts of the bank. But some key areas of use cases, for example, are in customer servicing, contact centers and branches. Maybe one practical example is every time you have trouble, you call a contact center and sometimes you get a run around, right? This person can help you and frustration among customers grow. But part of the problem is because the attrition rate with customer service contact center operators are fairly high, they get yarded by customers all the time. It's not a pleasant job. Attrition rate is high. They are not well trained. They don't have enough knowledge and they don't address questions. And with AI tools, can you just imagine that if we are able to curate faster, better responses, whenever a query comes in, what is the appropriate knowledge and response to deal with that. That helps us address the questions, hopefully at one touch rather than multiple touches. So accelerating that knowledge-based accumulation of testing, making sure the models are correct and we are responding correctly, that's important. Part of the challenge for us is unlike U.S. where it's a homogeneous market, everybody speaks the language in the same tone and the same accent. When we use these tools to help accelerate for our staff, the listening tools sometimes misread what is said because of the different accents and expressions. So the accuracy continues to be refined, and we need to make sure that, that's done in a speedy manner to address. So sort of customer servicing is just one aspect of it. AML, KYC preventing frauds and scams, anticipating, looking at the data analytics to look at where there are new modus operandi. How do we circumvent that? That's very useful cases of our AI team is focusing on as well. So just a couple of examples to share. Unknown Executive: We have deployed it across all our branches. Okay. So when they answer very complex thing like state accounts all assisted by the AI. So it's always with the right set of terms and conditions. So it's all deployed. Unknown Attendee: So you still have a human interface. But the human interface is helped by AI. Yung-Chee Leong: Yes. Yes. One example is people will call up to us what's your latest promotion rate for a certain product, right? And the promotion rates do change because we do have promotions at different times of the year. So it's important to make sure that the operators who are interfacing with customers have the most up-to-date and most accurate information at every interaction. Unknown Attendee: Have you -- those positions that are being -- I know like the AI is helping on function. Have you stopped hiring for new roles in those departments? Yung-Chee Leong: Not at the moment. I think given the economic climate, I think we have been very disciplined overall with our headcount but it's not targeted specifically at job archetypes. So you did see -- there's income pressure definitely in the macro sort of state. You have seen our slides on cost discipline. So that cost discipline actually extends across the bank. It's not about specific roles. Ee Cheong Wee: The human cost, you can actually see is coming down. Partly, we want to make sure we are able to contain we're able to train all these people rather than keep increasing. And end of the day, you have a situation where, as you say, AI, are you going to retrain people, keep it within ourselves, we train them so that the damage will less. Operator: Maybe we'll take one last question. Unknown Attendee: Kevin from [indiscernible]. Just 2 quick questions. I think one is on what's your interest rate outlook in terms of interest rate cuts from the Federal Reserve in the coming year? And the second one is whether or not there's any comments on the potential sale on UOB Asset Management was reported by Bloomberg a couple of months back. Ee Cheong Wee: House view is interest rate likely to cut maybe [indiscernible] but if you look at Singapore interest rate, it's already overdone. So how much would that -- I think it's quite stabilized at this point. Asset management, I think is on top of this. Yes, I think market is aware that we are -- we are looking at it. This is not something that we want to see who are the strategic buyer because end of the day, UOB, we want to have a platform to distribute what is the best product for our customers. On the stand-alone, scale is one thing but we want to make sure we offer the best product for our customer. That's our choice. Operator: Right. That's all. Thank you very much, everyone, and have a good day. Good rest of the week. Ee Cheong Wee: Thank you. Yung-Chee Leong: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Skyward Group Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Kevin Reed, Vice President, Investor Relations. Please go ahead. Kevin Reed: Thank you, Lisa. Good morning, everyone, and welcome to our fourth quarter 2025 earnings conference call. Today, I am joined by our Chairman and Chief Executive Officer, Andrew Robinson; and Chief Financial Officer, Mark Haushill. We will begin the call today with our prepared remarks, then we will open the lines for questions. Our comments today may include forward-looking statements, which, by their nature, involve a number of risk factors and uncertainties, which may affect future financial performance. Such risk factors may cause actual results to differ materially from those contained in our projections and forward-looking statements. These types of factors are discussed in our press release as well as in our 10-K that was previously filed with the Securities and Exchange Commission. Financial schedules containing reconciliations of certain non-GAAP measures, along with other supplemental financial schedules are included as part of our press release and available on our website under the Investors section. With that, I will turn the call over to Andrew. Andrew Robinson: Thank you, Kevin. Good morning, and thank you for joining us. Our strong fourth quarter caps off another incredible year. Mark will cover the quarter in detail in a moment, but I'll start our call today with a few quarter and full year highlights. Fourth quarter adjusted operating income increased 47% to $49 million and underwriting income reached $41 million, both all-time highs and the fourth consecutive quarter of record results for those 2 metrics. Our growth in gross written premiums in the quarter of 13% caps off an outstanding year of 24% growth. We continue to exceed our objectives of delivering mid-teens return on equity, reporting 18.9% for the year and a return on tangible equity of 20.9% was simply outstanding. Our fully diluted book value per share grew to $23.87, which is up 5% over the third quarter and an impressive 26% for the year. The market is becoming more competitive and difficult for many to navigate. And yet, we simply go from strength to strength in our financial results, our competitive position, our portfolio construction and our execution. Whether it be the impressive year-to-date growth in our ag business, the leadership position we established in the small employer market in A&H, our market-leading innovations such as EndWell that are powering the growth in surety and similarly creative products that are driving profitable growth elsewhere or now the accretive impact the Apollo combination will bring to growth areas like our Life Sciences unit. We are demonstrating every day that we're unique amongst the P&C universe in how we are competing, executing and winning. While others are struggling to find their footing in a decidedly more challenging property market and endeavoring to stay in front of the escalating loss costs in areas of the casualty market, we have successfully navigated in a manner others have not. We have evolved nearly 50% of our business portfolio to less cyclical lines while executing on our strategy to rule our niche by attracting the very best talent, staying in the lead in the technology and AI arms race and building defensible positions in a competitive moat around our business, all while delivering outstanding financial returns. It is unlikely that every quarter going forward can be an all-time best for our underwriting and operating income as it was in 2025. Yet relative to the market and the opportunities ahead, we believe Skyward has never been better positioned to deliver sustained top quartile shareholder value. With that, I'll turn it over to Mark to provide the financial details for the quarter and the year. Mark? Mark Haushill: Thank you, Andrew. We had another great quarter, reporting adjusted operating income of $49 million or $1.17 per diluted share and net income of $43 million or $1.03 per diluted share. As Andrew mentioned, gross written premiums grew by more than 13% in the quarter, driven by our A&H, Surety and Specialty programs divisions. Net written premiums grew 25% for the year and our retention of 64.9% remained stable year-over-year and consistent with our guidance. Turning to our underwriting performance. The fourth quarter combined ratio improved 7.3 points compared to the prior year quarter to 88.5%, reflecting net favorable development and a modest catastrophe quarter. Our loss ratio of 59.6% includes net favorable prior year development. This was across multiple lines, primarily surety and property of $7.5 million or 2.1 points on the loss ratio. Our favorable development more than offset modest adverse development in more recent accident years, which was principally driven by commercial auto and excess auto in areas that have been exited over the past 3 years. Our 10-K and statutory filings provide additional details. We ended the year with a very strong reserve profile with 74% of reserves in IBNR, our highest level of IBNR in the history of the company. Our pay to incurred is a low 65% for 2025, consistent with 2024. These metrics demonstrate our disciplined and conservative approach to reserving, even as our liability durations continue to shorten. The expense ratio for the quarter was 28.9%, consistent with the prior year quarter and in line with our expectation of sub-30s. Efficiency gains and controllable expenses were offset by higher acquisition costs, which were driven by business mix shifts and by regular fourth quarter profit share true-ups. Turning to our investment portfolio. Net investment income for the fourth quarter 2025 increased $3 million compared to the fourth quarter 2024, driven by a larger asset base and higher yields in our fixed income portfolio. In the fourth quarter, we put $52 million to work at 5.6%. Our embedded yield was 5.3% on December 31, up from 5.1% a year ago. Underlying marks of $2 million on the private credit holdings in our alternative asset portfolio continued to impact net investment income in the quarter. While the 2025 results in our alternative asset portfolio are disappointing, this portfolio only represents 3.8% of our investment portfolio at December 31 compared to 6% a year ago. For the year, $44 million of the alt capital was returned and reinvested into our fixed income portfolio. Our organic growth and capital arising from our strong 2025 results supports our 2026 business plan. That capital strength positions us well as we consider our balance sheet and our leverage profile going forward. Our financial leverage was modest as we finished the quarter at under 11% debt-to-capital ratio. However, rolling into the first quarter of 2026, our leverage will be impacted by debt related to the Apollo transaction, and we expect it to be in the range of 28% to 29%. Recall, as part of the consideration paid for Apollo, the company issued approximately 3.7 million shares at an accretive $50 per share. At the closing of the Apollo transaction on January 1, fully diluted book value per share is expected to fall within the range of $26 to $26.10 as compared to our $23.87 at December 31. You'll recall that on December 3, we provided guidance for 2026, and that guidance is unchanged. As discussed in prior quarters, the material weakness in IT controls has been remediated, and that will be visible in our 10-K. There are no material weaknesses. We remain focused on our balance sheet strength and prudent capital management as we move into 2026. We will look to opportunistically deploy excess capital to take advantage of our extremely attractive share price via our share repurchase program. Now I'll turn the call back over to Andrew. Andrew Robinson: Thank you, Mark. As Mark just shared, our financial results for the quarter were excellent again. We grew over 20% in Surety, A&H and Specialty Programs. We expect strong continued growth in A&H and Surety given our winning positions. As noted in the prior calls, we expect flatter growth in Specialty Programs as the effects from the 2 programs added in early 2025 are fully reflected in written premium. We also grew in captives and modestly in Global Property, the latter of which simply reflects a small premium quarter, high retention on our in-force and a couple of account wins. We continue to see considerable competition in property. We had strong growth in the quarter within the credit unit part of our Ag and credit reporting division. We remain bullish about our profitable growth opportunity in both units. We shrunk in Energy and Construction Solutions, driven by our ongoing intentional actions in commercial auto and construction. We have now reduced our commercial auto exposure by more than 62% over the last 12 quarters as we signaled to you 3 years ago that the loss cost inflation backdrop is too unpredictable and too unsustainable, something only in the past few quarters, others have started to discuss regularly. Regarding energy, given the strength of our market position, limited competition in the specific markets we serve and our broadened offerings in renewables and power, we are bullish in our outlook for this unit. In Q4, as often happens, the market becomes more competitive as many try to make full year plans. This was most visible in our E&S and Professional Lines divisions. We defended our books effectively but wrote less new business given the price and terms on offer. While this continued into the 1/1 renewals, we remain positive about our ability to grow profitably in specific areas in these divisions, including health care professional, the specific target classes that make up our management liability book and general and excess liability. It's important to note our outstanding portfolio construction and diversification. Over 58% of our business is in short-tail lines and now 48% of our business in lines less exposed to the P&C cycles. And our largest division makes up only 16% of our premium. These all continue trends that are visible over the past 3 years. We arrived at this point with clear strategic intentions, which we have spoken about quarter-on-quarter since being a public company. Turning to our operational metrics. We had a quarter similar to last. On pricing, we achieved mid-single-digit pure rate ex global property. Retention was in the mid-70s, driven by our intentional actions in commercial auto. We continue to see strong submission growth, which was solidly in the teens again this quarter. I'd now like to take a moment to reflect on our progress as a public company over the last 3 years. On January 13, 2023, we listed as a public company. In February of 2023, we reported our 2022 fourth quarter and full year results with operating income of $11.6 million and $0.36 per fully diluted share and $12.87 book value per fully diluted share. In just 3 years, our adjusted operating income of $49 million is more than 4x greater. Our diluted EPS of $1.17 is more than 3x greater and our fully diluted book value per share is over 2x greater at the close of the Apollo transaction on 1/1. Underlying this is a far stronger balance sheet, both on the asset and liability side of the ledger, a far more durable business portfolio, as I just discussed, market-leading underwriting and claims talent, a leadership position in the use of advanced technology and AI and every single division executing exceptionally on its Rule Our Niche strategy. None of this begins to contemplate the impact of the Apollo transaction, which further strengthens our talent, our innovation and earnings, and it provides attractive fee income, strengthens and expands our business portfolio into new specialty areas, and importantly, it builds on Apollo's distinct and obvious leadership position in providing solutions to the digital economy. To this end, you likely saw Uber's announcement yesterday regarding its launch of the first-ever manufacturer-agnostic autonomous rideshare platform. One critical component Uber highlighted is the autonomous vehicle insurance policy, also known as AVIP. We are proud that Apollo is the sole carrier partner to Uber for this market-leading initiative. AVIP is a comprehensive liability product that combines general and product liability along with several other coverages for manufacturers, ADS providers, owners, fleet managers and other supporting participants into one simple policy that is embedded directly within the Uber AV platform. Uber selected Apollo because of our expertise, intellectual property, proprietary data, track record and leading position in providing insurance to the AV market. I noted autonomy as a large growth area for Apollo when we announced the transaction to acquire Apollo. This is a powerful demonstration that we are the leader in understanding AV risk and providing powerful risk transfer solutions to this market. Our collaboration with Uber has been central to the unique design of this product, including our proprietary context-specific and usage-based pricing approach. The embedded coverages mean this product is not sold, but rather consumed by AVs offering their services through the Uber platform. We'll share more specifics in the coming days and weeks. But when we speak about the impact of Apollo and the strength of the combined company that is now Skyward Group, this partnership with Uber is precisely what we envisaged. It reflects the differentiated capabilities we have brought together and our ability to deliver solutions at the forefront of innovation, technology and serving markets being disrupted by AI. To wrap up, as I look back on 2025 and our last 3 years as a public company, I'm immensely proud of the integrity of our company and how we operate, the accomplishments of our Skyward team and the results we've delivered to you, our shareholders. I'm even more excited about the next 3 years now with the capabilities and talents of our colleagues at Apollo. And despite a more challenging and uncertain market backdrop, at no point during my 6 years at the company have I viewed us better positioned for success than today. With that, I'd now like to turn the call back over to the operator to open it up for Q&A. Operator? Operator: [Operator Instructions] And our first question for the day will be coming from the line of Meyer Shields of Keefe, Bruyette, & Woods. Meyer Shields: Andrew, I was hoping you could go a little bit deeper into the Surety growth where it was very strong in the fourth quarter. You're pretty optimistic about 2026 because we've heard a lot of, I guess, concerns from other carriers about delayed construction projects. Andrew Robinson: Yes. Look, I mean, I think that we -- thanks, by the way, for the question. And there was nothing unusual about this quarter. You could see the growth building. The fourth quarter particularly was a release of a lot of federal funds. So things that were backed up over the course of the year, the monies sort of became available. Our view is really simple, which is we've built a really well-diversified portfolio within Surety, right? So it's not just contract in commercial. It is the fact that we're well across all the trades that we're not exposed to homebuilders. On the Surety side, we have great areas like the SBA. We have our judiciary and fiduciary bond capabilities. We've done a great job with EndWell, which we obviously talked about over the last 3 quarters. More recently, there has been a failure of a large solar company with over $1 billion of bonds out in the market and probably every top 20 Surety had some piece of that, except us. And so we're certainly going to avoid a loss there. But that will sort of harden the backdrop around solar, just the way that we saw the hardening on oil and gas. And so I think when I look at it all in, it's just the execution of our business along the lines of the way that we constructed that business, well diversified, different areas that we can press down, ease up, wait for some market opportunities like we saw in oil and gas, now we'll probably see in solar. And so I would expect that we're just going to continue to outperform both on the growth and on the loss side as compared to the market. Meyer Shields: Okay. Fantastic. That's helpful. If I could stay on premium growth prospects just for a second. So wholesale brokers like Ryan are creating these sort of diversified facilities, and we've seen some other specialty carriers participate in that. I was wondering about Skyward's appetite for that sort of business that is externally underwritten. Andrew Robinson: Yes. Thanks for the question. We will never do that while I'm the CEO of the company. How about that? I think that it may be appropriate for others, but our strategy is about Rule Our Niche. It is about distinct focus. It is about expertise and capabilities that we can look at and say, here's the source of your competitive advantage, your ability to have a competitive moat. And whether people are doing it under -- we're managing other people's money, which some are doing or just taking a straight quota share on other people's underwriting, that's just something we will never do as a company while I'm the CEO. Operator: [Operator Instructions] And the next question is coming from the line of Paul Newsome of Piper Sandler. [Operator Instructions] And the next question will be coming from the line of Gregory Peters of Raymond James. Charles Peters: So I think you spoke about Apollo. You spoke about -- you mentioned this autonomous vehicle partnership with Uber. As we're working through our financial forecast, maybe you could give us some perspective on how Apollo performed in '25 and what you think they might be able to do in '26 as we sort of blend it all together? Andrew Robinson: Well, I think that we will have -- we're going to have some information out on Apollo here over the coming couple of weeks as part of sort of the ordinary reporting at [indiscernible]. So there are some things that will be available. But let me just say that just sort of at the macro level, Apollo's financial results are uncannidly similar to ours. They grew at about 20%. Their combined ratio was around 89% for the year. And probably the only difference that I would highlight is that their expense ratio is 4 or 5 points higher than ours for this past year and the loss ratio accordingly 4 or 5 points lower. I also will tell you that Mark and I could not be any more pleased with the great work that David Ibeson and [indiscernible] and [indiscernible] had undertaken to ensure that the balance sheet was every bit as conservative as ours. And so I feel great about sort of our entry into 2026. I think beyond that, Mark just said it best in the script, right? We gave guidance. Our guidance is unchanged. I believe that you can judge for yourself how it is that we perform against our guidance over the prior 3 years. We're going to work hard, obviously, to do the best that we can. But in the end, we can only sort of take what the market will allow us to take and still deliver the kind of returns that we're delivering to our investors. I'll highlight that this is really important that while others have put out -- some companies have put out monster growth numbers on casualty and so forth, great for them, not right for us. We're very, very thoughtful about the loss cost inflation backdrop. And so the fact that we are exiting this year in the Skyward Specialty part of the portfolio with 50% of our business in areas that are not exposed to the P&C cycles, where we don't have the kind of concerns around property and casualty in that half of the portfolio is unique to us, and that gives us a real advantage as we're coming into 2026. Charles Peters: Just sticking on Apollo for a second. And then I do have a follow-up question on a different topic. But when we hear the rhetoric in the marketplace about pricing competition, Obviously, we've come to learn how your book of business has performed. Can you give us some perspective of how you think Apollo is going to perform under the Skyward banner given the fact that there's a lot more price competition in the marketplace now than there was maybe 2 or 3 years ago? Andrew Robinson: Yes. Well, I mean, what I'd say to you is that what we think about when we were evaluating the potential combination, and I think it's reinforced today, there's much about Apollo portfolio that is -- first off, it's very complementary, right? We certainly really appreciate what they're doing in their specialty businesses, areas like product recall, PR and PV, political risk, political violence, contingency. And I think that this point we just spoke about coming out of ibott 1971, the syndicate that's focused on the digital economy is an example where I have said that they are one of one in that market. And I believe that this partnership with Uber, I mean, we're talking about embedded product where all of our expertise is really the foundation for the pricing. Our partnership with them and the insights that we bring is the foundation for the product. That's a unique place to be. You're not out sitting at the box competing with 50 other syndicates for a piece of business. And I certainly feel really good about their portfolio construction. I would describe it as very analogous to us. And I see that pricing pressure is not something that you can ignore, but the portfolio is well diversified enough like we have at Skyward Specialty that I'm very confident that we can profitably grow and navigate the market while still delivering really exceptional returns for our shareholders. Charles Peters: All right. I mean the other question I had was just about the reserve development. And certainly appreciated your comment about how you've managed your commercial auto exposures over the last couple of years. But I was hoping that you could give us some commentary about the moving pieces inside the reserve development for the fourth quarter. Mark Haushill: Greg, it's Mark. Thanks. I mean, look, in quick summary, commercial auto moved a little bit on us in accident years '22 and '24, maybe circa $25 million-ish, and it was offset by, as I mentioned in my comments, by some of the shorter tail lines. But I'm glad you asked the question because I think it's important for me to be very clear. Look, we review our reserves each and every quarter. In the event that we see something that we need to react to, we will, of course, do that. I think maybe the way I've communicated in the past may have led to a little bit of confusion. I gave you some metrics earlier in terms of -- just high-level metrics on reserves. And look, I think it's worth noting to you and to anybody on the call. I feel as good about our reserves as I ever have since we have been public. Look, there are things that we need to -- the areas that we're looking at for sure. But coming into '26, I frankly feel better about our reserve than I ever have. Andrew Robinson: Greg, I don't think that you can look past the realities that we have dramatically shortened our liability durations over the course of the last, well, 6 years since I've been at the company. We're at an incredibly high level of conservatism if you measure it through IBNR. Our paid to incurreds are as good as they possibly could be, I would say, at this point. And we do look at that as compared to others in the market. And I think the last thing that I would just highlight is that the auto and the excess over auto, the parts where we recognize some adverse development are all parts of our business that we've exited as part of sort of slimming down the exposure that we have to commercial auto. Operator: Our next question is coming from the line of Alex Scott of Barclays. Taylor Scott: First one I had is on Accident & Health. Some of that, I know is stop loss, and I think you guys have had pretty good performance where the rest of the industry has struggled a bit. So it might be one of the hardest markets we've seen in a while, pretty unique relative to some of the other things you guys do in P&C. Is that a place where you'd lean into growth? And could you tell us at all about what you did at 1/1 renewals? Andrew Robinson: Yes. Our 1/1 were off the chart. We massively were ahead of where we thought we'd be. So that's just a quick answer to your first question. Here's what I think we're seeing. We -- I'll just sort of go back here on the history. We're a stop-loss writer. And 6 years ago, when I joined the company, we focused very heavily on the smaller employer market. So think about 500 employees and less. We got the portfolio working well. About 3 years ago, we added captive capabilities. I do think that the couple of players who are really great P&C names, companies that we respect very well are really kind of the only other folks that we see with really compelling captive offerings. And I think that we are seeing a lot of growth in that market, but we're also taking share in addition to the growth that we're seeing. And that powered a lot of our growth over the course of the last 24 months. Probably about starting about 12 months ago, we saw a return to growth in sort of the non-captive part -- and as we came through 1/1, you're right in what you're saying, Alex, it is a -- I don't know if you want to call it a hard market, but certainly, it's a market where we're seeing a lot of opportunity at really attractive price, and we're staying true to our focus. Our captive capabilities are top notch. Our focus on medical cost management is, I would say, distinct and unique and second to nobody in the market. I think we're recognized as such. And whether it be somebody who wants to come into a group captive or somebody who is self-insuring on their own and buying the stop-loss, we bring a lot of value to those companies. And I see our strength in 1/1 continuing out through the course of this year. I feel really good about it. And I'll highlight something that just reinforces what you said. if you take a look at the 2024 stat data that's out there, our loss ratio is 15 points better than the market and a full 30 points better than the big names that sort of have performed really poorly over the course of the last couple of years, purely on the loss ratio side. That you can't hide from. These are short tail line of business, right? So the numbers don't lie, and I couldn't feel any better about what our team has done and what the year looks like for us, and I feel great. So you're right to highlight it. So thank you for that. Taylor Scott: That was helpful. Follow-up question I had is on the Uber partnership. Obviously, longer-term potential bigger opportunity. As we think about the next year or two, is that going to cover some of the testing that they're doing initially? Like will there be premium dollars that come online more immediately? And any color you can help us with there? Andrew Robinson: Well, let me say 3 things. First is, as we said in the prepared remarks, we're going to come back with more data. I've been cautioned by our colleagues at Apollo not to get out of our ski tips here. Uber has put some information out. They're launching this in 15 cities. And we'll see how the premium builds. It is in our guidance that we gave you, right? So this is not something that we didn't contemplate. It's in the guidance. What I would say is that look, we are one of one. We are embedded in the dominant player in this market who has basically created a manufacturer-agnostic platform. And like you just think about the potential, right? It's just -- it's extraordinary. And I'll highlight something really important to you, which is that no company in the world is better positioned than Uber to demonstrate the safety and the difference between autonomy and human drivers, right? They have the data, and they're going to have more data as every day passes, right? So when you think about a legal and torque backdrop, I don't know who you'd like to be if you had to choose, but I couldn't imagine being better positioned as being a partner to them on the AV side as compared to being writing commercial auto for them in a very difficult torque backdrop that they've done a great job of navigating. But there's no question that the safety comparison between autonomous vehicles and human drivers is a marked difference, and no company is better positioned to demonstrate that than Uber, and we're in the middle of that. Operator: Our next question is coming from the line of Michael Zaremski of BMO. Michael Zaremski: Maybe a question on the loss ratio, great all-in loss ratio. If we just kind of look at the underlying loss ratio ticked up a bit sequentially. It had been previously ticking down a bit. Is this -- you mentioned the commercial auto review, but should we kind of expect this new slightly higher level to be the kind of the trend line? Mark Haushill: Go ahead. Andrew Robinson: Yes. So Mike, thanks for the question. Mark will provide more details. No change in our picks. This is a mix -- it's a mix change. We have 2 very considerable growth areas in A&H and Ag, which are higher loss ratio businesses, which are earning in faster than the low loss ratio businesses like Credit and Surety and effectively, on balance, that's what you're seeing. I will tell you that our internal plans are -- we gave you the guidance, but I think that it does reflect a bit of mix change running through. But I wouldn't overread it, right? Those are also lower expense ratio businesses. And so I think on balance, what you're going to see is the sort of the performance of our business on a combined ratio consistent with the guidance that we gave you, the geography will be changing a little bit, but nothing in terms of our underlying picks. Michael Zaremski: Got it. That's helpful. And then lastly, moving to the comments about the material weaknesses being resolved, congrats. Just curious, any -- are there any kind of material learnings or system changes or anything you'd like to kind of highlight that has changed the way you guys do business as a result? Or is it really just kind of small things behind the scenes? Mark Haushill: Mike, it's Mark. This is a sore subject. Look, this whole controls thing is the bane of my existence. But no, we're not making any material changes to our systems as a result of it. Andrew Robinson: We -- Mike, it was IT controls, I think we spoke at length, this is a nonfinancial matter. We remediated earlier in the year. It didn't get recognized until we -- until you issue your 10-K. Listen, we're a public company, right? This is not unusual, but it's not something that is financial in nature and these things happen, right? It's a company that we took over a company that was in tough conditions 6 years ago, and we took it public 3 years ago, and we became an accelerated filer last year, and the stakes went up. And so I wouldn't overread any of it. We're just executing on all dimensions, including in finance. Michael Zaremski: Got it. Yes. I meant to ask it in a positive way if it was taken. Andrew Robinson: Being a public company is an absolute pleasure, as you can imagine, when it comes to things... Mark Haushill: Maybe I'll sneak one last in since you guys have -- you mentioned reduced commercial auto by almost 2/3 now over the last few years. Are we kind of towards the end of that and retention levels might start increasing or impacting growth differently? Or is that still kind of a consistent work in process given commercial auto loss inflation remains higher than other lines? Andrew Robinson: Yes. That's a great question. So I do want to be clear that we have parts of our portfolio that are commercial auto heavy that we have one piece. It's a significant part that has been consistently delivering unbelievable returns for us over the course of 12 years, predated me. And so it's not the entire portfolio. But to answer your question directly, Mike, in the third quarter of this year, we narrowed our focus in construction, a particular area that had -- well, I'll just describe it as Ford F-150 trucks that had unusually high severity, to be honest. Frequency was improving. I think that we had maybe a false confidence on the frequency. The severity really has been a byproduct of a really just an awful tort backdrop. And so we took action on that, and there will still be some development of -- not development, reduction of our written premium over the course of the next couple of quarters that works its way through. But there's no additional actions, and we feel very good about our portfolio. I don't think there's anything more that we would change at this point. And so yes, there will be some impacts, but it's not anything new. It's just the nonrenewal of business that we took decisions on previously. Operator: And our next question will be coming from the line of Andrew Andersen of Jefferies. Andrew Andersen: As property just becomes more competitive and you kind of manage the writings there, what have you been seeing on kind of bind or hit ratios for either liability or just the broader book as probably the rest of the market becomes more competitive? Andrew Robinson: Thanks, Andrew. That's a good question. I think just straight up on the bind ratio. Submission activity continues to be pretty good. Bind ratios, I think maybe you might be asking the question specifically through maybe our transactional E&S lens has been pretty consistent. There's a particular profile of business that we write, terms and conditions still pretty good. And so we haven't really seen a backup on the buying ratio. We quote a lot to get the business we want. Away from E&S, so when you look at something like energy, it's quite different, right? Because our competition is quite narrow. Our distribution is tight. We see the business that we want to see. And so that just continues to perform well for us. And with the introduction of things that we've done over the course of the last couple or 3 years on renewables, now more recently on sort of the unique way that we went into power, much of that's targeted towards the same distributors, and that has helped us in terms of kind of the strength of our position on their shelf. And so yes, I mean, I feel like we're doing what we should do, and there's no real change just yet on the liability side. I'm sure that it's going to become more competitive. The capital is connected. And as we're about to lap ourselves on the property side, it was in the second quarter of last year that property rates really started to move down. And so we're lapping ourselves. And I'm sure companies are going to redeploy capital elsewhere in the market. Some of that's going to find its way into the liability side, and it's going to become more competitive, but I feel like we're really well positioned. Andrew Andersen: And then maybe on one more on the Uber piece. I think you mentioned that was going to be in the 1971 syndicate. I think that business does see maybe 50% or so of net premiums, but there's kind of a few layers to the Apollo business with managed and then gross and net. Are you kind of thinking the Uber relationship is maybe more of a fee income vehicle kind of the near to medium term rather than a retained premium? Andrew Robinson: So first off, 1971 for 2026 with our capital participates on a 25% basis. So 75% of the capital is provided by third parties, all very notable name reinsurers. And so as we've talked about in the past, that in itself has a fee-based component. We do have quota share support behind 1971 as well. That quota share support, like anything that we might do on quota share effectively seeks to take a portion of the underwriting profits and lock that in via a seed. And so -- but that isn't unique to the Uber relationship. That's structurally in place across 1971. And I think as we get into the specifics of Apollo in future quarters, I think probably we can do a little bit more, Andrew, to give you sort of a better sense for that. But at this time, I think you kind of had the headlines right, and that's just the geography of what I described as sort of the macro geography behind that. Operator: Our next question is coming from the line of Michael Phillips with Oppenheimer. Michael Phillips: I want to touch, Andrew, on the captive division and a topic we sort of touched on a little bit last quarter with the demand of captives and the pricing cycle. The slowdown there, any anomalies in the quarter? Or is that maybe just a start of a continued slowdown given the overall P&C market is seeing softening pricing? Andrew Robinson: Well, I think that -- Michael, thanks for the question. I think that we have talked about in the past that captives have been sort of a structural share gainer in the P&C market. Even during the soft market years, captives were able to, as a share of the market, have more -- and we're talking specifically group captives have more flow into the group captives market. But there is no question that the backdrop influences kind of the -- maybe the value of somebody moving out of the guaranteed cost market into a captive market at this particular point in time. By and large, folks that do that do it for strategic reasons, right? They want to control their cost of risk. They're making that decision on a long-term basis. But oftentimes, the pricing backdrop acts as an impetus. And I think that probably that's what you're seeing here. Michael Phillips: Okay. That's helpful. And maybe just a quick second question on a topic we haven't talked about in a while is California and the wildfires. Given the suits on PG&E, any possible updates on any recoveries from that stuff? Andrew Robinson: Yes. I mean we had -- I mean, I just will remind you, we had very little loss associated with that. And we're talking about a handful. And last I checked, it looks like our recoveries were very good. I think that we -- yes, I think we did the right things around that to ensure that we could just put some confidence behind what we could cover -- recover there. And -- but for us, it just isn't -- it's not even material enough to see through our P&L because our losses just weren't that great. Operator: And our next question is coming from the line of Tracy Benguigui of Wolfe Research. Tracy Benguigui: We heard some folks on earnings calls talking about reverse flow within small property accounts. What are you seeing in terms of any reverse flow at this point in the cycle? And if that's happening, like what is the typical cadence? Is it small account than large? Or do you think high hazard risk will always stay in the E&S market? Andrew Robinson: Tracy, thanks for the question. So I just will remind you, and I think we're talking specifically about flow from E&S back into the admitted markets. Our average premium per policy in our E&S business is about $40,000. So we're not a small account writer. That said, on the property side, I think I've talked about these statistics in the past, about a little more than 50% of our business, we're writing the full limits, the full TIVs and less than 50%, we're writing the primary and somebody else is writing the excess. We did launch an excess property offering as well. And so I think that we're really not in the small market. We're certainly not in the binding authority market. We're not in the market that is kind of the submit business that comes out of the binding authority market. But if I were to highlight one area where I'm seeing it is that we -- the march on property went from very large accounts visible in our global property to now we're seeing pressure on premiums that are less than $50,000, right? It's just -- it's come to sort of all levels. In general, we write very tough risks. So think things like -- well, things that really can burn like involved in the wood industry, as an example, or things that explode. And those are not the things that tend to flow back into the admitted market. That's intentional on our part. It's the same thing on the liability side. We write really, really tough classes, hazard, high severity, low frequency and we charge a lot and we get our terms and conditions. So it probably -- we're probably not well positioned to address that question as compared to others because of the makeup and I think that we're a little bit above where that flowback might occur. Tracy Benguigui: Okay. Appreciate that. And I had a follow-up. I know you guys already discussed commercial auto and Uber. You obviously have a conservative stance on this line of business given all your reductions. But as it relates to this Uber AV insurance policy, to be sure, does coverage include any bodily injury? And if it does, I heard what you had to say about autonomous vehicles being more safe. But I'm wondering if you worry about the mix of driver-enabled and driverless cars at the road at the same time, presenting an untested type of risk. Andrew Robinson: Yes. So the first thing I'd say -- so thanks for the question, Tracy. The first thing I'd say is for the avoidance of doubt, this is not a commercial auto policy. Any AV on the road has to carry commercial auto to meet their legal requirements. This is not that. This is a coverage for anybody who participates on the platform embedded into the Uber platform for which that coverage applies when an AV is actually doing something in response to taking instructions on the platform, whether that be -- if you read what Uber is doing, it's more than just rideshare transporting people. It will contemplate other things. And of course, the question of kind of the mixed environment is a critically important question. I will highlight to you what I said during the prepared remarks. We are not coming into this without really deep knowledge. We have been very active in the AV space. I can't say any more than that leading up to this. Our data set on the insurer side, to our knowledge, is the largest data set available. And so we understand the risk that you're describing incredibly well. The other thing I would say to you is that every AV is equipped with far more information because of the nature of AV than vehicles that are being driven by people, except in the cases of those vehicles that could operate as AVs, but are being driven by people. So the information advantage that inures to the AVs is quite considerable if you're talking about a vehicle-to-vehicle collision. And so again, I think that, that all goes into our calculus. And as I said, you think about Uber's position, you can take nearly any instruction, any ride in any city in the world and the amount of information they have about that ride, the frequency of loss, et cetera, et cetera, the driver errors associated with that as compared to the emerging information on AVs, they are uniquely positioned to demonstrate the safety differences that AVs have over human drivers. There's no company better positioned. And in a difficult torque backdrop, that's an immensely valuable thing. Operator: And our next question is coming from the line of Andrew Kligerman of TD Cowen. Andrew Kligerman: Question around retention. It looks like your net written premium as a percent of gross went to 64% from 70%. Could you touch on the dynamics around that shift and what we should expect going into '26 and '27 around retention? Andrew Robinson: Andrew, this is Andrew. Mark will jump in here as well. We're looking for the numbers. I think that a couple of different points I'd make. One is that I think our full year numbers were around 65%, which is, I believe, up a couple of ticks over last year. If I remember last year, we were maybe 62%, 63% gross to net. And so we were up a couple of ticks. The quarter was -- it was on a relative basis, a quarter where we ceded more, but there was nothing in that. It's just the ebbs and flows of any given quarter and mix of business. But I believe that we've been on this sort of consistent upward trajectory of eating more of our own cooking, if you will. And by the way, just in this quarter, as one example of that, Andrew, we -- on our excess, we went to market with a clear intention to increase our seed, and we were able to do that and not in a material fashion, but we also made the trade-off that we were going to get the seed that we were aiming at even if it meant that we kept more of our excess writings for ourselves. And so I think that we kept about 10% more, but we increased our seed quite considerably. And both those trades are very smart trades for us. Obviously, in one case, we're getting more fee income offsetting our expenses. In the other case, we feel really good about our loss picks on the excess side. So we're happy to keep our own cooking. Andrew Kligerman: It. So maybe expect the annual number to kind of move up a little bit. Andrew Robinson: Yes. I think in our guidance, we basically said consistent with this year. Some of it is going to be mix related, but I do think it's fair to say that if you looked at '23, '24, '25, we are on a consistent trajectory of increasing our net as a percentage of our gross. I think it's gone from kind of 60% to this year, about 65% over that horizon. And we'll give you the exact data. We'll follow up and make sure that we're closing the loop. Andrew Kligerman: No, that makes a lot of sense. And then my follow-up is around the pipeline for potentially other acquisitions or maybe you could do team lift-outs. Are you seeing much of a pipeline there to kind of move into new areas of insurance? Andrew Robinson: Yes. I think that we are -- we certainly see opportunities. And I think as a company, I've said this before, and I would absolutely say this is true of Apollo as well. We're strategically led, right? So there are places that we want to go, but we're not necessarily saying, well, that has to happen this quarter. We're targeting people and teams that we know that we have confidence in. And sometimes it takes quite some time to get those folks across. Ag was a great example of that. What I can say is that there are things in the works. But whether those things crystallize in '26, hard to know because we're more patient and strategically minded in targeting people and teams that we know are great performers in the categories we want to enter. On the M&A side, I'll say what I've said in the past. We have a financial responsibility as a company to make sure that we are being incredibly mindful of the way that we use the capital that our shareholders give us. And we were never a company that said we are going to acquire to scale. The Apollo transaction was a unique transaction that matched what we thought would be appropriate for the next turn of our company. We were in London looking at ways to organically grow and develop our presence there. And so I wouldn't describe sort of our position as being an active acquirer. We've made 2 small other acquisitions. We made an acquisition in surety acquisition, in aviation over the sort of 5.5-year tenure that I've been at the company. But I think it's not something that will be too much of a focus, but we are very active in making sure we stay abreast of what's out there should there be a unique opportunity that's a great match for us. Operator: And our next question is coming from the line of Mark Hughes of Truist. Mark Hughes: Andrew, you talked about how the pricing pressure has extended from very large accounts down to all levels in property. That pressure on the very large accounts, has it gotten worse? Or did it step down and then has been reasonably stable, let's say, the last quarter or 2? Andrew Robinson: The former, not the latter. I think that as I think I mentioned, earlier, Mark, that we're about to lap ourselves, right? It was the second quarter of 2025 that you really started to see the pressure come in. And so this is the point where if I'm me and I'm you, I would be watching that space to see whether at this point, the market kind of settles at the point it's at or whether some of the bad behavior out there continues. And it's really hard to know because we're not quite at the point where we're lapping ourselves. We're just a few months away from it. But yes, I would not say that there's any signs of it improving. And I do think that at least for our global property business, in particular, the most impacted area, we have done a downright extraordinary job given our ability to use larger line sizes to avail ourselves to attractive fact pricing to effectively limit the net margin impact for every dollar of premium that we've written, recognizing that we've written less, right? But the contribution, we feel continues to be not far off where it was over the course of the year prior. Mark Hughes: Yes. I appreciate that. And then the final question on the liability side. You said you're concerned about the redeployment of capital. When you think about the competition there, is it from kind of the existing public players, we might know their names? Or is it outside MGAs new capital that's putting the marginal pressure on the liability side? Andrew Robinson: I would say, by and large, the companies that we hold out as being responsible competitors, I think that they're being responsible. I think they're great companies. We follow and try to mimic organizationally the good things they do. And I think that responsible competitors are responsible, and you see it in the results through the cycle. You should always take pause at companies that don't have a track record in casualty that grow a lot, whether they're public or private because the casualty market is a -- it's an interesting and challenging market in really simple terms, right? All you have to do is your own analysis, which looks at the -- what's been happening in the general liability market and occurrence liability broadly should be a concern. And the loss cost backdrop is a challenging backdrop. I'm sure some of the guys that are growing are doing it really -- growing in big numbers are doing it well. But by and large, the people who are chomping up big chunks of this market and growing at quite considerable levels are not doing it and beating the better to best players out there because they're better underwriters. They're doing it to get share, and they're doing it oftentimes with price and terms. And that's just -- that's the logics of our business, right? Our strategy has been, and you can see it in our results, nobody should take pause by the fact that some of our divisions are flat or even shrinking because we're being the responsible purveyors of our shareholders' investment in us by redeploying our capital away from places that are overly competitive or where the loss cost inflation is not something that you can have a high level of confidence in. And so I just think it's like use your common sense and that common sense in 3, 4 and 5 years will prove to be right. Operator: And our next question is coming from the line of Matt Carletti of Citizens. Matthew Carletti: Andrew, I heard your comments on Uber that is not a commercial auto policy. Can you help me understand like what a potential loss would stem from or what it might look like in that -- the coverage you're writing? Andrew Robinson: Yes. Matt, thanks. We're pleased that you can join. You just surprised us. We didn't think you were going to join. So look, first off, commercial auto, you're required to carry coverage to have a vehicle on the road. So this is not that, right? There's an embedded coverage. But functionally, if you think about this, right, and I'll just -- we'll just say an autonomous vehicle causes an accident, strikes something. It's hard to say whether that's sort of commercial auto in a traditional sense, product liability, general liability, et cetera, et cetera. It's a redefinition. And the policy, which is not going to be visible to anybody, it's designed and it is proprietary and embedded into the Uber platform. So it's available to the participants to fully understand how it works. It's unique to the specifics of the fact that you're dealing with effectively a robot, an autonomous vehicle moving around in an environment where you have people, other vehicles, physical structures and everything else. And so the fundamental exposure is the same, but the definition and the way things respond and certainly the information that we have available. And of course, what we believe to be true is both safety and -- so frequency and severity are certainly meaningfully impacted as a result. And so I think that you can think about exposure has comparability. The product itself is a rather different product unique to the specifics of an autonomous vehicle. Matthew Carletti: Okay. That's helpful. And then -- and you've referenced a couple of times, obviously, the kind of lower frequency severity of AVs versus human drivers. Waymo has published some statistics on this kind of suggesting depending how you slice it, like 80% to 90% lower accident frequency across the various categories kind of in the same cities where they're rolled out. Is kind of your understanding of kind of the policies working with Uber that something of that magnitude should be expected in kind of the exposures you have to? Or is there something unique to Waymo versus what Uber is doing that would make that difference? Andrew Robinson: Well, one thing I'd say, Matt, is you should go on to the Uber announcement because you can see all the terrific autonomous, the manufacturers of the product that are on the platform. And so the performance of any individual provider is going to be different based on their technology. So I don't want to comment on any specific company. But I -- here's what I'd say to you. What I'd say to you is that it is a dramatic difference on both frequency, but I also would say a dramatic difference in severity. We can say through our own analysis unequivocally that we can see that, for example, the way an AV responds in a particular situation that results in an accident of some sort that the severity of the accident, and I'm talking specifically about bodily injury because the physical damage, which we would not be involved in covering of the AV can be very expensive, right, because these are very expensive -- very expensive equipment. But the way the AV in the situations that form a good part of our view, the way that they behave is effectively in a way that would reduce severity of a loss event. And that's a big part of the calculus as well. And ultimately, when you're sitting trying to basically resolve a claim and God forbid something ends up being litigated, the wealth of information that will be available to prove that out will be considerable, and that's going to be a huge advantage. I like the side that we are on in this instance. And I think over time, that's going to become very well understood across the industry, including in the personal auto market. Operator: And that does conclude today's Q&A session. I would like to turn the call over to Kevin for closing remarks. Please go ahead. Kevin Reed: Thank you, everyone, for your questions, for participating in our conference call and for your continued interest in and support of Skyward Group. I'm available after the call to answer any additional questions you may have, and we look forward to speaking you -- speaking with you again on our first quarter 2026 earnings call. Thank you, and have a wonderful day. Operator: Thank you. Thank you all for joining today's conference call. You may now disconnect.
Constantin Baack: Good afternoon, and good morning, everyone. This is Constantin Baack, CEO of MPC Container Ships, and I'm joined today by our Co-CEO and CFO, Moritz Fuhrmann. Thank you for taking the time to join us for our fourth quarter and full year 2025 earnings call. Earlier today, we published our financial results for the fourth quarter and the 12 months ending December 31, 2025. The stock exchange announcement and the accompanying presentation are available in the Investors section of our website. Before we begin, please note that today's discussion includes forward-looking statements and indicative figures. Actual results may differ materially due to risks and uncertainties inherent in our business. Before turning to the presentation, we -- I would like to briefly reflect on the year 2025. We are pleased to report another strong quarter, concluding a year characterized by persistent macroeconomic uncertainty, geopolitical tensions, evolving trade policies and continued volatility in container markets. In this environment, our focus remained firm on disciplined execution. During the years, we have concluded multiple vessel transactions, including multiple strategic transactions with leading liner companies. We accelerated our charter backlog and fleet renewal, forward fixed vessels at attractive levels to increase earnings visibility and maintain a strong and flexible balance sheet with substantial investment capacity. As a result, we enter 2026 with a more modern fleet significantly enhanced forward coverage and a structurally stronger platform for long-term value creation. We'll explore these themes in more detail during the presentation. And with that, I'm happy to hand over to Moritz. Moritz Fuhrmann: Good morning and good afternoon, everyone, also from my side, and welcome to MPCC's earnings call for the fourth quarter of 2025. Our agenda for today starts with the review of our Q4 highlights, after which we will spend some time on the current market dynamics as well as a first outlook into 2026. Starting with the highlights on Slide #3. We see a continuation of our very strong quarterly performance based on $126 million in revenue and $75 million in adjusted EBITDA. For the fourth quarter of 2025 full year operating revenue is $518 million and $306 million for adjusted EBITDA. As the result of the continued solid financial performance, the Board has declared the company's 17th consecutive dividend with $0.05 per share, representing 50% of the adjusted net earnings for the fourth quarter also being the upper range of our dividend payout ratio range. On the asset and fleet transition side, we have continued with an expansion of our [ dividend ] book by adding six 3,700 TEU vessels, bringing the total MPCC newbuilds on order to 17. The latest additions to the book have been contracted against 10-year time charter contracts with a top-tier liner operator. The total contract price of these additional vessels is around $293 million, which is nicely covered by the projected EBITDA of around $288 million. On general note, what is important to note is that all our newbuildings have been ordered against long-term charter contracts of 3, 7, 8 and 10 years allowing for substantial derisking throughout the fixed time charter period while at the same time, retaining significant upside potential during the remaining lifetime of the vessels. And these transactions, very importantly, are cementing our position in the market as a leading tonnage provider and feeder segment and also underscoring our strategic importance and the relationships that we have fostered over the last years with the top-tier liner operators. The newbuilding activity is also a very good reflection of the continued resilient container feeder markets. The majority of our fleet is fixed for 2026 with only 3% open days and nonetheless, we continue to discuss forward extensions as we speak with our customers to further lock in good rates and durations that stretch the coverage further into 2028 and 2029 based on the currently available durations of between two to three years. Our open days coverage has increased to 97% and 58% in 2026 and 2027 with a total revenue backlog of USD 2 billion. Looking ahead into 2026 and as the market remains very dynamic, we don't see, as of now, any negative implications as a result of the most recent Red Sea announcement. In any case, we will continue focusing on the execution and funding of our newbuilding book as well as remaining opportunistic towards further potential transactions in the space. And as for the 2026, we set our revenue and EBITDA guidance at USD 450 million to USD 460 million and USD 240 million to USD 260 million, respectively. Turning to the next slide and looking at some of the KPIs for fourth quarter and the full year 2025. Gross revenue and adjusted EBITDA came in above the previous quarter with close to $130 million and around $75 million, respectively. The markets are very supportive and the charter rates and durations remained strong, however, not at levels seen in 2021 and 2022. Full year 2025 gross revenue, again, $518 million and EBITDA on an adjusted basis of $306 million. Looking at the bottom left of the slide, our balance sheet is growing now at USD 1.5 billion while the net debt is down relative to the previous quarters to $150 million, our leverage ratio increased slightly to 33%, which remains very moderate. As mentioned before, the Board has declared a dividend of $0.05 per share which will be paid out in March 2026, bringing the full year dividend recorded in 2025 to $0.23 per share. Operational cash flow generation remains strong with $302 million for the full year of '25. Operationally, we booked a high -- a very good utilization with more than 98%, while OpEx has come down relative to the previous quarter, which is partly driven by year-end shifting effects into 2026. Looking at Slide #5, we reflect on what has been an incredibly active year 2025 for us here at MPCC, both operationally, but also investment-wise, which has been driving to a large extent, our fleet renewal. We concluded 20 fixtures throughout 2025, and year-to-date 2026, we managed to fix our vessels on an average of 2-year durations with rates north of $20,000 per day, and most of our fixtures were done on a forward basis, meaning renewing or extending the charters well ahead of the expiration date. We have also done package deals, meaning chartering out a number of vessels simultaneously to one client, providing valuable solutions to our customers. And I think importantly to note, our most recent picture for -- as Christiana at more than $27,000 per day for two years with delivery in Q3 '26, again, underlines the continued strength in the chartering market, which we take advantage of and increase our backlog and coverage. As to making our existing fleet more efficient, we have invested around USD 8 million across 12 retrofits. That includes high dynamic measures, improving vessels, efficiency by up to 25% in certain instances. On the divestment side, we have proactively divested 11 vessels with an average age of around 18, and an average capacity of 1,500 TEU, hence older and smaller vessels. Given the strong secondhand market pricing, we achieved total sales proceeds of more than $150 million, implying an NAV of between NOK 30 to NOK 35 based on our calculations. Part of the sales proceeds have been reallocated towards our newbuilding program that we have contracted in 2025 worth around $850 million across 16 vessels. The construction cost is almost fully covered by the contracted EBITDA as well as recycling value limiting our downsides while keeping substantial upside potential with vessels that are on average 8 years old at charter exploration. However, we will zoom in on newbuildings on the following slide being #6. So please turn to the next slide. After having ordered 8, 4,500 TEUs and 2, 1,600 high-cube TEU container vessels in the second half of '26. We have, as I mentioned before, shortly before Christmas announced another newbuilding transaction of 6, 3,700 TEU. That brings the total number of vessels ordered since the summer of '16, of which all again come with long-term charters. These additional vessels follow our usual and prudent approach as we combine asset investments with cash flow visibility, providing significant derisking throughout the fixed time charter period. As you can see on the left-hand side of the graph, total new building CapEx is around $850 million, which almost fully covered by contracted EBITDA and the recycling value of the ship -- the ships -- the attached time charters provide substantial earnings visibility as well as derisking -- and this essentially enables us to realize the upside value once the vessels are running off the initial charter periods. The vessels will be, as mentioned before, on average, roughly 8 years of age. And to put things into perspective, the current adjusted value for these vessels is north of $600 million to $650 million or even $700 million, i.e., a great combination of the minimum residual while retaining maximum upside potential. In general, we have taken and will continue to take a prudent approach to these investment cases, in order to minimize residual risks, the ability to structure and execute these transactions speak for itself and is, I think, a great testament to the importance of MPCC as a strategic partner to top-tier liner operators globally. And needless to say that these investments are further milestones in our fleet position efforts and wanting to underline that we have confidence that building an enhanced and future-proof asset portfolio will support generating sustainable and long-term shareholder returns for investors. On Slide 7, we have illustrated the fleet transition we have executed over the past four to five years and what measures were driving these. Firstly, as you can see on the left-hand side, the share of Eco vessels, meaning new builds and more than second-hand vessels as well as retrofitted vessels has substantially increased, standing at 75% today. Equally important is the fact that at the same time, our fleet has been growing to 68 vessels including the recent newbuildings we ordered and the average age of fleet has been reduced quite significantly over that time period from an average 2007 build to an average 2015 build as of today, and this transition ensures that our asset portfolio remains competitive and attractive to our customers, the line operators in particular, in times where regulatory and sustainability pressure on the industry is increasing. How did we achieve such a remarkable change in our fleet composition on the right-hand side of the slide, we have quantified our measures since 2021 being 21 newbuilds across multiple transactions worth around $1.1 billion. We have acquired 9 modern secondhand vessels in two distinct transactions for a total consideration of around $300 million and last, but not least, we have undertaken significant retrofit investments into our existing fleet, which, as shown previously, have resulted in substantial savings of up to 25% when it comes to efficiency. We will, going forward, continue focusing on accretive investments either into existing vessels or acquisitions that will enhance the overall composition of our asset base. Turning to Slide 8, the cash flow in the fourth quarter of '25 was again dominated by a good operating cash flow of around $75 million. On the investment side, we have paid down the first installments in relation to our two 1,600 high TEU container vessels. We ordered against an 8-year time charter. The overall positive cash generation improved the company's cash position and investment capacity to around $425 million by the end of December 25. In addition to the balance sheet liquidity, we retain further flexibility through our undrawn RCF, which has been renewed and upsized to $130 million. Lastly by paying our 16th consecutive dividend in the amount of $22 million in December, MPCC continues returning capital to shareholders north of $1 billion have been distributed ever since we introduced our recurring dividend. And as the Board has declared the next dividend, it serves as a good testament that we will continue to reward shareholders through capital returns. Going to the next slide, we see MPCC's balance sheet, which remains conservatively structured. We have in 2025 executed on a number of measures, namely vessel divestments as well as flowing secured and unsecured debt facilities to improve the company's liquidity position and therefore, investment capacity as we face needed fleet renew. By the end of '25, liquidity stood at $425 million. However, pro forma adjusting for expected yard payments in the first quarter of '26, MPCC has a pro forma liquidity of $477 million, including an undrawn RCF. In view of our fleet renewal efforts and newbuilding CapEx commitments to corresponding investment capacity is certainly essential, and at the same time, we managed to achieve this capacity without compromising the overall robustness of the balance sheet as well as flexibility. Following the recent prepayment of one of our senior secured facilities, MPCC's conservative leverage ratio stood at 33%. And with 32 debt-free vessels with a fair market value of close to $800 million. While gross debt stands at $472 million net debt, adjusted for pro forma liquidity remains very low and the invested portfolio with the charter-free market value of $1.5 billion provides additional comfort. Not surprisingly, the current newbuilding commitments will be partly funded through debt, which will be secured and sourced in due course, initial discussions we have had with potential lenders indicate a very healthy appetite for modern feeder tonnage, secured by long-term charters. Once fully delivered, the company's gross debt is expected to grow, however, leverage will be supported by the cash flow visibility attached to those vessels. Worthwhile to mention is our sustainability performance, in particular, concerning our senior unsecured sustainability-linked bond where our greenhouse gas reduction KPI for the MPCC fleet of 10% by 2029 has already been met now, with a recorded reduction of 16.5%, largely due meaningful retrofits on the existing vessels as well as sales of older, less efficient tonnage. Going forward, we will ensure to use the investment capacity as prudently as we have done in the past by identifying and executing on shareholder accretive transactions that help building a future-proof fleet. And on that note, I hand over to Constantin for the market update and the outlook section. Constantin Baack: Thank you, Moritz. I would like to continue with the next agenda point, the market. Throughout the previous quarters, we have noted that volatility is here to stay. And looking back at the year 2025, this has been indeed a structural theme. Looking ahead, we expect elevated uncertainty to persist well into 2026 and likely beyond. Three major forces shape our current outlook, moderating macroeconomic growth, ongoing geopolitical fragmentation and normalization in container markets after an extended period of elevated earnings. Starting with the global economy illustrated on the left-hand side, the IMF forecast global GDP growth of approximately 3.3% in 2026 and 3.2% in 2027. World trade growth, which is estimated at around 4.1% in 2025, is expected to moderate to roughly 2.6% to 3% in 2026 before recovering thereafter. Risk remain tilted to the downside. Protectionist policies, fiscal pressure in key economies and the lagged effect of monetary tightening continue to create headwinds. The key dynamic for 2026 is the political bullwhip effect. During 2025, we observed elevated front-loading activity as importers accelerated shipments ahead of anticipated tariff and policy changes. As the effect unwinds, some normalization in trade volumes should be expected and is already observed today. Turning to geopolitics. The Global Economic Policy Uncertainty Index shown in the middle of this slide, remains structurally elevated. Unlike previous disruption periods, uncertainties to longer spiking and receding. It remains persistently high. Rising trade tensions and protectionist policies are reshaping global supply chains. Cargo flows are being rerouted. New trade alliances are forming and strategic bottlenecks such as the Suez Canal and the Red Sea remain pivotal variables for 2026. A sustained return to Suez routing would release effective capacity back into the market with direct implications for freight rates and overall supply and demand balance. For liner operators, that represents earnings risks. For nonoperators like MPC container ships, forward tonnage availability remains tight, and the majority of our fleet is committed at attractive levels for the 2026 and beyond. The key takeaway is that structural volatility rewards resilience, balance sheet strength and forward contract coverage. Companies that anticipate and adapt will outperform. That is our clear view. While freight rates softened, and that can be seen on this slide, compared to the peak levels seen in 2024, they remain above long-term historical averages. At the same time, time charter rates have proven notably resilient throughout 2025, holding at historically attractive levels, despite ongoing freight volatility. The Harper Petersen Time Charter Index that you can see here, moved largely sideways at elevated levels during the year, demonstrating that charter markets have been largely unimpressed by short-term freight swings. Carriers have continued to pursue freight and tonnage simultaneously even as Liners profitability has diverged. Some operators have already reported slightly negative margins in the fourth quarter, while others remained slightly profitable yet overall demand for vessels has continued to be firm. As I mentioned on the previous slide, forward availability of tonnage continues to be tight. Market data indicates -- and that can be seen on the very right on this slide that roughly 25%, we have 25% lower year-on-year availability and significantly lower availability than historical averages seen in the pre-COVID period. This is underlining the limited prompt supply. This sustained demand is also reflected in the asset market. Secondhand vessels or vessel prices increased throughout 2025 with the Clarkson secondhand price index reaching levels last observed in 2011, excluding obviously the extraordinary pandemic period. Meanwhile, new building prices have remained broadly stable as can be seen on this chart. The message is clear, supply discipline, particularly in the smaller vessel segments continues to underpin the charter market. With that context in mind, let us now examine how global trade flows are evolving and looking at the demand side. Looking at this slide, one of the dominant themes throughout 2025 has clearly been the escalation of U.S. tariff conflicts, where tariff levels in the rest of the world have remained around 3.5%, the effective U.S. tariff rate increased from below 4% at the beginning of 2025 to approximately 18.5%. This development, as illustrated on the right -- on the left-hand side actually has materially influenced global trade patterns. At the same time, global container trade grew by around 5% in 2025, which has exceeded expectations. However, the composition of their growth shifted significantly. North American container imports declined despite ongoing economic growth while Far East exports recorded strong expansion. Recent estimates indicate the China's total trade surplus increased by roughly 20% during 2025, reflecting a continued reorientation of trade flows towards China and Asia. The polarization becomes particularly visible when looking at specific trade lanes. And that can be seen on the left hand side. Despite overall global container demand growth of approximately 5%, the transpacific trade connecting the Far East with North America declined by around 2% to 3% during the year. In the contrast, other shorter trade lanes expanded rapidly, including routes from the Far East to the Middle East and to parts of Africa. In other words, trade volumes are not collapsing. They are being rerouted -- after several recent trade agreements that did not involve the United States, global trade appears to be reorganizing with closer integration among other regions while the U.S .bond volumes soften. For our business model, the shift is highly relevant. Intra-regional and emerging market trends at trades rely disproportionately on the feeder and midsized vessels, which aligned closely with our fleet focus. With that shift in trading patterns in mind we now turn to the structural composition of the supply side. When you look at fleet fundamentals on -- in general, what we can observe is a clear structural imbalance in the smaller vessel categories and more broadly, a disconnect between where we think ships are being ordered and where, in our view, they are most needed. In our core segment of 1,000 to 6,000 TEU, there are currently more than 800 vessels above 20 years of age. The order book in this segment even after the recent increase in contracting activity amounts to roughly 430 units. In other words, the replacement pipeline does not fully offset the aging profile of the existing fleet, and order book-to-fleet ratios remain moderate. In contrast, the ultra large segment above 12,000 TEU shows a very different picture. And all of that can be seen on the graph on this slide. Basically, looking at the polarization between fleet age and new ordering, this is what makes a structural imbalance increasingly visible. At the same time, emerging markets are expected to deliver a stronger GDP growth in advanced economies and have been driving instrumental container demand in recent quarters. In the third quarter and in the fourth quarter, global container demand increased by approximately 1.5%. Excluding North America, September growth was close to 9%, underlying the growth in ports of emerging markets. Having said that and having looked at this imbalance in -- on the supply side, let's move on to the supply side and to the market drivers. As we look ahead, the container shipping market continues to be shaped by a range of uncertainties. At the same time, these challenges also create opportunities. The very forces that are disrupting global shipping are also acting as catalysts for innovation, differentiation and long-term resilience. First, the ongoing back and forth U.S. trade policy announcements continues to create a volatile and largely unpredictable framework for global container markets. Tariff measures are being introduced, post, escalated, renegotiated at a pace that makes medium-term planning increasingly difficult for importers and carriers alike. The practical consequence is a market characterized by reactive booking patterns, shorter lead times and elevated freight rate volatility. Second, the Red Sea. The Red Sea remains one of the most consequential variables for container shipping in 2026. While we have seen initial lineup transits through the corridor, the timing of a broader and sustained return remains highly uncertain. Security conditions continue to evolve and liner operators are understandably cautious about committing to routing changes that involve operational risk and additional costs. It is therefore important to recognize that even a gradual normalization of Red Sea routing would not automatically be positive to the market. A phased return would progressively release effective capacity that has been absorbed by longer voyages around the [ Cape of good Hope ]. This additional capacity could weigh on freight rates and indirectly on harder demand. We are obviously monitoring these developments closely. Against this backdrop of mainland trade uncertainty intra-regional trades have once again demonstrated resilience. Five exports into emerging markets have recorded consistent growth and intra-regional routes outperformed mainland trades during 2025. The outlook for 2026 remains constructive. This is structurally important for our fleet positioning. Intra-regional and feeder trades rely disproportionately on smaller vessel sizes, which directly align with our fleet focus. Finally, despite a record high aggregate order book across the container shipping industry, the feeder segment remains structurally underinvested. The sub-6,000 TEU fleet carries an order book-to-fleet ratio of roughly 15% to 20%, significantly below the levels seen in larger categories. In summary, uncertainty remains elevated, but the structural setup in our core segment remains constructive and supportive. With that, let me now turn to the next part of today's presentation our company outlook. Let me start with the charter backlog on our fleet. On the left-hand side, you can see our forward contract coverage which has been significantly enhanced for 2026, 2027 and the years beyond. As Moritz explained earlier, we have actively utilized the strong charter market, including the conclusion of forward fixtures at attractive levels. Combined with the employment secured for our newbuilding program, this has allowed us to meaningfully increase our backlog. In total, we have secured approximately USD 2 billion in forward revenue backlog, which translates into around USD 1.2 billion of projected EBITDA based on minimum contracted periods and conservative assumptions. Our contract coverage stands at 97% for 2026, 58% for 2027 and 35% for 2028. The backlog includes 17 newbuildings under construction, all integrated into our forward employment profile. This level of coverage provides strong multiyear earnings visibility in what remains a volatile market environment. In fact, our forward revenue visibility for the next couple of years has never been stronger than it is today. On the right-hand side of the slide, you can see how the backlog has developed over the past 12 months, illustrating both the revenue consumed during the year and the additional backlog added bringing us to the approximately USD 2 billion today. Discipline and rational decision-making has been central to how we -- we navigate MPCC through changing market conditions and we will continue to act in the best interest of both our customers and our shareholders. With that foundation of earnings visibility in place, let us now turn to our open positions and then discuss how we continue to enhance our fleet and position the company strategically going forward. Looking at Slide 18, the number of days for 2026 available days, open days is limited, when viewed against our total available days for the year and overall contract coverage. This is a deliberate outcome of our forward liking strategy and reflects our focus on earnings stability. The exact number of upcoming open positions depends on whether the charter customers really win the vessels within the agreed redelivery window. The chart on the right -- sorry, on the left takes a conservative view and considers the minimum period, i.e., the earliest possible delivery date. In total, this would translate into 15 vessels being up for charter renewals in 2026. Applying the maximum period, this number will reduce to only 7 vessels in 2026, which is represented by the gray column. The graph on the bottom right of the slide also shows the distribution across vessel sizes this in 2026 based on minimum periods. Now putting the open charter positions into perspective with the current market, please refer to the table at the top right, where the current market rates and the periods are shown for standard feeder vessel sizes, modern Eco designs would likely get premium rates and/or even longer periods. What I can say is that on our very own fleet, we are already entertaining a number of discussions on charter forward fixtures -- we are, for example, presently we have a ship on subs on a Q4 2026 redelivery position for a 2-year period in line with the range as far as the rate is concerned, is here at the top right. So overall, we continue to see a firm charter market, both for prompt as well as forward positions and let us now turn to our strategic execution and how we are positioning the company for the years ahead. Taking a step back, over the past periods, we have executed what we would describe as a transformational yet disciplined fleet renewal. Importantly, this has not been growth for growth's sake. Every transaction has been assessed against return threshold, balance sheet impact and very importantly, long-term strategic fit and relevance. A central pillar of this renewal has been our focus on charter-backed newbuildings and strong partnerships with our charter customers who have become very selective in whom they partner with, in particular for longer-term strategic charter transactions -- by securing employment in parallel with our investments, we have materially derisked our capital expenditure program and protected the forward cash flows. This approach has allowed us to modernize the fleet while maintaining earnings visibility and financial stability. At the same time, and as Moritz has explained in detail, we have actively captured market opportunities on both the sale as well as the purchase side. We have divested older tonnage at attractive levels and reinvested selectively into modern vessels, strengthening our relationship with top-tier liner companies. On the financing side, we have continued to diversify our funding base, enhance our financial flexibility and reduce our average cost of debt. This has strengthened our balance sheet resilience and expanded our strategic room to maneuver. In total, we have executed over the years to more than 100 vessel transactions. Simultaneously, we have distributed more than USD 1 billion to shareholders demonstrating free to renewal growth and shareholder returns are not mutually exclusive, but can we deliver the parallel through disciplined capital allocation. Today, we stand with significantly modernized fleet, approximately $2 billion in secured revenue backlog and a strong flexible balance sheet with the potential liquidity at hand. This combination defines our structural position as we enter the next phase of the market cycle. Looking ahead, our priorities remain clear and consistent. Now looking ahead at 2026, our forward focus remains structured and consistent with our strategy. First, we will continue pursuing balanced charter line fleet renewal. This means investing selectively in modern, efficient tonnage where employment visibility supports the investment case while avoiding speculative exposure. Renewal will remain paced, return-driven and aligns with our customers' demand. Second, we will continue to optimize our portfolio through active high grading of the fleet, where attractive opportunities arise, we will divest older on noncore vessels and recycle capital into assets that strengthen our competitive position, improve efficiency and enhance our earnings quality. And third, we will remain prepared to deploy capital opportunistically in volatile markets. Market dislocations often create compelling entry or access points and our balance sheet strength allows us to act with speed and disciplined when risk-adjusted returns are attractive. At the same time, we will continue to diversify our funding sources and maintain strict cost discipline, preserving financial stability, flexibility and maintaining the competitive cost of capital, which we believe is essential to navigate in this uncertain market environment. We also intend to further deepen our strategic partnerships with leading liner customers, long-term relationship is very important in the container market. Finally, we remain committed to a reliable capital stewardship and sustained shareholder distributions balancing reinvestments for future growth with attractive returns to our investors. In summary, our objective remains clear to combine resilience with long-term value creation through disciplined execution across cycles. With that, let me conclude. So let me close by summarizing-- by summarizing the key messages. First, we have further enhanced our charter coverage and built a strong backlog. With approximately $2 billion in secured revenue, we have achieved contract coverage 97% for 2026, 58% for 2027 and 35% for 2028. This provides substantial earnings visibility and clearly underpins cash flow stability over the coming years. Second, we continue to execute a proactive fleet strategy. We have divested older vessels at attractive levels and revested into modern efficient tonnage, strengthening our strategic positioning and ensuring long-term competitiveness in our core segments. Third, we remain focused on shareholder value creation. Our approach combines recurring distributions with disciplined reinvestment into attractive growth opportunities. This balanced capital allocation model is designed to generate sustainable long-term value across midcycles. For full year 2026, we guide revenues in the range of USD 450 million to USD 460 million and EBITDA between USD 240 million and USD 260 million. This guidance reflects our high level of contract coverage and current market visibility. Finally, while the market outlook remains uncertain, our strategy is clear. We focus on what we can control. Disciplined execution, opportunistic capital deployment, fleet transition aligned with customer demand and maintaining a robust balance sheet. This disciplined and resilient approach positions MPC container ships to navigate volatility while continuing to create value. This concludes the presentation for today. Thank you for your attention, and we're now happy to take your questions. Moritz Fuhrmann: And I would start with the first one, which is regarding dividend policy. And the question is, under what conditions would you consider a return to your earlier more generous dividend policy. As I alluded to in the presentation also over the last couple of quarters, we have revised the dividend policy early last year in order to ensure we maintain a balance between ensuring to invest into long-term value for the company and long-term competitiveness of the company by also investing into fleet renewal versus still maintaining a sustainable and thorough dividends and hence, rewarding investors and shareholders accordingly. And that is obviously also a bit subject to the market environment. That's also why we have now included a range of 30% to 50%. We believe. And for last year, we have paid still a double-digit dividend yield, which we still deem very competitive, in particular, comparing to the market that we operate in, where we, at all times, also want to make sure we maintain the right fleet, a modern fleet that creates long-term value for the company. So if we obviously were to see a very extraordinary market environment, we would, of course, consider to also possibly adjusting returning capital investors to the higher end. Having said that, in a normal market environment, we believe that the dividend policy as we have established it allows us to balance developing the company further, creating long-term value, staying competitive also vis-a-vis our customers as a good partner and at the same time, rewarding shareholders. So I think for the time being, we believe this is a very balanced distribution policy and capital allocation strategy that we pursue. And that we have, in fact, in particular, last year, created a lot of long-term value for the company and its shareholders. Constantin Baack: Coming to the second question, which is somewhat balance sheet related. Last year, net debt decreased about USD 60 million, which is value creation for shareholders. Can we expect an equivalent reduction in net debt this year? I would say, generally speaking, as long as we are cash generative from an operating perspective, which we are -- and we will be able to serve the contractually debt obligation in terms of contractual repayment profile, yes. The net debt is expected to decrease over the course of 2026. You have somewhat an offsetting factor being the next newbuilding installments that are due in '26. However, the lion's share of the newbuilding installments will be due during '27 and '28. Moritz Fuhrmann: All right. Then there is another question. Congratulations on a solid year and outlook. You commented on asset sales and the related implied NAV per share. Currently, would you explain what you mean by the implied NAV per share and how it is calculated. So what we basically do is we reverse engineer the vessel values from the company's equity market valuation. Effectively, we translate the prevailing share price into an implied value per vessel. And the allocation across vessels is based on their relative weight derived from external broker valuations or internal assessments. In other words, at the prevailing share price, each vessel carries a market-implied value as reflected in the company's enterprise value or market cap for that matter. And when a vessel is then sold off, we compare the achieved sales price with this equity implied vessel value. Any difference then represents value creation or dilution relative to what the market had priced in, and this translates into a corresponding NAV per share impact. Obviously, certain balance sheet items such as cash and outstanding debt are considered as well. And just as an example, in case of [indiscernible], which is the latest sale that we have announced the achieved tail price corresponds to approximately mid NOK 30 per share and this is based on this kind of reverse engineered equity market framework. So this is the way we approach it. I think it's not uncommon in the industry. And this is how we arrive at basically creating value by selling certain assets at an implied significant premium to current trading. Next question is, will or have MPCC considered to change currency from U.S. dollar to euros in the accounts in the close future. First of all, shipping is a U.S. dollar-denominated business, which is the functional currency. So to answer the question, we have not and will also very unlikely consider going forward, in particular, as our income, but also most of our expenses are in U.S. dollar. And by using euros in the accounts, we would also expose ourselves to the core and very volatile financial markets, in particular, when it comes to U.S. dollar and euros, which is obviously something that we also want to avoid. Next question is market related to what extent would a return to Red Sea, Suez transits affect the small midsized markets, there are potential pressures from larger vessels cascading down from such a capacity supply shock. I think, first of all, the potential reopening of the Red Sea and Suez Canal contrary to the most recent announcement by a few of the big liner companies remain very uncertain. There was mixed messages from [indiscernible] but also from CMA, who has been particularly outspoken about not using the Red Sea at the same time, seemingly stable rattling between the U.S. and Iran is increasing. So from our perspective, it is very unlikely that we see a meaningful reversal in the foreseeable future. But to your particular question, looking in isolation at the small to midsized market, none of these vessels is actually transiting the Suez Canal. So there's no direct impact once the Red Sea is opening, but there's an indirect impact, obviously. So all the vessels, whether small or large, part of the same supply chain. So there will be a trickle-down effect if a meaningful portion of the additional demand that has been derived from the rerouting around the [indiscernible], there will be a trickle-down effect also to the smaller sizes. The only difference to what we have seen in the past. Now is that -- we have a very interesting constellation in particular on the feeder segment, meaning we have a very old fleet on the water. There's seemingly a lot of vessels going forward being pushed out of the market. You have an order book that is too small to replace those vessels leaving the market potentially in the future. And at the same time, you have a very, very healthy underlying demand, in particular for feeder trades being the intra-regional trades. So from that perspective, in a scenario where the Red Sea is opening again and you see pressure from larger vessels. We believe that the magnitude of that impact is not as severe as some people might expect. Constantin Baack: All right. Then there is another question regarding focus and that is over the past year, you have focused on newbuild ordering to renew the fleet. Could you talk a bit about whether you see any modern secondhand opportunities as well? Or is pricing too steep. We are -- and the year before, so 2024, we have actually acquired some equal secondhand ships last year. In 2025 the opportunities were quite rare. Most of the Eco vessels are either on long-term charters and not for sale or quite a number have actually been acquired by liner companies at quite see prices. So we would be quite interested in also buying some more modern secondhand vessels, because we do believe they have technically and also from a valuation standpoint, at the right price, a solid future. Having said that, price levels are fairly large and the derisking of that large price or high price level is, in our view, not necessarily justifiable. And in addition, as I said, very few vessels available, if any, at this stage, there might be going forward, some resale opportunities. I wouldn't rule that out. But for the time being, we do not see us as a buyer in the secondhand market, we have, as we have shown rather been on the selling side recently. Moritz Fuhrmann: Next question relates to our recently announced joint venture that would it be possible to provide some additional information on which vessels it relates to. Also, will you be reporting that you'll be using the equity method as the vessels are delivered. The vessels and questions are #2 and #4 of that series that we have contracted in the summer of 2025. And given it's a 50-50 joint venture, vessels will be nonconsolidated from a P&L perspective, the vessels will be reported through profit in investments, as we have seen in the past when we had a joint ventures previously. We have also seen the results of those joint ventures coming into our P&L through profits in investments. Constantin Baack: There is another question regarding vessel acquisitions. As you think about incremental vessel acquisitions or orders, is there any appetite to go for tonnage above 5,500 TEU. I would take a step back and say there's appetite to buy the right assets in terms of entry price, derisking and also future proof of the ship, we would think of vessel sizes that we look at anything that is related to intra-regional trades and intra-regional trades develop. So we would also look at ships up to 8, maybe even 10,000 TEU if the value proposition and the derisking is appropriate. Anything above that is at least at this stage, certainly not intra-regional tonnage, and we would not look at. Having said that, the bear fact that we haven't bought any ships of that size also shows where we see value, and that has been more in the -- in the midsized vessel sizes. But I wouldn't rule out that we go also larger than 5,500 TEU -- to the extent the same metrics and the same parameters apply that we deem attractive, similar to the ones that we have done over the last couple of years. Moritz Fuhrmann: Then there's a question relating to the coverage that we have reported of 97% for 2026. Is that percentage dependent on when your customers redeliver the currently leased vessels. Yes, it is. Luckily, we are operating in an environment where the redelivery windows are relatively tight. We have seen different scenarios in the past. In terms of reported coverage, we're rather conservative in using the mid to midpoint of those redelivery windows. So from that perspective, if the market holds up firm, and the liner companies are using the maximum redelivery rate. There is some upsides. There's certainly some upside to the coverage. The next question is relating to our guidance. Your full year 2016 EBITDA guidance implies a 22% year-on-year decline versus a mere 5% -- 4% top line drop. Do you expect inflated operating expenses in 2026. The reason for the discrepancy is a bit unique. So in fact, our revenue is inflated to a certain extent. So purely looking at the time charter equivalent, we have seen or we see a drop in revenues relative to last year. The revenues under IFRS looking at gross revenues is inflated due to an increasing compliance cost in particular, EU ETS and fuel and maritime. That's why the drop in top line is not at the same extent you see as to the compliance cost that is from a bottom line perspective, it's a zero-sum game, so you have inflated top line, but you have also inflated voyage expenses. So bottom line, there is 0 implication on the EBITDA, explaining why you have a steeper drop in EBITDA. Needless to say that on the cost side, we have seen some inflation impact, but certainly not to the extent explaining a big discrepancy, as you pointed out, between revenue and EBITDA. So the main reason for that is that the top line actually is inflated by compliance costs. Constantin Baack: Then there's one more question regarding new buildings. Are you going to order more newbuilding vessels as all ordered newbuildings are already chartered out? I would say that's not the way we look at it. The way we look at it is to find the right ships and the right transactions that meet our criteria of also creating long-term value for the company. It could well be that we're exploring further newbuildings going forward. And to the extent that you know the parameters, and that means, in particular, a solid derisking, a solid let's say, fairly low cash breakeven after the initial charter. Those are, for example, parameters that we look at. And of course, the counterparty and the partnership. We have also been able around new buildings to also extend certain secondhand ships that we have on charter. So it's also more a strategic perspective on newbuilding transactions -- but I would certainly not rule it out, but I think we have done a pretty good job in our view, at least as far as fleet renewal is concerned, bringing down the average building year or bring -- actually up the average building year of our fleet from 2007 in 2022, now 2015. So a significant modern vessel, not just vessel fleet, not only in terms of age, but also in terms of design and specification and future proof of the fleet. So the long answer to your question, short answer is yes, we would still consider to add some new buildings here and there. But we also think that we have already taken some key steps in renewing the fleet and having a very modern and attractive fee creating long-term value for the company. Moritz Fuhrmann: Then question on the costs, OpEx, G&A and net interest were all down quarter-on-quarter. Do you expect this level to continue going forward? I would wish it were to continue. Unfortunately, on the OpEx side, in particular, you had some shifting effects certain items into '26. Hence, the OpEx are bit lower than expected going forward, at least on the budget, we expect similar cost -- similar costs relative to '25. Also G&A, we at least for now, don't foresee meaningful increases, so also rather expecting similar cost to the year before. And as to the net interest at year-end, we had a very, very high liquidity position, which obviously is invested in short-term money markets. Hence, we've been earning quite good interest income. The interest environment is still good, depending on the new Chairman of the Fed in the U.S. depending a bit on what the U.S. dollar treasury rates and interest rate will do expectations in the short term that interest will go down, hence, also having a potential impact on our interest income. So -- from our perspective, we would rather expect the net interest to increase going forward again. Constantin Baack: Yes, there are, at least at this stage, no further questions. So we think we -- we call it a day then. Thank you very much for the questions, for your interest in the company. And as far as we and MPC Container Ships is concerned, we are looking forward to 2026. We have -- we're sure it will be an interesting year. We have good backlog, and we are excited about the year ahead. And again, thanks for your interest and looking forward to continuing the journey with you. All the best. Take care. Bye-bye.
Operator: Hello, and welcome to the Xenia Hotels & Resorts, Inc. Q4 2025 Earnings Conference Call. My name is Carl and I will be on you to your call today. [Operator Instructions] I will now hand you over to your host, Aldo Martinez, Manager Finance, to begin. Please go ahead when you're ready. Aldo Martinez: Thank you, Carla, and welcome to Xenia Hotels & Resorts Fourth Quarter 2025 Earnings Call and Webcast. I'm here with Marcel Verbaas, our Chair and Chief Executive Officer; Barry Bloom, our President and Chief Operating Officer; and Atish Shah, our Executive Vice President and Chief Financial Officer. Marcel will begin with a discussion on our performance. Barry will follow with more details on operating trends and capital expenditure projects, and Atish will conclude today's remarks on our balance sheet and outlook. We will then open up the call for Q&A. Before we get started, let me remind everyone that certain statements made on this call are not historical facts and are considered forward-looking statements. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K and other SEC filings, which could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued this morning, along with the comments on this call, are made only as of today, February 24, 2026, and we undertake no obligation to publicly update any of these forward-looking statements as actual events unfold. You can find the reconciliation of non-GAAP financial measures to net income and definitions of certain items referred to in our remarks in our fourth quarter earnings release, which is available on the Investor Relations section of our website. The property level information we'll be speaking about today is on a same-property basis for all 30 hotels unless specified otherwise. An archive of this call will be available on our website for 90 days. I will now turn it over to Marcel to get started. Marcel Verbaas: Thanks, Aldo, and good afternoon, everyone. As we reflect back on 2025, we are proud of the performance that our portfolio of high-quality hotels and resorts achieved during the year. Adjusted EBITDAre exceeded our expectations set at the beginning of the year as well as our more recent outlook. Significant growth in food and beverage and other revenues contributed to total RevPAR growth of 8% for the year. This was driven by strong group demand throughout the portfolio. and bolstered by encouraging results at the recently transformed and up-branded Grand Hyatt Scottsdale, which ramped up in line with our underwriting expectations in 2025. Our operating results for the year together with over $120 million in share repurchases at meaningful discounts to NAV and our current share price allowed us to deliver double-digit percentage growth in adjusted FFO per share as compared to 2024. In 2025, we continue to build on our track record of continuous portfolio improvement. We sold Fairmont Dallas at an attractive price, resulting in a strong unlevered IRR during our ownership period and allowing us to avoid an estimated $80 million of required capital expenditures over the next several years. We also acquired the land under Hyeredency Santa Clara, removing future uncertainty regarding lease renewal and rent escalations. Additionally, we invested approximately $87 million in our portfolio during 2025 to further improve our assets. These capital expenditures consisted of both gas-facing enhancements as well as substantial investments in property infrastructure that have enhanced the resiliency and efficiency of many of our hotels and resorts. Now turning to our fourth quarter results. This morning, we reported net income of $6.1 million for the quarter. Adjusted EBITDA was $63.6 million and adjusted FFO per share was $0.45. With both results, either meeting or exceeding the top end of the implied fourth quarter guidance range we provided when we announced our third quarter results. Strong group and transient demand drove a same-property RevPAR increase of 4.5%, building on the 5.6% growth, our same-property portfolio achieved in the fourth quarter of 2024. We continued substantial growth in non-room revenues contributed to a 6.7% increase in same-property total RevPAR for the quarter. The continued successful ramp at Grand Hyatt Scottsdale, as well as strong performance by our properties in Santa Barbara, Orlando, San Diego and Santa Clara, we're the most significant components of our same-property RevPAR and total RevPAR growth for the quarter. Encouragingly, our hotels in the Houston market also experienced growth in RevPAR and total RevPAR as market performance improves after facing difficult year-over-year comparisons in the third quarter. On a same property basis, fourth quarter hotel EBITDA of $68.8 million was 16.3% above 2024 levels and hotel EBITDA margin was 214 basis points higher as compared to 2024 as revenue growth meaningfully outpaced our increases in hotel operating expenses. For the full year 2025, net income was $63.1 million. Adjusted EBITDAre was $258.3 million, and adjusted FFO per share was $1.76. With both measures meeting or exceeding the top end of the guidance ranges we provided after our third quarter results as well as the midpoint of the initial guidance we provided at the beginning of the year. Our same-property portfolio achieved a RevPAR increase of 3.9% in 2025, which was just shy of the midpoint of our last issued guidance. Strong growth in food and beverage and other revenues, contributed to total RevPAR growth of 8% for the year. Food and beverage revenue for the full year was up a considerable 13.4% when compared to 2024, driven by significant increases in banquet and catering revenues while other revenues were also up 13.8%. In 2025, about half of our 30 hotels are resource achieved RevPAR growth as compared to 2024. Our properties in Scottsdale, Denver, Santa Clara, Orlando, San Diego, Santa Barbara and San Francisco delivered the most substantial increases in total RevPAR during the year, and we believe that these markets remain poised for continued growth in the years ahead. On a same property basis, 2025 hotel EBITDA of $274.3 million was 13.5% above 2024 levels, and hotel EBITDA margin was 129 basis points higher as compared to 2024. Our operators continue to do a good job controlling expenses in a continued inflationary environment. Additionally, our corporate initiatives related to real estate taxes, property insurance and infrastructure ROI projects contributed to our margin improvement in 2025. From a demand segment perspective, 2025 largely played out as we anticipated at the beginning of the year with group bringing the leading growth segment, corporate transient showing steady improvement and leisure demand stabilizing. Group demand was a bright spot for us in 2025. A as same-property group room revenues increased by 12.8% as compared to 2024. While Grand Hyatt Scottsdale was a significant driver of this increase, we saw strength in group demand throughout the portfolio. Strong group demand is particularly positive for our high-end portfolio, a significant ancillary revenues generally accompany room revenues. As a result, our banquet and catering revenues increased by 17.2% in 2025. And as compared to the prior year. And this increase was a significant contributor to our impressive total RevPAR increase for the year. We continue to reap the benefits from our investments into upgrades and expansions of the meeting spaces in our portfolio in recent years. Most notably, the additional barroom with Hyatt Regency Grand Cypress and the meeting space expansion and upgrades at Grand Hyatt Scottsdale. After a stellar group year in 2025, we are expecting to build on this in 2026 as our group room revenue base continues to be a positive data point for the year. Atish will provide details on our forward group base during his remarks. In 2025, we invested approximately $87 million in capital projects, which included expenditures related to the completion of the final components of the Grand Hyatt Scottscdale innovation. We completed a number of meaningful infrastructure projects throughout the portfolio as well as minor guest room renovations at 7 of our properties with minimal disruptions to operations. While these renovations were limited in scope, we expect that the refreshed rooms product of these 7 hotels will positively impact the guest experience and the competitive positioning of these properties. We are currently completing a limited guestroom and corridor renovation at Fairmont Pittsburgh, which after renovating the meeting space and lobby and adding a Starbucks in recent years, will further cement the hotel status as the preeminent luxury hotel in the market. This renovation will be completed in the next few weeks, well in advantage of the NFL draft taking place in Pittsburgh in April. We are also in the year in completion of the construction of the enhanced food and beverage outlets at Nashville. We are extremely excited about the quality and a view of the new spaces and believe the collaboration with Jose and Grace Group will be highly beneficial for the hotel as Barry will solve in more detail during his remarks. As we turn to -- we project that we will invest between $70 million and $80 million in total capital expenditures this year. We anticipate that we will incur approximately $1 million of adjusted EBITDA and adjusted FFO displacement in 2026. And as our renovation projects are expected to cause limited disruption to guests given their scope and timing. In addition to the completion of the Nashville and Pittsburgh projects, the most significant projects will be the commencement of the guest room renovations at Condos Napa and the Ritz Carlton Denver that we postponed last year. These renovations are scheduled to commence late in the year during a time when disruption is expected to be minimal. Turning to our outlook for 2026. Our initial guidance is based on a range of 1.5% to 4.5% same-property RevPAR growth or 3% at the midpoint, and 2.75% to 5.75% total RevPAR growth or 4.25% at the midpoint. Most importantly, our guidance on adjusted FFO per share reflects a 7% increase over 2025 at the midpoint, building on the almost 11% growth we delivered last year. Embedded in this outlook is the expectation of a continued ramp-up in revenues at Grand capsule and an expectation of modest RevPAR growth for the remainder of the portfolio. Atish will provide more detailed information on our guidance assumptions during his remarks. Looking ahead, we are optimistic about our future growth prospects as lodging demand remains resilient despite continued uncertainty in the broader overall economic and political climate. We believe that the continued strength in group business, the ongoing recovery in corporate transient demand and the potential incremental leisure demand from large events, such as the FIFA World Cup, the NFL Draft and America 250 will be positive for high-quality and well-located portfolio in 2026. We estimate the same-property RevPAR for the first quarter through February 19, grew approximately 4.6% versus the comparable period in 2025, which is a positive start to the year. We continue to believe that Xenia has planned for meaningful revenue growth in the future and that we will be able to continue to deliver FFO growth in the years ahead as we build on the positive momentum we experienced in 2025. I Barry will now provide more details on our fourth quarter and full year operating results, the W Nashville Food and Beverage relaunch and our recently completed and upcoming capital projects. Barry Bloom: Thank you, Marcel, and good afternoon, everyone. For the fourth quarter, our 30-hotel same-property portfolio RevPAR was $176.45, an increase of 4.5% compared to the fourth quarter of 2024, based on occupancy of 66.1% at an average daily rate of $266.88. Strength in non-room spend, notably banquet revenues, which were up 17.2% and resulted in total RevPAR of $325.52 for the quarter, an increase of 6.7% when compared to the fourth quarter of 2024. For full year 2025, our same-property portfolio RevPAR was $181.97, an increase of 3.9% compared to 2024 based on occupancy of 68.6% at an average daily rate of $265.3 he Full year total RevPAR of $328.57 increased 8% when compared to 2024. Our properties achieving the strongest RevPAR growth as compared to 2024 for the full year for Grand Hyatt Scottsdale, with RevPAR up over 104% as we lap the transform of renovation, Kimpton Canary Hotel Santa Barbara up approximately 10%; Gronboemin, Orlando, up 8%; among Pittsburgh of nearly 8% and High Regency Santa Clara and the Ritz-Carlton Pentagon City, each up 7.5%. Strengthen group business and continued improvement in corporate demand was a driver behind success in most of these properties. Conversely, hotels have experienced RevPAR weakness compared to full year 2024 included both Portland hotels, Royal Palms Resort and Spa, and San Diego and all 4 Texas hotels. The Portland, San Diego and Dallas markets had significantly softer citywide convention calendars in 2025 and in 2024 as did Houston, where in addition to a softer citywide convention calendar, our hotels faced a tough comparison to 2024 and a result of the positive impact from Hurricane Beryl last year. Looking at each month of the quarter compared to 2024, October RevPAR was $21.36, up 5.9% and November RevPAR was $176.8 up 5.1%, and December RevPAR was $140.9 up 1.9%. October and November benefited from significant strength in group business, which was up approximately 20% in each month, while December group business were virtually flat to 2024, with the increase coming from improved leisure demand over the holiday period. Business from large corporate accounts continue to recover throughout the year and improved significantly compared to 2024 in the latter half of the year. Combined, Tuesday and Wednesday net RevPAR for the year was up 6% compared to 2024. Across the portfolio, room night demand from our hotel's largest accounts grew at a mid-teens percentage rate in the fourth quarter as compared to the fourth quarter of 2024, giving us confidence about the ongoing recovery in the segment. Overall, leisure business was mixed throughout the year with primarily leisure-driven markets, including Napa, Charleston, Savannah and Key West, being generally flat in RevPAR growth for the year, while we experienced significant growth in Santa Barbara. The Phoenix market exhibited weakness in leisure business throughout the year. Weekend business throughout the portfolio was roughly flat to prior year, with occupancy declines largely offset by rates with combined RevPAR for Friday and Saturday nights of 1.5% compared to 2024. We noted significant strength in weekend business in the last 2 months of 2025 as compared to 2024. Turning to group. For the year, our same property group rooms revenue exceeded 2024 levels by nearly 13% and or just over 6%, excluding Grand Hit Scottsdale. This increase in group business drove significant ancillary spend in banquets, medium rental and audiovisual commissions. Now turning to expenses and profit. Fourth quarter same-property total revenue increased 6.7% compared to the fourth quarter of 2024. Hotel EBITDA margin increased by 214 basis points, resulting in hotel EBITDA of $68.8 million, an increase of 16.3%. For the full year, hotel EBITDA increased 13.5% with margin improvement of 129 basis points compared to the same period in 2024. For the fourth quarter, rooms department expenses increased by 5.5% and on a 4.5% increase in RevPAR. Food and beverage revenue growth increased by 9.4% with expense growth of 5.7%. Other operate department income, including SPA, parking and golf revenues was up 6% and listens income was up 12.4%, resulting in a total RevPar increase of 6.7%. Neandistributed departments, expenses in A&G and sales and marketing were well controlled. A&G increased by 2.7% compared to last year, while sales and marketing expenses grew by just 1.6%, continuing the moderating trend we've experienced over the past several quarters. Property operations expenses were flat for the quarter but Utilities expenses decreased by 2.7%. Turning to CapEx. During the quarter and year ended December 31, 2025, we invested $15.9 million and $86.6 million in portfolio improvements, respectively. The full year 2025 amount is inclusive of capital expenditures related to the completion of the transformative renovation of Grand hit Scottsdale Resort earlier in the year. In addition to the completion of the Grand Hyatt Scottsdale transformative renovation, for the full year 2025, we completed significant select upgrades to guestrooms at several important properties, including Renaissance Atlanta Waverly, Marriott, San Fransico Airport, Hyatt Centric Key West, HytRegency Santa Clara, ratable hemin Mountain book, Graben in Charleston and Kimpton River Place, all of which were substantially completed during the fourth quarter. Over the course of the year, we performed significant infrastructure upgrades to 10 hotels, including facade waterproofing, filler replacements, elevator and escalator modernization projects and fire alarm system upgrades. We commenced a limited guest room renovation at Fairmont Pittsburgh, which we expect to complete in the first quarter of 2026 as well as our innovation of the M Club at Marriott Dallas Downtown, which was completed in early 2026. Most significantly, we commenced work we announced last quarter related to a major reconcepting the food and beverage facilities at W. Nashville, pursuant to agreements with Jose Andres Group, in which they'll operate and/or license substantially all the hotels, food and beverage outlets. This includes the Genia and Eastern Mediterranean concepts serving lunch and dinner, which opened in mid-February, Farma, a coastal seafood and premium meat dinner concept, which will open in late March, Butterfly, a high-energy rooftop bar with a Mexican-inspired menu, which will also open in late March, and Globe, a new pool deck concept with an expanded bar and upgraded food and beverage offerings, which is expected to open by the end of April. By partnering with this world-class operator, we believe the refined food and beverage platform will create an attractive destination for hotel guests, national visitors and locals as well as strength in transient and group demand. We are projecting the relaunch of the F&B outlets will add between $3 million and $5 million to hotel EBITDA upon stabilization through increases in food and beverage and rooms revenues, which we believe should result in the hotel generating in excess of $20 million of hotel EBITDA in the next few years. We are excited about our planned renovations for 2026, which include the first phase of a comprehensive rooms and quarter renovation at Andaz Napa expected to begin in the fourth quarter renovation of guest rooms, corridors and meeting space at the Ritz-Carlton, Denver, which is also expected to begin in the fourth quarter. At Royal Palms, we expect to perform a limited renovation of 70 guestrooms and the corridors in the MontaVista building as well as a tea Cooks restaurant during the second and third quarters. Continuing our comprehensive maintenance and upgrading of our hotels physical plants, we expect to perform infrastructure and facade upgrades at 10 hotels this year. With that, I will turn the call over to Atish. Atish Shah: Thanks, Barry. I will provide an update on our balance sheet and discuss our initial 2026 guidance. At year-end, we had approximately $1.4 billion of outstanding debt just over 3/4 of our debt was fixed or hedged to fixed. Our weighted average interest rate at quarter end was 5.51%. Additionally, at quarter end, our leverage ratio as calculated for our credit facility was approximately 5.2x trailing 12-month net debt to EBITDA. We expect our leverage ratio to decline over the next few years and have a long-term leverage target in the low 3 to low 4x range. As a reminder, we have no preferred equity or senior capital. Last week, we fully paid off the $52 million mortgage loan at Grand Bohemian Orlando that was due to mature in March with cash on hand. At present, 28 of our 30 hotels are free of property level debt, representing a source of balance sheet strength. Our debt maturities are well laddered with a weighted average duration of 3.2 years. As to current liquidity, after the Grand Bohemian Orlando loan payoff, our available cash is $75 million, excluding restricted cash. our $500 million line of credit remains undrawn. Therefore, total liquidity is approximately $575 million. I want to now turn to our return of capital. During the fourth quarter, we repurchased approximately 2.7 million shares of common stock at an average price of $13.56 per share. In 2025, over the full year, we repurchased a total of about 9.4 million shares at an average price of $12.87 per share, representing about 9.2% of our outstanding shares at the start of 2025. Over the last 4 years, we repurchased a significant portion of our outstanding shares with our share count declining by 20% from year-end 2020 to year-end 2025. Our current Board authorization permits the repurchase of an additional $97.5 million of common stock. We continue to believe that we trade at a discount to NAV, given our favorable outlook and strong balance sheet, share buybacks continue to be a good tool to drive value relative to other uses of capital. Turning to our other approach to returning capital, our dividend. This morning, we announced a quarterly dividend of $0.14 per share for the first quarter of 2026, if annualized, this reflects a yield of approximately 3.5%. Now to my second topic, our full year 2026 guidance as issued this morning. I'll start with the punchline, which is that we expect adjusted FFO per share to increase nearly 7% from 2025 to $1.89 at the midpoint. Driving this level of strong adjusted FFO per share growth is the ramp on Grand Hyatt Scottsdale, healthy level of share repurchases last year as well as some favorability on interest expense. Moving ahead to adjusted EBITDAre. We expect to generate approximately $260 million of adjusted EBITDA are at the midpoint of the guidance range in 2026. This reflects approximately 1% growth relative to 2025. A few points to keep in mind as we walk from 2025 to 2026 as it relates to growth in adjusted EBITDAre. First, Fairmount Dallas earned nearly $6 million in EBITDA in 2025 prior to our disposition in April. Second, we had approximately $1 million of nonrecurring property tax refunds in the fourth quarter of 2025. Third, we generated about $3 million more in interest income in 2025 than we expect to generate in 2026. And -- and fourth, we had no renovation disruption in 2026 but we expect about $1 million of renovation disruption during the course of 2020 -- sorry, we had no renovation disruption in 2025. And but we would expect about $1 million in renovation disruption in 2026. In total, these 4 items represent an $11 million adjusted EBITDAar headwind and this is offset by about $8 million of year-over-year EBITDA growth coming from Grand Hyatt Scottsdale. If we exclude the 4 items as well as Grand Hyatt Scottsdale, the implied EBITDA growth is a or $5 million on a normalized basis. As to our expense outlook, we expect cost per occupied room to increase approximately 3% in 2026, given that we expect occupancy to increase during 2026, our same-property hotel expense is expected to increase about 4.5%, resulting in a slight margin contraction for 2026. The pressure on the expense side continues to be from wages and benefits, which represent approximately 50% of our hotel level cost base and are expected to grow approximately 6%. The other costs, which represent the other half of hotel level costs and include a broad range of items such as inventory, utilities, property taxes, et cetera, are expected to grow in the approximately 3% range. While some expense areas were a tailwind for 2025, including property insurance and real estate taxes, in the fourth quarter, we saw an overall decrease in undistributed hotel operating expenses reflected in the decline in other indirect expenses. As we look forward, we expect this indirect expense growth to further moderate. As I wrap up the adjusted EBITDA guidance, I want to provide some waiting to held for modeling purposes. I will provide this by quarter. Our waiting for adjusted EBITDA or lead is nearly 30% for the first quarter about 30% for the second quarter in the high teens percentage range for the third quarter and nearly 25% for the fourth quarter. As to total RevPAR, which we are now guiding to for the first time, the midpoint of our guidance is an increase of 4.25% versus 2025. Excluding Grand Hyatt Scottsdale, the midpoint of our total RevPAR growth guidance is 2.75%. F&B and other revenues are expected to grow at a faster pace than wounds revenues as they did in 2025. As to RevPAR, the midpoint of our guidance is an increase of 3% versus 2025. Excluding Grand Hyatt Scottsdale, the midpoint of our RevPAR growth guidance is 1.75%. Now I would like to discuss our thoughts on the demand segments as they underpin our revenue guidance. Starting with group. Last year, group demand represented 37% of our rooms revenue, and we expect a similar mix again in 2026. As of the end of January 2026, nearly 70% of our group for the year was definite. For the March through December 2026 period, group revenue pace is up about 10%, and versus the same time last year for those 10 months of 2025. Excluding Grand Hyatt Scottsdale, group room revenue pace was up 8%, again for the balance of the year from March onwards. Working across our larger group markets, the largest increases in group pace are in some of our most significant markets, namely Orlando, Northern California, Nashville and of course, Scottsdale. At Grand Hyatt Scottsdale, we continue to see strong ramp, which is bolstering our confidence in our full year guidance. Groups are really enjoying the resort reflected in revenue pace up about 50% with good early indications for 2027 as well. Next, turning to leisure, which we estimate at roughly 25% of our demand mix. We expect this year to be better -- to be a better leisure year than last year. Events such as the FIFA World Cup and America 250 are expected to drive strong demand in many of our markets. Our preliminary estimate is that these unique events are anticipated to drive about 75 basis points or approximately 1/4 of our expected 2026 RevPAR growth. These estimates are preliminary as much of the demand is likely to be transient has yet to book. We expect varying degrees of benefit across the portfolio depending on distance from the venues and other factors. Lastly, on the business transient side, we expect demand to steadily improve as occupancy is still below 2019 levels every night of the week. We are seeing good momentum in Northern California and some of our other urban locations. Our hotel operators are expecting corporate negotiated rates up in the low single-digit percentage range, and we continue to be focused on recovery of business transient occupancy relative to prior levels. As we look further ahead, we are encouraged by the supply side, which continues to be quite benign relative to levels just a few years ago. As to our outlook on the supply side of the equation, our market tracks look very well positioned with expected weighted supply growth of about 1% in 2026 and even less in 2027. Many of our hotels are located in market tracks with no new supply growth specifically in each of 2026 and 2027, approximately half of our rooms are in market tracks with 0 expected new hotel supply. By every measure, the supply outlook is better now than at any other time in our decade-plus history as a public company. And with that, we will turn the call back over to Carlo to begin our question-and-answer session. Operator: [Operator Instructions] Our first question comes from the line of Ari Klein with BMO Capital Markets. Aryeh Klein: I was hoping maybe you can provide a little bit more color or context around kind of the RevPAR guide ranges, particularly at the low end, high end. I think you mentioned about 1/4 of the guide is from the special events, but any additional color would be helpful. Atish Shah: Yes, sure. Why don't I start on that 1 and then Marcelo or Barry, you can join in. But certainly, the couple of things bolstering the RevPAR outlook One is the special events, as you mentioned, and second would be Grand Hyatt Scottsdale, where we have a lot of visibility based on the pace. And then more broadly, the group revenue pace that we talked about continues to be a source of strength for us. So really, those are some of the main components that give us confidence. The markets where we expect the strongest levels of RevPAR growth our markets like Houston, like Northern California, obviously, Scottsdale, Orlando as well. So markets that are quite meaningful to us and have a significant group component. So I would say that's really what gives us confidence overall in the RevPAR outlook. In terms of the high end and low end, as you know, I mean, we're very early in the year, and much of our business primarily on the transient side has yet to book. So really, the range that we're reflecting is pretty consistent with what we've done in the last couple of years and just reflects kind of the natural volatility in the business and the fact that our visibility particularly to the second half of the year outside of food business is much more limited either of you. Okay. It seems -- are there any other follow-ons on that one? Aryeh Klein: Not on that one, but I had a different question just around -- Barry, you mentioned some of the positive trends in large corporate account growth. Just curious if you can unpack more recent trends there. And just the incremental opportunity, just I think that segment has kind of lagged from a recovery standpoint. So just the incremental opportunity there. Barry Bloom: Yes. I mean it's definitely lagged. We're certainly still below 2019 levels in that segment. But I think the growth we saw quarter-by-quarter last year really gives us a much more positive feeling about it, and particularly the growth we saw in Q4. Really, the it was very consistent growth throughout the year with the exception of Q3, which obviously always feels a little bit different. But we just feel like things are getting better. Our hotels are able to better capture more business from more of the large accounts. And some of that is intentionally really going after them, I think, more aggressively but we're also seeing more project work from the big 4 accounting firms and the big 4 consulting firms that just speaks volumes to what's going on as well as some of the very key in our case, Fortune 100 accounts that have just, I mean, really grown remarkably, I think I mentioned mid-teens growth in those accounts in the largest accounts in the portfolio in Q4, we think gives us a good setup for this year. And certainly, we've -- part of what we've seen that's contributed to the strong quarter-to-date performance thus far. Operator: And our next question comes from David Katz with Jeffries. David Katz: I wanted to just talk about the asset trading market, and we've spent a lot of time talking about that $50 million in sweet spot. We have seen some deals and/or been hearing from some of the peers about deals that are in some state of process. One, are you seeing a little more activity? And two, should we -- is it fair of us to expect a little more activity from you as we progress through the year? Marcel Verbaas: Yes. Thanks for the question, David. I think the way you described it is accurate. I think there is some more product out there than what we've seen over the last few years. Certainly, the broker community seems to be a little bit more optimistic going into this year. Now brokers are hugely optimistic. But so far, it does seem like there's a bit more product out there, and there could be some more opportunities out there. S&P's obviously pointed out in his comments, we for active on the share repurchase side. I just felt like there has been over the last few years, a pretty big gap between where we could essentially acquire our own assets versus what external growth opportunities were out there. So to the extent that to dig a little bit deeper and harder into that are out there. So Clearly, over the next few years, we'd like to see some external growth opportunities come to fruition, and that's going to be really driven by the opportunity set for pricing and certainly our own shares are valued. David Katz: Understood. And I think you started down the road of answering the next part of the question, which is how do we think about setting boundaries for you in terms of what would interest you? I know that obviously, you look at everything, it's what -- it's what's usual and required but what kinds of things would you like to add as you start looking and seeing more stock? Marcel Verbaas: Yes, sure. I mean we -- I think kind of the numbers you were talking about. I mean, clearly, the kind of $50 million to $200 million range is kind of the sweet spot for a company like ours with the size of our company. I think we've done a very good job of increasing the quality level of our portfolio and just kind of over what a portfolio is positioned currently from both a quality and a location standpoint. So as I've said many times in the past, when we've talked about these questions, we don't necessarily say, hey, the next acquisition needs to be in market A, B or C. We want to make sure that we look at the opportunity set that's out there. Clearly, there are 3 markets where we have a pretty good concentration at this point, really between Orlando, Houston, Phoenix, those are obviously some of the big drivers for our portfolio. So with the percentage that we're already in those markets, I don't necessarily see us looking in those markets unless there's some great opportunity that kind of force us to look at do we replace an asset in 1 of those markets? So it's really about some of the other markets that we are still somewhat under concentrated in and maybe some markets that we're not in. So we really want to be opportunistic. We want to make sure it's an asset that fits well with our overall strategy of being able to pivot between different demand segments. Clearly, the group segment has been something that's been very beneficial to us over the last few years. So we'd be very interested in potentially adding a little bit there. But -- it's not to say that if there is just a great opportunity for an asset that's a little bit more focused on corporate transient or leisure that we wouldn't take a look at that. zlz Operator: And the next question comes from Michael Bellisario with Baird. Michael Bellisario: To First question is on Nashville. Just first on Nashville, just 4Q, how did that market perform? And then looking out to 26, what are you guys seeing on both the leisure and BT fronts, just relative to the market having been relative underperformed recently. . Barry Bloom: Yes, Q4 was really tough for the market. We certainly participated in that toughness, unfortunately, where we continue to see opportunity to improve our focus, both pre and post the restaurant food and beverage transformations is really on the midweek corporate customer and on the midweek group customer is really a sweet spot for the hotel where we've continued to experience growth despite some of the challenges and softening we've seen in leisure there over time. We think the 2026 setup is certainly expect to be improved over 2025 but not significantly, quite frankly. But with our -- where we do think we're going to see growth is, again, is that is in midweek corporate and midweek group as we really kind of continue our efforts in that area. We do think -- longer term, we think that we're going to have the opportunity to, as I mentioned, really enhance the profile of the property in a way that appeals to -- that we gather a little more appeal to the leisure guests as a destination hotel because of the food and beverage platform. which we've seen in some of our other hotels, and we've certainly seen an experience with -- in other hotels operated or licensed by Josiane Group. Michael Bellisario: Got it. That's helpful. And then just maybe more conceptual here, just on sort of the RevPAR versus total RevPAR split, I guess, how long could that positive spread persist? And then within the F&B and other lines, are you actually raising prices? Or are you just seeing volume pick up? Just sort of any thoughts on that spread there, the performance in the non-range lines would be helpful. Barry Bloom: Yes, sure. I mean it's -- obviously, there've been significant beneficiaries across the industry, but I think we have a couple of unique pieces that we think are going to give us continued growth there. A lot of it is related to our continued growth and success in group business, a lot of which is still being driven by the new ballroom at brand site, which although it's not that new, we're really seeing the benefits of that come to fruition now as the hotel continues to be able to stack more group in the property. The property is also similar story, certainly in in Scottsdale as well. And while we're seeing some growth in restaurant business, it's really been the growth in banquet and catering, food and members. It's really been the star performer in those hotels and across the portfolio. I think some of it is driven by our conscious decision to group up across the portfolio. Some of it is related to kind of as that business has grouped up. It's been largely in corporate business as opposed to association business, which has shown a great willingness right now to spend on food and beverage and continue to spend on food and beverage for programs. Our hotels are capturing a lot more group meals on site than than off-site. That's because certainly a trend we've seen in the largest sorts, whereas historically, some groups might have gone off property for a night or 2. They're choosing to say on property for more evening functions in particular, which is driving revenues significantly in the larger resorts. So think about Hysan Cypress, hives Scottsdale and Park Hyan Aviara have been the most significant beneficiaries of that trend. And then finally, the -- absolutely, the hotels are taking advantage of pricing and are finding more opportunities to get groups both to spend more but there's also been incremental pricing increases across all of those. So across all of our group-focused hotels as it relates to break catering prices. Operator: [Operator Instructions] The next question comes from Cooper Clark with Wells Fargo. Cooper Clark: I appreciate some of the earlier comments on the RevPAR complexion. So thinking about group PACE ex Scottsdale up about 8% from March to December but RevPAR ex Scottsdale only up about 1.75%. Just curious about some of the puts and takes there and any kind of drivers we should be thinking about? Atish Shah: Yes, that's a great question. So thanks, Cooper. So I would say a few things. I mean, first, as the year goes on, we expect that group number to come down given that we're pretty booked up for group and there's less space and dates available for groups. So that's 1 thing to keep in mind. Secondly, I would say, we expect obviously, some growth out of business transient and leisure but much lower levels. So when you mix it all together and blend it, that's where you get to the full year forecast being significantly lower than the current pace number. And if you think about the evolution of our business last year and where we started in terms of group pace, how group performed for the full year, how business transient and leisure came in, we expect sort of a similar prioritization where group would likely be the strongest performer, followed by business transient and then leisure I will say though that for this year, the outlook for leisure does appear better, as I mentioned in the prepared remarks, given both the special events and hopefully our properties that were normalizing a bit last year have now finished really the normalization process. So that's really kind of how we think about both the segments and some of the inputs and where you get to the total number that we referenced. Cooper Clark: Great. That's very helpful. And then curious if you could talk about the time line around the Nashville F&B ramp towards stabilization. Barry Bloom: Sure. I mean I talked about the timing of each outlets opening. We're seeing a pretty quick ramp-up on Zatenia, which has now been open, I think, for days or so, a little less than 2 weeks. What we've seen in other Jose Andres operations is they tend to ramp up quite quickly. But I think it's hard given where we are today to really think about when we kind of hit stabilization, but we've certainly underwritten some pretty fair performance in the asset for this year in terms of the growth in ramp-up. Marcel Verbaas: Yes, I'll just add to that, that obviously, we'll get the initial bump of kind of the excitement and the marketing of it being added to the property. But the real benefit is going to be in the next several years as the property just gained some more momentum as far as being kind of the destination hotel like Barry was talking about. So we love the incremental revenues that we're looking to achieve at the property is not necessarily a massive improvement in food and beverage profitability. It's really coming from how it all plays together with the hotel operation and how the hotel just becomes a more attractive destination for every segment. So it's a great selling point for the group segment. Obviously, it's going to be very attractive for corporate transient. And for leisure, it also will become a much more interesting destination. So we think what it's going to do for the overall performance of the hotel is going to be something that's going to play out over the next several years. Operator: And the next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: I was just wondering on the operating expense growth outlook of 4.5% I mean, how much of an impact is the Grand Hyatt Scottsdale having on that? And I guess, what's kind of the expectation on that sort of moderating more towards inflationary levels -- just wondering what some of the other -- some of those moving pieces are. Atish Shah: Yes, sure. Why don't I start that and then maybe Barry and Marcel could add to it. So Certainly, the numbers that I provided on the expense outlook include Grand Hyatt Scottsville, and I referenced a slight margin contraction expected for the full year. If you factor in Grand Hyatt Scottsdale or look at that separately, it's a little bit more margin contraction expected. So we've really seen most of the expenses come in on the Grand Hyatt Scottsdale. I don't think that's having as outsized an impact as it had over the course of the last year. Obviously, business is continuing to pick up from an occupancy perspective. And that's why you have more of an impact on overall expenses coming from Grand Hyatt Scottsdale and the rest of the portfolio because we're still adding to the occupancy of the asset. Marcel Verbaas: Yes. I think this also mentioned in his remarks that if you look at it were occupied room basis, we're essentially kind of at that inflationary number right were at above that 3% increase on a per occupied room basis. So a lot of the -- a lot of the increased expenditures to get to that 4.5% number is more just because of occupancy building. And some of that clearly is related to Grand Hyatt costs. Austin Wurschmidt: That's all helpful. And then I'm just wondering, it sounds like the group pace at the Grand Hyatt continues to ramp on par with what you had underwritten. The outlook seems really positive in the 27%. I'm just curious on the transient side for that hotel, how the ramp; has been and then just how that's factoring into the ADR pickup that was underwritten in the initial outlook prior to the renovation. Barry Bloom: Yes, sure. Obviously, this really is our first season at the property, given kind of an came online last year and where we were in terms of, although we were completed we're not really ahead of the curve on marketing during the peak season that we're seeing fantastic results this year. This year-to-date so far and really good pace for March and April and the hotel has been able to I think, step up its game as it relates to being able to charge the premium rates at the property and facility deserve. So we feel really good about it. Are we going to get all the way to where we want to get this year in terms of transient positioning in season? Probably not. But I think that also gives us the opportunity. We've always looked at for further growth as we head into its second half season in the first 4 months of 2027. Marcel Verbaas: I think what we saw in in '26 coming this first year, really pose renovation is we essentially got to our number that we had underwritten for the first year but we did get there a little bit differently. Clearly, the the leisure demand in Phoenix cost sale was a little bit softer last year than in prior years. But we definitely made up for that on the group side and really got to the numbers that we were able to deliver. So I think that's kind of the backdrop that we're still dealing with as we go forward. That's clearly to get to that stabilized number it'd be nice to see if the leisure demands come back a little bit more strongly here over the next 12, 24 months but we feel good about the forecast of where we are for this year based on that very strong group base and just all the recent trends we've been seeing there. zlz Operator: [Operator Instructions] And as we have no further questions in the queue, I will hand back over to the Chair and CEO, Marcel Verbaas for any final comments. Marcel Verbaas: Thank you, Carla. Thanks, everyone, for joining us today. We're obviously a solid to start this year. I appreciate all the questions today, and we look forward to connecting with everyone else here moves along. Operator: Thank you, everyone, for joining today's call. You may now disconnect. Have a great rest of your day.
Mar Martinez: Hello. Good morning, and welcome, everyone, to this event where, as you can see from the agenda now on the screen, our CEO, Jose Bogas; and our CFO, Marco Palermo, will first comment on the results achieved in 2025, and then we will present the updated strategic plan for the next 3 years. After some closing remarks, we will open the Q&A session. Thank you. And now I would now -- sorry, like to turn to Mr. Bogas. Thank you. José Gálvez: Thank you, Mar. Good morning, and welcome to everybody, everyone. Let me start with the results achieved this year, which I'm sure speak for themselves. EBITDA reached EUR 5.8 billion, comfortably above the upper end of our guidance, while net ordinary income reached EUR 2.3 billion, exceeding target and representing an 18% increase year-on-year. Economic and financial performance was particularly strong underpinned by robust cash generation and disciplined execution. We remain fully engaged to our capital allocation strategy, successfully delivering on the main strategic priorities set last year as we will discuss later. This solid performance reflects our ability to deliver on our commitments and our continued focus on value creation for shareholders. Accordingly, we will propose a dividend of EUR 1.58 per share at the next Annual General Meeting, well above our target set and 20% higher year-on-year. On Slide #5, we would like to highlight the steady progress made in executing our capital allocation road map throughout 2025. Several transactions were successfully completed during the year, strengthening both our asset base and our commercial capabilities. In February 2025, we closed the acquisition of 600 megawatts of hydro assets, while in July, we completed the acquisition of the remaining stake in CETASA, fully consolidating its wind asset portfolio. Together with the entry of a partner into our solar asset portfolio, this transaction illustrates how we are reducing the risk profile of our generation asset. And finally, the alliance with MasOrange fully consolidated since February 9, 2026, enhanced our commercial offering through telecommunication solution, reinforcing our commercial strategy and strengthening customer loyalty. Slide #6 provides an overview of the progress made on capital allocation and the execution of our key industrial KPIs. Over the period, we invested EUR 3.2 billion, more than 50% above versus previous year's figure, 77% being allocated to grid and renewable assets. This strong effort led to an improvement in the interruption time index, while total losses remained broadly stable, largely impacted by non-manageable losses. In renewable, the integration of approximately 1.2 gigawatt of new capacity enabled us to reach 80% emission-free installed capacity. Finally, in the customer segment, we progressed on a strategic shift towards higher-value customers, reshaping our customer mix with a clear focus on long-term loyalty and value creation. This strong operating performance turns into outstanding value creation for our shareholders, and I am now on Slide #7. Nothing better illustrate the success of our long-term vision and the resilience of our business model and the consistent returns delivered to our shareholders. Over the 2014 to 2025 period, Endesa has clearly outperformed the main benchmark indexes, underscoring the strength and credibility of our value proposition. As mentioned earlier, we will propose a dividend of EUR 1.58 per share, excluding treasury stock outstanding as of 31st of December 2025, would imply a dividend yield of more than 5%. Finally, our EUR 2 billion share buyback program is currently around 30% executed as we remain fully committed to completing this within the planned time frame. In fact, a new tranche of EUR 0.5 billion has been approved and will be completed up to July 2026. And now I will hand over to Marco, who will go into the financial results in more detail. Marco Palermo: Thank you, Pepe, and good morning, everybody. This year's strong results were achieved in a market context characterized by demand growing for the second consecutive year, increasing 2.9% year-on-year and 2.0% on an adjusted basis. In Endesa distribution area, where adjusted demand is growing by 2.8%, consumption increased across all customer segments. This reflects not only Spain's economic recovery during the year, but also a rebound in industrial and services demand as part of a broader sector-wide increase in energy usage. This clearly marks a turning point in the trend. The sharp rise in connection requests seen in recent years is now starting to materialize, representing a unique opportunity to reindustrialize the economy and to electrify the demand. Turning now to the price scenario on Slide 10. Although the average pool price has remained broadly unchanged year-on-year, the intraday volatility has been extremely high, ranging from EUR 145 per megawatt hour in the mid-winter to 0 or even negative prices in spring, coinciding with the strong renewable resources and low demand. This level of volatility has become a structural feature of a system with very high renewable penetration. Spain continues to display some of the most competitive power prices in Europe. That said, it is important to note that the final energy prices were affected by post-blackout measures adopted by the TSO, which led to a significant increase in ancillary services costs. Let me now focus on the main drivers behind our financial performance. As mentioned earlier, EBITDA reached almost EUR 5.8 billion. I'm now on Slide 11, up 9% year-on-year. This strong performance was supported by, first, generation and supply EBITDA increased by 11%, driven by in conventional generation, a strong gas management margin, reflecting the positive impact of hedges executed in previous years, partially offset by lower opportunities on the short position. In renewables, EBITDA was slightly lower, reflecting lower volumes and prices, both in wind and solar, while the hydro margin increased driven by higher volumes and the shape effect. And supply delivered sound results across both businesses, gas and power, with power performing well despite higher ancillary services cost. Turning to Networks. EBITDA increased by EUR 0.1 billion primarily explained by previous year's resettlements. If we go to Page 12 now, all these dynamics are reflected in our integrated power and gas unitary margins. The free power margin stood at EUR 52 megawatt hour, representing a decrease of only 5% year-on-year despite the increase in ancillary services cost, which weighed on results. On the other hand, gas margin reached EUR 9 per megawatt hour, a strong improvement driven by the factors mentioned above. Moving now to Slide 13. Net ordinary income came in at EUR 2.3 billion, significantly above the upper end of the guidance, reflecting strong operational performance and improving the net ordinary income to EBITDA conversion ratio to 41%. D&A increased by 9%, mainly reflecting higher amortization linked to increased investment level. Financial results almost flat and the effective tax rate stood at around 23.5%, no longer affected by the temporary levy that impacted last year's results. Turning to the next slide, Page 14 now. We delivered strong cash generation with FFO reaching an outstanding EUR 4.1 billion and a cash conversion ratio of 70% FFO on EBITDA, already above the level targeted for 2027. On Slide 15 now, the sound cash flow generated by the operation more than covered total investments, including EUR 1 billion of inorganic investments. Over the period, net financial debt increased by EUR 0.8 billion, up to EUR 10.1 billion, reflecting dividend payments amounting to EUR 1.5 billion as well as the execution of the share buyback program that resulted in a cash outflow of around EUR 500 million. Gross financial debt remained almost flat with the average cost declining to 3.3%. And with this, I will now hand over to Pepe to present the strategic plan for the next 3 years. José Gálvez: Okay. Thank you, Marco. As we move from the review of our full year results to the outlook for the coming years, it is important to start by looking at the broader energy market context in which our strategic plan 2026 to 2028 will unfold. Spain still demonstrate a very high dependence on oil and gas, and this will not decline unless we accelerate the electrification of final demand. Electrification is not only essential to cut emission and reduce energy dependence, but also a key opportunity to reindustrialize the country, thanks to competitive renewable resources. In the medium term, electricity demand grows towards level close to the PNIEC for conventional uses, but renewable hydrogen demand is significantly delayed due to the systematic halt of projects. As a result, energy dependence will remain around 60% in 2030 and electrification near 31%, both below target. Demand growth by 2030 is driven by GDP-linked inertia, the electrification of industry, transport and buildings, although compensated by efficiency gains. Data centers will represent less than 5% of total demand. In the longer term, in order to meet the European Union's 2040 goals, conventional demand should grow by around 3% per year driving electrification to almost 50%. On top of that, hydrogen would add 120 terawatt hour of new demand. The development of this promising scenario necessarily requires significant investment in new infrastructure. The streamlining of project approval processes and above all, a stable regulatory and attractive framework. As shown on Slide 18, as of the 31st January 2026, the Spanish distribution network is close to its capacity limit with a saturation level of 88%. The situation is even more critical at Endesa, where around 94% of network nodes already saturated and unable to accommodate new demand. With this framework, we have been able to grant only 18% of total demand connection requests received. To provide some context for these figures, the 26 gigawatt connection request received along the year is well above peak demand of our entire national distribution network. Grid constraints are delaying or canceling investment. Grid saturation being a major barrier for economic growth, industrial electrification and the achievement of Spain's decarbonization target. In this context, boosting investment in distribution network is essential to ensure that the country does not miss a opportunity for sustainable economic growth. The ministry is fully aware of the severity of the situation and the forthcoming royal decree aimed at increasing investment limit is expected to provide additional headroom and improve the framework for accelerating the grid reinforce. Spain faces growing security of supply challenges. Wind and storage deployed capacity is significantly behind PNIEC targets, creating stress during period of low renewable output. Solar is expanding rapidly, potentially above the PNIEC, but without sufficient storage, it cannot replace firm dispatchable capacity. This leads to seasonal curtailments and winter deficits triggering the higher gas-fired generation. Nuclear plays a critical role in ensuring security of supply. We believe that extending plant lifetimes strengthens system stability by providing inertia and voltage control, reducing CO2 emission and lowering wholesale prices by at least EUR 10 per megawatt hour. With the removal of specific taxes, nuclear's full cost would fall below the cost of replacing its production with a mix of solar batteries and CCGTs, which would be roughly twice as high. To guarantee long-term reliability, Spain must secure firm capacity, accelerate storage, adapt the nuclear closure schedule to real PNIEC products and maintain combined cycles as essential backup for future renewables. Moving now to our 2026-2028 strategic plan. Let's now break down how this energy landscape shapes the key highlight of our strategy for the next year, and I am now on Slide #21. We now present a clear and balanced approach focused on growth, risk return discipline and financial strength. First, we will deploy EUR 10.6 billion investment plan over the period with more than 50% allocated to network, reinforcing our commitment to support electrification and reinforce grid resilience. The plan also includes selective investment in value-accretive renewable projects. Second, our resilient low-risk asset portfolio will deliver predictable growth, providing a strong visibility on future performance with around 85% of EBITDA regulated or contracted. Third, our financial strength enable us to deliver sustained profitable growth. EPS is set to grow at a steady 5% year-on-year on average, driven by higher investment business growth and the ongoing effort to improve productivity and efficiency. Turning now to Slide 22. Let me walk you through the investment profile of our new plan. We plan to invest EUR 10.6 billion, 10% more than the old plan with a clear strategic focus on networks and selective renewable projects, key enablers of the energy transition, which together will account for around 80% of the total. Investment in grid will increase by around 40%, reaching EUR 5.5 billion. This increase assumes the approval of the Royal Decree that would allow CapEx above the current regulatory cap as well as the full recognition of the investment deployed. This level of investment is essential to accommodate new demand connections, support electrification and reinforce network resilience. In renewables, the plan involves EUR 3 billion of investment focused on selective project positioned to capitalize on rising demand. And finally, in non-mainland, in addition to maintenance investment, only those related to the outcome of the capacity auction have been considered in order to extend the useful life of our power plants. And on Slide 25, focusing on grid investment. 52% of the investment in this plan will be deployed on networks. This plan marks a significant step forward in the share of investment contributing to RAB growth, plus 60% versus previous plan. Indeed, out of the EUR 5.5 billion CapEx, around 80% will flow into the RAB. As a result, our RAB will increase 13% by 2028. Worth highlight is that around 70% of the total CapEx plan or around EUR 900 million will be accounted as RAB and will contribute to EBITDA growth beyond 2028. Operational performance will continue to improve with lower TEP and reduced technical losses. Moving to Slide 26. During the time frame of the plan, we are allocating around EUR 3 billion of investment, 80% devoted to asset development, investment are 20% down compared to last year due to the more selective approach and to the fact that some specific projects have been rescheduled, extending the completion date. We are working to bring into operation 1.9 gigawatts of renewable capacity by 2028, mainly wind and batteries. This will allow us to achieve 25 terawatt hour output. Batteries and storage projects will play a key role, enable us to optimize production, stabilize renewable output, while ensuring power availability throughout the day. This project will deliver attractive returns with an IRR versus WACC spread to around 300 basis points with 21% of the CapEx contributing beyond 2028. Moving to next slide on Slide #27. I would like to comment on our site portfolio to develop a hybrid platform that offer optimal condition for data centers. This project combined existing grid connection rights, transfer land for fast deployment and the ability to provide full supply solution based on renewable and grid access. Within this plan, we are also progressing selectively on some singular projects such as Pego, which is scheduled to be in construction in 2027 and will incorporate 600 megawatts of new hybrid renewable capacity, wind, solar and batteries with an estimated investment of EUR 600 million. Its hybrid configuration enables an energy profile close to baseload, making it highly suitable for large-scale customers such as data centers. Endesa is well positioned to capture emerging business opportunities in the data center segment. When it comes to customer business drivers, I am on Slide #26. We will strengthen our position through loyalty, commercial alliance and better value management. On the one hand, we will expand our physical store networks, improving face-to-face services, especially relevant after the approval of the regulation restricting spam calls and phone contracting that will help to reduce fraud in the short term while improving more than 10% churn rate in the medium term. On the other hand, new alliances such as the consolidation of MasOrange from 2026 broadens our blended offer portfolio and reinforce loyalty programs. As a result of all these initiatives, our customer base is set to grow from 6.2 million to 6.7 million free power clients by 2028, while total our sales remain stable. Finally, it should be noted that the launch of an efficiency plan to improve our competitiveness in the current market environment. Looking at our second strategic highlight on Slide #27, one of the key assets we intend to foster is the high visibility and low risk of our earnings profile. Over the period, we expect to deliver around EUR 18 billion of cumulative EBITDA around EUR 85 million stemming from regulated or contracted activities, providing clear visibility on future delivery. Grid, we are almost fully regulated and a large part of our generation portfolio, including non-mainland generation and regulated renewables also benefit from remuneration schemes. Finally, a relevant share of electricity generation is already lacking through long-term contract and PPAs as well as by our fixed price customer portfolio, which benefits from a strong inertia, given us substantial visibility and predictability over a 3-year plan period. And now let me hand over to Marco, who will explain the main financial target of this new plan. Marco Palermo: Thank you, Pepe. I would like to introduce the third strategic highlight. We go now to Page 30, financial strength by showing a slide that clearly illustrates the resilience of our business. Our 2025 results already exceeded the target set under the previous 2025-2027 plan, highlighting the strength, the consistency and the quality of our performance. 2025 net ordinary income reached EUR 2.3 billion, 21% above the original guidance. Moreover, when compared with the former 2027 guidance in the old plan, it already represents an outperformance of approximately EUR 0.2 billion. Importantly, this strong performance is reflected by a sound 41% of EBITDA to net ordinary income conversion ratio. On Slide 31 now. Overall, these results reinforce our confidence in the business outlook, and they are a good starting point for the growth plan for the coming 3 years. EBITDA is expected to grow at a compound annual rate of around 4%, together with an improvement in cash conversion with the FFO to EBITDA ratio increasing to 78%. Net ordinary income is also expected to grow at a similar pace at approximately 4% per year, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. Profitability will remain stable with the net ordinary income to EBITDA ratio broadly maintained at around 40%. Turning to capital structure. Net debt is expected to increase to a range of EUR 14 million, EUR 15 billion by the end of the plan period. With this overview in mind, let me now take you through the evolution of our main business lines on Slide 32. EBITDA is expected to increase by around 10% over the plan, reaching a range of EUR 6.2 billion, EUR 6.5 billion by 2028. This growth is underpinned by three main drivers, which we will discuss in more detail in the following slides. First, an improvement in the distribution margin, supported by higher investment levels under the new regulatory framework. Second, the expansion of the generation and supply businesses. where the increase in the integrated power margin more than offset the expected normalization of the gas margin. And finally, a reduction in fixed cost driven by the rollout of a new productivity program supporting competitiveness in an increasingly challenging environment. We will now take a closer look at each of these drivers in the following slides. Let me now turn to Networks on Slide 33. Networks' EBITDA is expected to increase by a solid 10% over the plan period, reaching EUR 2.3 billion in 2028. This growth is primarily driven by the strong expansion of the regulated asset base, which is expected to increase by around EUR 1.5 billion over the plan period. Our second key driver is the entry into force of the new regulatory framework for the 2026-2031 period. Taken together, these factors will support an increase in regulated remuneration over the planned horizon. Turning now to Slide 34. Let me provide you with a more detailed view on the evolution of the free power and gas margin of the plan period. Starting with the power business. Sales to liberalized customers will remain broadly stable with an increase in free fixed price sales, representing around 80% of the total free sales. These volumes are increasingly covered by infra-marginal technologies due to the higher renewable output, leading to structurally lower sourcing cost. By 2028, the free power unitary margin will increase driven by, first, a strong improvement in the supply margin, mainly explained by the recovery of extraordinary ancillary service costs incurred after the 2025 blackout by the resilience of fixed price customer portfolio and by the reduction of sourcing costs. Second, positive generation margin on higher renewable volumes then more than compensate the impact of a lower price scenario. Finally, a slight improvement from the short position engagement. Moving to the gas business. Total sales will decline by around 33%, reflecting the expiry of the Qatar and the Nigeria gas contracts. Gas margin will normalize over the planned period, essentially due to retail gas margin remaining broadly stable. And in contrast, other gas margin normalizing from the exceptional high levels recorded in 2025. Turning now to Slide 35. Productivity has always been at the core of our strategy. But over the next 3 years, it will be even more critical to maintaining competitiveness in an increasingly challenging market environment. Over the planned period, fixed costs are expected to decline by 10%. This improvement is driven by a strict and well-defined efficiency program to be deployed throughout the period. A key enabler of this program is the broad deployment of digitalization and progressive implementation of AI-based solution across the company. These initiatives support more intelligent and real-time grid operations, higher efficiency and reliability in generation, more personalized customer interactions and productivity improvements across selected corporate and support functions. Together, they allow us to structurally improve our cost base while enhancing operational performance. Efficiency measures will be primarily concentrated in the liberalized businesses where there is greater flexibility to capture value. Actions include organizational streamlining, process reengineering, increase in-sourcing of critical activities and the recalibration of services provided by external suppliers. In summary, disciplined cost control, combined with AI-driven efficiencies enable us to protect margins, improve competitiveness and sustained performance over the long term. Turning to Slide 38 now -- sorry, 36 now. Looking at the net ordinary income, we expect a solid and sustained growth trajectory of the period with a compound average growth rate of approximately 4%, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. The EBITDA to net ordinary income ratio will remain around 40% throughout the plan. The updated plan represents a clear improvement in earnings per share growth. EPS is now projected to grow at around 5% per year on average, a meaningful acceleration compared with the previous plan where we envisaged up 3%. This acceleration is driven by a combination of higher underlying earnings and the positive impact of capital allocation actions, including the execution of the share buyback program which further enhances per share value for shareholders. On Slide 37 now, we will maintain a solid financial position, leveraging on strong cash generation and financial flexibility to fund growth while delivering sustainable shareholder remuneration. Over the course of the plan, net financial debt is expected to increase by approximately EUR 4 billion to EUR 5 billion. This evolution is fully explained by the balance between robust cash flow generation and a significant step-up in capital allocation. On the sources of funds, we will generate close to EUR 14 billion of funds from operation over the period. This reflects the strength and resilience of our underlying cash generation, supported by EBITDA growth and solid cash conversion with the FFO to EBITDA ratio expected to reach a sound 78%. The total cash outflows will amount to around EUR 18 billion. Cash investments are projected at approximately EUR 11 billion, and shareholder remuneration remains a key priority with dividend payments totaling around EUR 5 billion over the period complemented by EUR 1.5 billion related to the completion of the remaining share buyback program. Consequently, net debt-to-EBITDA is expected to move from the current level of around 1.8x, reaching 2.3x by the end of the plan period. And now I will hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. On Slide #39, we are confident that our strategy will generate visible and predictable returns, which is why we are updating our dividend policy based on current net ordinary income targets and the expected execution of the share buyback program, dividend per share is projected to grow at an average rate of approximately 4% over the period. This increase takes as a starting point an extraordinary 2025 DPS of EUR 1.58 per share. For the planned period, we improved the dividend policy by guaranteeing a minimum payment of 70% on net ordinary income further reinforced by the implementation of the remaining share buyback program by December 2027. Overall, we believe this represents a clear, sustainable and accretive remuneration policy, providing a high degree of visibility to our shareholders. Turning to Slide #40. In summary, Endesa is well positioned to capture demand growth opportunities beyond the horizon of the plan. This is why it is important to extend our perspective to 2030 for the business most directly linked to the energy transition. New demand will naturally transform into additional generation needs and further network strengthening requirements that will also put upward pressure on energy prices. Starting with renewables, the completion of the CapEx currently under construction, together with the additional capacity required to serve incremental demand will allow installed capacity to reach around 15 gigawatts by 2030. At the same time, our regulated asset base is expected to continue expanding steadily in line with the significant investment needs required by the Spanish electricity system over the coming years. RAB is projected to grow to around EUR 15 billion by 2030, implying a compound average growth of approximately 5%. This evolution reinforces the visibility and stability of our earnings profile and underlines and there's a long-term commitment to supporting the country's electrification and decarbonization objectives. This turns directly into stronger financial performance. Earnings per share are expected to increase from EUR 2.3 per share in 2025 to a range of EUR 2.8 to EUR 3 per share by 2030, also implying an average yearly growth of around 5%. On Slide #41, despite the increase in leverage envisaged in the business plan, Endesa preserves substantial financial flexibility, our strong balance sheet provides capability to move closer to the sector average leverage of around 3x without comprising capital discipline. These additional resources could be selectively allocated across several strategic priorities, starting maximum value from the hybrid project hub capitalizing on growing demand assessing selected M&A opportunities fully aligned with our long-term strategic framework and a strict value criteria accelerating the deployment of storage, leveraging on the increasing need for system flexibility. All of these opportunities will support additional growth, reinforcing the upward trend in EPS. Moreover, the possibility of enhancing shareholder remuneration policy is an optionality. Turning to environmental sustainability on Slide 42. This slide outlines Endesa's clear and credible decarbonization pathway. By 2030, Endesa's emission trajectory is fully alone with a 1.5-degree pathway reinforcing the credibility of our long-term ambition. Looking further ahead, our objective is to reach close to zero emission by 2040. In the short term, our focus remains on reducing direct greenhouse gas emission in the mainland system. By 2028, this translate into a further step down in emission supported by the continued decarbonization of the generation mix and the increasing weight of low-carbon technologies. This decarbonization road map is underpinned by a balanced approach that combines environmental ambition with system reliability and social responsibility. To conclude this presentation, let me turn to Slide 43 and share a few closing remarks. Our growth ambition is firmly anchored in highly predictable low-risk activities with a clear focus on business and projects that offer long-term visibility, stable cash flows and resilient returns. Efficiency is a central pillar of our strategy and a key lever to enhance performance and competitiveness. At the same time, we benefit from a strong financial flexibility, which provide meaningful optionality for growth and value creation. And finally, all these strategic drivers converge on a single, clear objective, delivering solid and attractive remuneration for our shareholders. Ladies and gentlemen, this concludes our 2025 financial results and 2026 to '28 strategic update presentation. Thank you very much for your attention, and we are ready to take questions. Operator: [Operator Instructions] Mar Martinez: Okay. We start now with the questions from our analysts. And the first one is Peter Bisztyga from Bank of America. Peter Bisztyga: I guess kind of my main question is to try and understand what has really changed versus your prior plan that drives basically like 600 megawatts -- sorry, EUR 600 million EBITDA improvement in your new 2028 guidance versus your previous 2027 guidance. If I look at your bridge on networks, EBITDA there is only EUR 100 million higher than in your previous plan. I think you're targeting, I think, only 600 megawatts more power generating capacity than the previous plan. So there must be a like a huge increase in your customer profitability, so in your retail business. So can you kind of confirm that, that's really where the biggest delta here is versus your kind of previous expectations? It would be useful actually if you could give euro per megawatt hour guidance on your sort of free power margin, gas margin and retail margin in 2028. You used to give that -- don't seem to in this presentation deck. You also actually don't guide specifically to EBITDA in renewables and customers, and I'm just wondering why that is? And then, sorry, final part to that very long question is how much EBITDA benefit do you assume in 2028 from the capacity market and also from the Almaraz extension, please? Marco Palermo: Okay. So good morning, Peter. Let's go through the three questions basically. So 2028, let me help you to bridge it with 2025. Basically, you have on distribution, as you were correctly noticing, I mean, we adjusted the 2025 because there were EUR 100 million of extraordinary. So if you look at with the adjusted 2025, it's a 15% increase, if you look at with the unadjusted is 10%. But basically, there, there is an improvement of EUR 300 million. And it could be even more because if you look, it's not everything optimized. If you look at charts, for example, '23, you can see that the CapEx generating margin beyond the plan, we put it at 17%. So basically, there is another EUR 1 billion that is not in RAB at the end of the plan. So -- but because, of course, it takes time just to build all the networks. So there is a that could be even more eventually. That is on the distribution, so EUR 300 million on the distribution that if you count the result of 2025 is EUR 200 million. Then you have another part that is on the margin -- on the free power margin that is the recovery of the ancillary services that we suffer in 2025. I mean, we always said that it was north of EUR 200 million, so slightly more than EUR 200 million. And we plan in 3 years' time, just to have all the time just to recover that. Then you have another part that is related to the higher production of inframarginal. That is the combined of two. On one side, we are, of course, doing a lot of repowering both in hydro and wind. So this somehow boost also the production, but we are also building new capacity. And therefore, you have a positive effect because on one side, you have less lower prices. But on the other side, you had another 8 terawatt production. So that net-net will bring you approximately EUR 300 million. And then you have another EUR 200 million of savings on OpEx. This is on the positive side. On the negative side, we will adjust the high marginality that we have enjoyed in 2025 on the gas, and that adjustment would count probably around EUR 400 million. So net-in-net, that's where you find basically this EUR 600 million of difference. This is on question number one. On question number two, just going a bit quicker. The free power margin that we are envisaging for the 2028, it's between EUR 55 and EUR 60 per megawatt hour. That basically is like taking the reference of 2025, the EUR 52 that were impacted by the ancillary services cost and bringing back these services there. Of course, there is most -- is more complex because you have power prices lowering down, but also the sourcing cost is going down, and that's why you basically keep that marginality. And on capacity, I would tell you that probably that is an upside of our business plan because basically, there is not much of capacity there, because we do not have visibility yet on what will be the market there, and we do not have visibility yet or what will be the plans that will benefit and they will win the payers bid there. So I mean it's like we will basically see what will come out. Thank you. Mar Martinez: Next question comes from Pedro Alves from CaixaBank. Pedro Alves: Congrats for the results and the presentation of cost targets. The first question, please, would be on the sensitivity of your 2028 targets to pool prices in Iberia and the TTF price as well for your gas margins? Second question on data centers. You mentioned ongoing discussions with data centers. So the question is, if you think that you could realistically announce something this year. And the third question on the CapEx envelope of EUR 10.6 billion. If you can provide us how much is roughly growth versus maintenance the CapEx? Marco Palermo: Okay. So thank you, Pedro. So on question number one, sensitivity on power and gas. On the power side, I guess that is another -- probably another feature of this plan. In this plan, we are not incorporating a strong increase of demand. So what we are seeing, just to give you an idea, is for this year, 2026, an increase of 1.2%. That, frankly, is lower than last year. And then in the following years, we are approximately at 2.4%. So basically, I mean it's not because we believe that this will be the increase in the demand, but it's because we really don't know where to place the real ramp up. We feel that probably it is starting. Of course, when we started the plan, we had not this feeling. But I mean, there -- it depends on what will happen on the demand. So on the demand side, I feel that we were kind of conservative. On prices, as you have seen, I mean, we adopted the forward that were at that time. So basically, in 2027, going to EUR 58 megawatt hour. So I mean there, I guess that there is a kind of balance between the two. And on gas, I mean, reality on gas in our plan, all the profitability and all the marginality will basically come from the retail business at the end of the plan. So basically, we are assuming that on the -- as I said in the speech, then from the other gas, there is not coming much of marginality, frankly. Regard data centers. In data centers, are we planning to announce something soon? I guess that definitely, we are planning to do something in the course of the year, of this 2026. We have some of the developments that are more advanced. We decided just to put one of the references of something that is very well known, that is the Pego project in the presentation. And there, we signed agreement. The positive part I guess of the plan is that in the plan, there are basically, there is not the upside of the data center. Why do I say so? First of all, because, as I said, in the demand increase, we are not assuming the data centers really kicking in, first. Second, in the plan, we are not assuming any particular PPA basically and higher price PPA. And the third, we are not assuming any upside or any extra margin related to the sale of the land or the access to the grid connection. Why is it so? Because, I mean, we want to see exactly what are numbers that we will somehow see when we sign the agreements. And on the third question regarding how much is growth and how much is maintenance. I would say that basically, the maintenance CapEx is approximately 30% of the total, with the rest, of course, being incremental CapEx, growth CapEx. Thank you, Pedro. Mar Martinez: We have missed a last question from Pedro. If you allow me, the sensitivity to EUR 1 of increase of prices -- power prices, it translates to around EUR 20 million. Okay? Thank you, Pedro. Now we have Javier Garrido from JPMorgan. Javier Garrido: First question would be on the supply business. I was wondering whether you can be a bit more specific about the supply margin in '25. And particularly, you could also elaborate a bit more on how do you plan to take control of customer losses given that the pace of reduction has slowed down, but you are still losing customers. How do you plan to make that increase in customers even if we exclude the MasOrange acquisition? The second question would be on the dividend policy. You could clarify a bit more the dividend policy. Am I right in understanding that the new dividend policy is at least 70% payout ratio, so that it results in at least 4% DPS CAGR? Or is there any different interpretation? And the third question is on the cash conversion of EBITDA. It increases significantly from 70% to 78% through the plan? Would you mind to please elaborate on why that increase? What's exactly driving the improved cash conversion? Marco Palermo: Okay. Thank you, Javier. And sorry to Pedro before for losing the last part of your question. Javier, so basically on supply on 2025, as you have seen, the marginality, the free power margin was 52%, so lower than the previous year, and it was a mix effect. I mean, it was lower than in 2024, but not so much lower when compared to what has been the impact of the ancillary services. So somehow there, I guess, that in 2025, you can see the good performance of the business. You're right. I mean, we have suffered last year of many losses of clients. But again, I mean, there are kind of two markets, I would say, there. There is a market that is healthy. There is a long-term client that experience a normal churn rate and then there is another market that experiences a very high churn rate. And if you allow me, even a very high level of fraud. And that has been constantly rotating. So I mean, what we understood at a certain point was that we were basically losing money on them. Because we were putting money just to acquire them and putting money and putting more money and then losing those -- the permanence of those clients was very short. There was no time just to get back the investment. So I mean, it simply made no sense. So we prefer to go for something different. So we accepted losing part of the clients, and we went for the acquisition of MasOrange that was basically not because we acquired the clients, but because we were now able to serve bundled products. And apparently, it is working because, of course, in the -- at the end of last year, we were reducing a lot the losses. And I mean, we cannot comment on this year, but I guess the situation is somehow also the acquisition of MasOrange is proving that probably we have seen it correctly. When you go to the dividend policy, yes, you're right. It's the correct understanding. So basically, at least our payout will be 70% and at least the 70% converts in at least 4% of CAGR on the DPS. And then on the cash conversion, I guess that, of course, there is a kind of a challenging target that we are giving to us. But basically, we're doing a lot of jobs, a lot of job on every business just to improve the cash profile of each one of those. So we think that all these efforts that actually we started in the previous years can somehow come to give all the fruits at the end of our business plan. Thank you. Mar Martinez: Okay. Thank you, Javier. We move now to Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I'll have three questions as well. Could you please elaborate on your churn rate assumption? And how much is it right now? And how sustainable are the current levels before the new entrants start to lose money? So can you maybe elaborate a bit on the dynamics that you embedded in the plan on this? Secondly, there is a very exhaustive slide on cost savings on the reduction in the fixed cost. I think you have four buckets, right, network automation to AI, labor. Would it be possible to tell us what the biggest buckets are one or two perhaps? How much of this is natural attrition, people that are retiring or being pre-retired? And then you hire someone coding on copilot or close that replaces five people. So how structural is this? Can we assume that this EUR 300 million reduction will carry on beyond '28 and for several years to come? And the third question. I mean, you still have ample balance sheet headroom. So if you were to think about how to utilize it in the medium term going to beyond '28? Is there any way you could rank in terms of priorities, either what you favor or what is possible? So would that be more organic growth in Power Grid? Would it external growth in clients or power gen? Would it be more share buyback? Marco Palermo: Thank you, Alberto. So regarding the first one on churn. I would say that there, the assumption of what we are experiencing right now, it's an elevated churn that is in the range of, I would say, 25%, 30%, okay? It's very high churn. And as I was saying, it's very somehow concentrating on some of the clients. Now are we seeing this somehow going to normal level during the plan? No. We are still assuming that at the end of the plan, the churn will remain very high, not at a normal rate. But yes, a bit decreasing. And we are assuming this because we think that at least the frauds and all the part of that is somehow impacting strongly on the churn should somehow be reduced. We recently approved Royal Decree on that, trying to get rid at least that part. And we really hope that, that will be somehow effective in reducing at least that. And on the other side, I mean, all the measures that we are somehow putting in the plan and that we are delivering, we started doing this last year in terms of, for example, physical point and that, of course, attract the clients and then they have a lower churn, but also all the changes that we made, the bundled products. I mean, there are many, many things because this is -- there is not something one specific stuff that stops the churns. So all this kind of stuff, we really think that will kick in. So again, very high churn in 2025. We still assume that at the end of the plan, we will be still high, but lower than this because of the reduction of the things that we are doing and also hopefully, the reduction in the fraud level. Regarding the second question, cost reduction, I mean, this is not making me very popular here. But I mean, here, there are many things. We started this -- first of all, is it structural? Of course, it is structural. We started this last year. Because it takes time just to have a structural contention of costs and productivity. And it's -- there are a lot of measures there. Some of those will reduce costs. Some others will improve the quality and not necessarily reducing cost, but -- so I mean there are a bundle of things. When it comes to whether this somehow touches also the personnel, I mean this is kind of still sensitive. What I can tell you is that this is not the first time whether we do this. I guess that is history. In history, this company has been used to make these structural changes. So for example, when the call was closed or when we decided to move to the cloud and blah, blah, blah. So I mean, in all these moments, the company has been capable of treating this properly and of course, doing it in the proper way with the support of all the employees. And on the third point regarding the ample balance sheet that we keep -- yes, it is true, we still keep it. We think it's actually a plus, it's a benefit. Why so? Because we think that there could be opportunity. The opportunity could come from the fact, for example, that if you look at the plan, there is, yes, an increase on the CapEx in distribution, but there is a decrease on the renewables that vis-a-vis the old plan that it's not something that explained it itself. But what we think is that we have a lot of things there ready to go. We need to assess exactly where the -- when the demand will start to kick in, just to somehow eventually go even more with investment there. And priorities, I guess that some of the things we can do ourselves. I guess that there could be things available in the near future. So I mean, of course, on all this, we do not comment. But in terms of our priority, I guess that it's very clear where we have been putting money along the last couple of years. So I mean, I will go to that. And will there be space eventually also for more shareholder remuneration or shareholder remuneration improvement? Of course. I mean, we will somehow balance. We have ample room there, and we will somehow balance. Mar Martinez: Thank you, Alberto. Next question is coming from Manuel Palomo from Exane BNP. Manuel Palomo: I've got three questions, if I may. The first one goes into one of the things that you've mentioned in order to achieve improvement in the integrated margin. First thing I'd like to know to get the confirmation that you assumed the extension of Almaraz 1 and 2. And in case there's no extension, what could be the impact in terms of terawatt hours? And if you are assuming in case that it gets extended, any additional CapEx related to it? The second one also related to the, well to the, production output is. What is the impact you're assuming from hydro normalization after an excellent '25? And it looks like still a very good '26? And lastly, on the generation output, why adding 1.5 gigawatts of wind and solar in Spain, given the level of curtailments that we are seeing? Do you really need it? Or would it be -- wouldn't it be enough just go into the wholesale market and purchasing the electricity? Second question is on the other side of the integrated margin is on clients. You are assuming 500,000 additional clients, if I'm correct. I understand that you have already purchased [ MasOrange ] plots, my question is, are you expecting to see a decline in the final achieved price to customers? And could you give us a reference? And lastly, it is about the regulated business. If I'm correct, you're roughly assuming EUR 1.8 billion per year CapEx. Is this granted? Or will you need any additional authorization from the Spanish government/regulator? Marco Palermo: Okay. So Manuel, let me go through, I guess, that let's see if I get all of those. First of all, on free power margin, actually, you were asking on Almaraz and someone else, I guess, that I forgot this before. On the Almaraz extension, yes, we are putting in as an assumption coherent with the request that we did to the nuclear authority that there will be an extension of Almaraz. Almaraz for us in the plan is basically one group in 2028 and means approximately 3-terawatt hour of increasing production. There, I would say that there are -- there is a positive that is that you have 3 terawatt hours more that you sell. But there is also a negative because, of course, the nuclear allowed the system just to keep a lower power price. So I mean that's why it is so important for Spain to keep it. Therefore, if you take it off, you have an effect on the prices there. So the mix of the two is positive for us because we are talking about the 3-terawatt hour but the combined effect is less than EUR 100 million. And on Hydro, yes, on hydro in what we are seeing, I mean, it's public dominance. I mean the hydro production in 2026, actually, apparently, it's better than in 2025. We had a very good start in 2025 than not a very good ending of the year in 2025. Apparently, it looks like it's better this year. On generation output, the combined, I mean, when you see solar, wind and so on, in reality, they are concrete projects, and those are related to, as I said, data centers. So it's -- can we buy this on the market? Yes, but those projects are the ones that have closer data center. So I mean, in that case, we would rather prefer the little more marginality if you build, if you develop the project and you serve the data centers instead of trying to buy energy on the market. On clients, I mean, the 500,000 more just basically, I mean, we are at the target right now. So if you look at from that perspective, with MasOrange, it means that we have to try to defend this until 2028. Do we see a decline in price? Of course. I mean, with the decline in price of the market, you -- it's lower, of course, that you see a decline in price on the customer, but you do also see a decline in the cost of sourcing. So that's why you maintain the marginality. It is true that then the prices on the market takes a bit of time just to reflect. So it is true that when the prices on the spot goes down, they do not immediately reflect on the B2C or on the SME, blah, blah, blah, but also the opposite is true. When they increase, they do not immediately reflect on the final market. And regarding the regulator, so regarding the level of investment, what is still missing is what the government announced that basically was a decree just to allow till 2030, an increase of the cap that currently is 0.13% of the internal product for up to 63%. So basically 60% more. So that is what has been announced by the government at the end of 2025, and we are expecting this decree to come. I hope that I got all your question. José Gálvez: Let me get some color about the nuclear and perhaps about the distribution. You should take -- why we have decided just to stand or to delay the close of Almaraz in our plan. First of all, you should take into account that the time table for closing nuclear plants was set in 1918. And since then, the context and priorities has changed substantially. The second thing is all countries are addressing extension and new power station even. But on top of that, for us, there are technical, environmental and economic reason for delaying its closer. Technical reason, let me say, on the one hand, it makes no sense for group belonging to the same plant closing in different years. That is, and you know that it was expected the close of Almaraz 1 in the year '27 and 2 in the year '28. The second thing is that the interim storage facility, the so-called ATI will not be completed until 2030 at the earliest and nuclear waste cannot be managed until then. So it can send just to delay a little. On the other hand, there is a significant delay in the deployment of storage and wind power also. The system requires synchronous generation to manage both frequency and voltage and the energy balance up to 2030 would be more balanced, if you want and secure and with less energy dependence if we continue with these power plants. With regard to the environmental reason, the closure of the nuclear power plants would not lead to a slower growth in renewables, but rather to an increase in combined cycle production and consequently in a mission. And the economic reason and Marco has said maintaining nuclear power generation, reduce the cost of the electricity market. So all in all, we have acted to the ministry just to delay the shutdown of Almaraz. And we are confident that it would be done. With regard to the networks, let me say that increasing investment in the Spanish network remains essential for the integration of renewable, for the electrification of demand and for ensuring system stability. As you know, the grid has virtually no remaining capacity to accommodate rising demand. And in any case, this increase in demand is going to be a very good team for the renewables, especially for the solar power plants. It would be a good thing for the economy of the country. So at the end, we have decided that it's going to be a good thing for all the government, for the country and for us. So that's the reason why we have decided. Let me say that we assume that the Spanish government has already anticipated, will rise the regulatory investment limit. The ministry projects a significant increase in investment in networks between 2026 and 2030, totaling 11.3% if I'm right, EUR 3.6 billion coming from transmission and EUR 7.7 billion from -- for distribution and exceptional, as Marco has said, a 62% increase in the investment limits in order to adapt them to the new context of the energy transmission. This EUR 7.7 billion increase in distribution investment limit is something around EUR 1.5 billion per year turns into a capital rising from the current EUR 2.1 billion to something around EUR 3.6 billion. So this could imply something around EUR 600 million in additional net investment for Endesa on top of the EUR 900 million that we had today. So based on this, we feel confident just to increase the investment in the network in Spain. Mar Martinez: Next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions on the context, the European context for electricity company. The first one is on the debate that maybe the Italian government and the German government have opened up on an effort to reduce overall electricity prices through the Eurozone. So I'm interested to see your view on the implication that this may have on the pricing setting dynamics through the Eurozone? And how do you think that debate is going to evolve? And in this context, you can share with us the assumption that you are embedding into your business plan regarding carbon prices to 2028. That would be the first question. The second one is on the data center discussion. So it's evident that there would be installation of new data centers to Europe and the Iberian Peninsula as well. So I wanted to ask you your view on the model that should be implemented to avoid unintended consequences, because obviously, there is going to be higher electricity demand, and that could impact overall electricity prices as well. So do you see that, that may impact the way data centers are going to be installed and what would be the way of isolating those unintended consequences? And the third question is on the slide when you are talking about a leverage evolution and financial flexibility. When you are referring to a scouting brownfield opportunities, if you can elaborate on those, how those opportunities should look like as you're referring to renewables energies on the Iberian Peninsula? Or are you referring to a broader set of opportunities? And also on the storage plan, how do you see installation of new storage impacting the dynamics for the Spanish electricity sector? José Gálvez: Okay. Thank you, Javier. I will try to give some color, and then Marco will go deeply on that. About the effort to reduce prices. Well, first of all, I would like to say that the energy transition at least, in my opinion, is entering a more mature challenging phase. Clean energy development continues, but delivering deeply decarbonized resilient energy system is far more complex than simply, I would like adding megawatt, renewable megawatt. Technology evolution when we see the technology evolution, Hydrogen is the most delayed driver of the PNIEC due to economic reasons, less than -- I think that in the PNIEC it was expected something around 50-terawatt hour in the year 2030. And I guess it's going to be less than 10-terawatt hour. Talking about the storage, PNIEC include plus 15 -- gigawatt of storage needed by 2030, up to 22.5 gigawatt, if I remember well. It is clear that we are going to be in a figure lower than 9-gigawatt instead of the 15 gigawatt expected. So that -- and why this? Many things is -- one of the thing is the delay in the development of these technologies. The other thing is the geopolitical tension and macroeconomic pressure, taking into account the COVID pandemic, the war in Ukraine and the delay is the, let's say, predictable trade tariff. So we are living in a market uncertainty, complexity and commodity price volatility. Energy demand was flat during the last year, but now we are expecting that outpaced improvement in energy efficiency. Also, there are movement in all the countries. So at the end, things could change. But in case of -- in the case of the carbon prices, I think the CO2 price should be and will be one of the main drivers of this transformation. So the focus for me is not going to be -- or not should be the reduction of the price of the CO2. It should be the electrification and the decarbonization. We should continue adding renewables. And we should -- we are obliged just to electrify the demand. So taking this into account, I think that it has no sense just to look for a reduction in the CO2 price. What I think is that the solution should be yes to subsidize some industries, perhaps the very high industry, very high consumption industries instead of that. I think that there is no sense to approve the one decree in Italy and also it's not going to be something general in the rest of Europe. What I think is that it's not going to be downward in our plan. Marco Palermo: Thank you, Javier. I mean, question number two related to data center. I mean, it's a very interesting question and will take us a very long time to debate on that. But the data centers consumption are consumption basically are baseload. So what we are seeing -- what we are proposing what we are seeing also on the data centers, developers and hyperscalers is they are conscious that from the fact that, of course, they will impact the demand. And therefore, we do see merit in trying to develop for them this integrated bundle of technologies in order to try to replicate a baseload and in order to have the data centers that is closed by to his own feeding, to his own supplier somehow. Then, of course, the grid would be a kind of back up for the peaks or for the moments where exactly this bundle of technologies, altogether, the wind, the solar and the battery are not able to provide the energy. But what we are seeing is that -- and we're seeing this in Aragon, I mean, this is starting. You are having the development of the data center, but in the close by, you're having also the development of renewables. And actually, the data centers, they are trying to develop close to big areas of development of renewables in order to have their suppliers in the close by. Of course, it's not perfect. It's not a perfect baseload. But for the time being, it's the best approximation of that. And on question number 3, regarding financial flexibility. I cannot be too specific because, of course, I mean, this -- I will be generic, because I don't want to screw conversation that we're having. But I would say that it's not a secret that we are interested in hydro. And when I'm in hydro, it's modulating hydro, but it's also storage hydro. Actually, in the plan, we have expansion of pumping in our plan. So we do not see the results in the plan. But yes, we do the CapEx in the plant. And we are looking for more. We are looking also at storage to develop our own storage or eventually, we could be interested in batteries for the time being. It's not of a secret that we are interested in wind. And I mean, I guess that, that in distribution, we are satisfied with all the investments that we have, but of course, I mean, it's also an area. So I would say that there is a big list of technologies and of areas where we could be interested. Again, yes, focused on the Iberia Peninsula. Mar Martinez: We move now to Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Congrats on an impressive plan and thanks for all the answers so far. You'll be glad to know I have one question, and that's just to clarify something on the buyback. So you mentioned the second tranche of EUR 500 million is 30% complete, if I heard you correctly. But I think you also said -- and is that going to be completed by mid-July? Or is that the third tranche? Effectively, can we just get a little bit of color on the sequencing of the buyback? So is the second tranche through to July, the third tranche in the second half of this year and then the fourth tranche will come in 2027? Or do I misunderstand this? Marco Palermo: So Rob, yes. First tranche was basically completed, almost completed. We bought, if I remember correctly, EUR 440 million out of the EUR 500 million and we are now canceling the shares. The second tranche that we launched another EUR 500 million should lapse by the 27th of February. And out of this, I mean, it's now ongoing. I guess that we bought approximately EUR 120 million probably at a price that was a bit higher than EUR 30 per share. But I mean, it's the one that, in any case, should elapse from the 27th -- of by the 27th of February. So the third tranche that we just announced will start -- will kick in from the 2nd of March until basically the end of June, and it's another EUR 500 million. And then with -- I guess that our idea is to continue with another tranche we have. At that point, we should have approximately another EUR 900 million to complete by 2027. And I mean, I guess, that we will continue also in the second part of 2026 with other tranche. I mean, that's like -- let's see, but it's our area. And we should be finished in any case by 2027. Mar Martinez: Thank you, Rob. Next question comes from Arturo Murua from Jefferies. Arturo Murua Daza: I just have one. Going back to the decree to increase the network investments. My understanding is that part of this increase will only be remunerated if the demand comes through after a few years. So if you could share a bit of more color how this will work? And how are you counting this in your numbers? Marco Palermo: Okay, Arturo. So basically, here, the point is that generally, what we try to do is to start an investment in the grid at the beginning of the year and to try to put in operation by the end of the year, so that we can get the RAB on that. Now sometimes there are -- particularly if you increase the pace of investments, there are investments that you start at a certain year and that not necessarily are put into operation at the end of the year. So there is a kind of ramp up. So in this ramp up when you have this ramp up, you have at the beginning the negative effect that you are investing and you are seeing -- you are always keeping the pace and you are seeing the remuneration from the next year. But of course, when you finish this ramp up, you have the benefit that you can still enjoying the ramp up even though you're not investing. Now we are in the first part. That is ramping up the investment and so not immediately seeing all the benefits. So that's why we wanted to highlight. Because in the plan, I would say that at the end of 2028, we are missing almost EUR 1 billion of RAB there that, of course, will come later but the plan in itself is not optimized. I mean, that's what it is. We cut at the plan at the end of 2028 and there were almost EUR 1 billion of investment that were done, but not yet in operations or not yet in RAB. So that, of course, you find out the next year. And that's why we wanted also to give you a flavor of what could be 2030 because this is something that is embedded in the plan in all the businesses. In distribution, you will see the benefit also in the year to come. And the same in the generation because also in the generation, we have some of the projects, I was mentioning, for example, the pumping, we were putting the money, and we were not seeing yet the EBITDA. So I mean, there are things that you only see later on. So that's why we wanted to give also a flavor of what could be the 2030 because the plan in itself is not optimized. We cut it at 2028, and that's it. Mar Martinez: Next question comes from Jorge Alonso from Bernstein. Jorge Alonso Suils: I have a couple of questions, please, and it's on the cost cutting and efficiency plan of this EUR 300 million. Could you give us some more color about in which areas can be allocated? So it will be more in distribution? Should we see that more in the whatever thermal generation just to understand, at the unit level, where can we see the impact of that efficiencies at EBITDA level? The other one is in distribution as well if you can quantify the expected incentives, the amount of incentives that you are expecting or considering in the calculation of the revenues or EBITDA in the plan? And as well, and I think that we already answered is that we see CapEx in 2028 in distribution of EUR 1.9 billion, but the legal cap will be the EUR 900-plus another EUR 600 million, so it's around EUR 1.5 billion. So if we should consider the normalized CapEx going forward between EUR 1.5 billion, EUR 1.6 billion or do you still see room because of the need of investing EUR 1.9 billion or EUR 2 billion annually beyond 2028? Marco Palermo: Thank you, Jorge. So on cost cutting, important question there because, of course, there are areas where we are not putting a particular focus. And those areas are mainly the one-off distribution because with the current scheme of how the regulator decided just to somehow squeeze the profitability of the efficiencies. I mean, there is not so much merit to whatever you do, actually, you're doing more for someone else. So I mean, on distribution is less of a focus and as well as on Nuc because it's another regulated staff and super sensitive. So all our effort is basically focused on, as you were correctly mentioning on generation. But I would say also supply that, of course, I mean, the market is changing a lot. We think that AI is -- will impact this a lot. And the things that we are doing and the restructuring that we are doing will impact it a lot. And as always, the structure and stuff that, of course, given what we are seeing could come as a revolution, it's an area that will be impacted. When we come to question #3 regarding the CapEx, yes, you're correct. I mean the EUR 1.9 billion. Is this over the limit? No, it's not over the limit. You have to remember that basically the limit applies to the 13% of the GDP, the 0.13% of the GDP, the GDP has been increasing. So of course, you have this limit that is increasing year-by-year. And on top of that, you put the expansion that is allowed until 2030. So our plan is designed not to overcome that limit in any of the year. Actually, we are every year, we are slightly below that. We cannot risk to go over that limit. And there was incentives. What was the question? Mar Martinez: [indiscernible] Marco Palermo: Yes. No. I mean on the incentives, Jorge, we will not give you numbers, but yes, there is, of course, an improvement. I mean, we also highlighted that basically offsets what you have been -- what we have been experiencing as a negative on the OpEx efficiencies. Mar Martinez: We have now Jenny Ping from Citi. Jenny Ping: A couple of questions from me, please. Firstly, just a clarification question on the power price sensitivity. You said EUR 1 per megawatt hour is EUR 20 million. Is that on EBITDA or net income? Secondly, in one of the notes in your slide around the net income growth of 4%. I think you explicitly say in the footnote that you've assumed a 71 million shares in terms of the net result of the buyback. If I take out what you've already bought back in 2025 implies a sub EUR 30 a share of price in terms of buybacks. So does that mean that you're expecting to limit your buyback, anything above a EUR 30 threshold? So that's the second question. And then thirdly, maybe I missed and apologies if I did. What are you -- where are you now on the Ireland generation investments where you've got to on that and the expectation of spending over the next 3 years, please? Marco Palermo: So power price, the EUR 20, it's for the EUR 1, it's on EBITDA level. On your assumption, I mean your deduction on the limit of our share buyback, I mean what I can tell you is that, we have been buying share last week. I mean, we just published. This is -- we can share it as a public information. We just shared it last night, it was published last night. The program has been buying last week for all the week. And I guess that the price of last week was around EUR 32 per share, I mean, something like that. So no. I mean, actually, the plan will buy at the price that is the price of the share on the market basically. And on the islands on the third question, regarding the islands there, we -- there has been the -- actually the final results of the tender. And we were assigned with some of those. Actually, we had an extension of life in some of the power plants. Some of this life extension were coming also from -- with the incremental CapEx. And I mean, that's what we are starting to work on for the near future. It is also worth noticing that there will be -- there has been also other players than being allocated new capacity in different islands, and we welcome that. And we think that -- I mean, that's what exactly what it is needed on the islands, and we welcome also the fact that we were not alone in defending the regulation there vis-a-vis the regulator. And in terms of investment, we are foreseeing approximately EUR 200 million, EUR 300 million along the plan. Mar Martinez: We have now Pablo Cuadrado from JB Capital. Pablo Cuadrado Tordera: Yes, quick questions for me. One will be on the tax rate that is assumed in the plan. I wonder -- I look at the full year results, and there was a decline of 3.5% on the tax rate year-on-year. Clearly, there were the removal of the tax impact and the revenue impact that it was before. But still, is the basically 2025 figure that 23.5%, the one that we should assume for the next few years? And second question will be on -- I saw that you provided the return, let's say, versus WACC that you get on the renewal segment at around 300 basis points, while the CapEx is going down in this new plan. I was wondering whether you can share which is the spread over WACC on the return that you are supposed to like on the network investments that they are clearly increasing in this plan. And final one is on the unitary generation supplier margin. Clearly, what you put on the slide in that you are expecting an increase and explained perfectly the reasons. But shall we assume given that there is no figure that basically the reference that you provided last year, is the EUR 57 per megawatt, if I'm not mistaken, still should be a valid reference going through 2028? Marco Palermo: Thank you, Pablo. So on tax rate, well, you should expect now that we do not have the extraordinary levy, you should expect as approximately south of 25% generally year-on-year. We generally can be lower because sometimes, I mean, we have also investments that are recognized as deduction, for example, in innovation and in this kind of things. So those when you have this kind of investment, then you tend to have a slightly lower tax rate. In terms of profitability actually from, expected profitability from our investment, yes, you're right, there are the 300 bps for what it is greenfield renewables. In the case of networks, we work with 200 basis points because, of course, the risk profile of those investments is lower, and therefore, it is okay with lower requirements in terms of bps. And in terms of prices, for 2028. I mean, of course, we didn't put the number there for a reason. But again, I guess that you're not far -- what I said is that we are in the range of EUR 55 to EUR 60. So with -- your EUR 57, you're not very far away from -- I mean, you're there basically. Mar Martinez: Good. This was the last question from the conference call. So thank you very much for attending this meeting. And as always, IR team will be available in case you need something else. Thank you very much. Have a nice day.
Operator: Greetings, and welcome to The Home Depot Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead. Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's Fourth Quarter and Fiscal Year 2025 Earnings Call. Joining us on our call today are Ted Decker, Chair, President and CEO; Ann-Marie Campbell, Senior Executive Vice President; Bill Bastek, Executive Vice President of Merchandising; and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. [Operator Instructions] If we are unable to get to your question during the call, please call our Investor Relations department at (770) 384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements under the federal securities laws, including as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release in our most recent annual report on Form 10-K and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures, including, but not limited to, adjusted operating margin, adjusted diluted earnings per share and return on invested capital. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now let me turn the call over to Ted. Edward Decker: Thank you, Isabel, and good morning, everyone. Sales for fiscal 2025 were $164.7 billion, an increase of 3.2% from the same period last year. Comp sales increased 0.3% from the same period last year and comps in the U.S. increased 0.5%. Adjusted diluted earnings per share were $14.69 compared to $15.24 in the prior period. In the fourth quarter, comp sales increased 0.4% from last year and comp sales in the U.S. were up 0.3%. Adjusted diluted earnings per share were $2.72 compared to $3.13 in the prior year. In the quarter, our regional performance varied with our Northern and Western division posting positive comps. In local currency, Mexico reported positive comps and Canada reported negative comps. Our fourth quarter results were largely in line with our expectations, reflecting the lack of storm activity in the third quarter and ongoing consumer uncertainty and pressure on housing. Additionally, storm activity in January provided a sales benefit in the quarter. Adjusting for storms, underlying demand was relatively stable throughout the year. As you'll hear from Billy, we are growing market share by delivering the best value proposition in home improvement. As we shared with you at our Investor and Analyst Conference in December, we are uniquely positioned to grow share of wallet with all our customers. We are investing across the business to drive our core and culture, deliver a frictionless interconnected experience and win the Pro. As Ann will detail, our teams did an incredible job staying engaged, focusing on the customer and elevating the customer experience. In fact, our customers are telling us that our associates continue to deliver exceptional service. In addition, our merchants continue to offer tremendous value as evidenced by record-setting events in the quarter. We're also encouraged by the traction we see with the Pro. Pros who are utilizing our Pro ecosystem of capabilities are spending more with us, and we remain focused on enhancing our capabilities from sales support to project management to delivery, all to better support Pros throughout the life of their projects. This year, SRS grew organic sales by a low single-digit percentage and expanded market share despite pressured industry demand and lack of storms in the back half of the year. This is a testament to their strong value proposition, customer relationships and consistent execution. In addition to the GMS acquisition, they completed several tuck-in acquisitions and opened a number of greenfield locations across their verticals. Going forward, we will continue to support SRS' momentum, and we expect their organic sales to grow mid-single digits in fiscal 2026. Looking ahead to fiscal 2026, we expect total sales growth of approximately 2.5% to 4.5%, comparable sales growth of approximately flat to 2% and adjusted diluted earnings per share to grow approximately flat to 4%. We remain focused on delivering the best customer experience and value proposition in home improvement. We have a clear growth strategy, and we're investing in our stores, in our interconnected shopping experience and in the Pro to grow share in any market environment. I want to close by thanking our associates for their hard work and dedication to serving our customers in a dynamic year. With that, let me turn the call over to Ann. Ann-Marie Campbell: Thanks, Ted, and good morning, everyone. First, I want to thank our associates who did a great job serving our customers during the recent Winter Storm Fern that impacted many of our communities we serve, particularly in our Northern and Southern divisions. Our priority in situations like these is always the safety of our associates and customers. We activated our emergency response protocols, we're working with our vendors and merchant teams to deliver essential products to the appropriate stores. This ensured we remained in stock and ready to serve our communities before, during and after the storm. As always, I'm extremely proud of how our team showed up for each other and our customers, and that commitment continues to be a defining part of who we are as a company. As you heard from us in December, we are focused on the core and culture of our company. Our associates are the key to delivering an exceptional customer experience. Their passion, knowledge and expertise are critical to solving customers' problems and fulfilling their dreams. Over the last year, we have talked about how we have enabled tools and processes for our associates to better serve our customers. These changes not only increase associate engagement, but also enhances store performance by driving higher sales, productivity and efficiency in our operations. We are also improving the customer experience by transitioning tasking to our MET. Our MET team's core competency is servicing our bays and executing merchandising changes in our stores. By transitioning tasking to them, our Orange Apron associates have more time to engage with customers and drive sales. And while this transition is not complete, in our pilot stores, we have already seen a meaningful increase in labor productivity. Over the years, our business has evolved to meet the needs of our interconnected and Pro customers. As you know, over 50% of our online orders are fulfilled through our stores. Ensuring that our orders are picked, staged and delivered in a reliable and repeatable fashion is critical to providing a frictionless customer experience regardless of the type of fulfillment, whether picked up in store or delivered the same day to a home or job site. As a result, we have realigned certain positions in our stores to better drive the outcomes we desire. We now have an operations experience manager who is responsible for managing customer service more broadly, including driving uniform operational processes to enhance the interconnected and fulfillment experiences. And for Pros, our dedicated unified Pro team, including a Pro customer experience manager continues to elevate the Pro experience in our stores by assisting Pros and serving as a main point of contact, ensuring a superior and cohesive shopping and fulfillment experience for our customers inside and outside of our stores. As a result, we've seen increased engagement, higher Pro sales and continued growth in our Pro Xtra loyalty program. We're excited about all of the progress we have made in our stores this year. Our efforts are paying off. This year, our customer satisfaction score increased every quarter, and our tenure with hourly associates is the highest it's been since 2017. Our associates continue to go above and beyond to serve our customers despite a challenging environment, and I'd like to close by thanking them for all that they do. We are relentlessly focused on delivering the best customer experience in home improvement, and we know that our efforts are positioning us well to grow share in the market. With that, let me turn the call over to Billy. William Bastek: Thank you, Ann, and good morning, everyone. I want to start by also thanking all of our associates, supplier and supply chain partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, our performance during the fourth quarter was largely in line with expectations with underlying demand in the quarter similar to what we've seen throughout the year. Turning to our merchandising department comp performance for the fourth quarter. Eight of our 16 merchandising departments posted positive comps, including power, electrical, storage, indoor garden, hardware, plumbing, bath and kitchen. During the fourth quarter, our comp average ticket increased 2.4% and comp transactions decreased 1.6%. The growth in comp average ticket primarily reflects some price increases, a greater mix of higher ticket items and customers continuing to trade up for new and innovative products. Big ticket comp transactions or those over $1,000 were positive 1.3% compared to the fourth quarter of last year. We were pleased with the performance we saw in categories such as power, plumbing and electrical. However, larger discretionary projects remain under pressure. During the fourth quarter, Pro posted positive comps and outperformed DIY. We saw strength across Pro-heavy categories like gypsum, wire, concrete and plumbing. In DIY, we saw strength across our Gift Center events, hand tools, storage, portable power and hardscapes. Turning to total company online comp sales. Sales leveraging our digital platforms increased approximately 11% compared to the fourth quarter of last year. We're excited about the continued success we are seeing across our interconnected platforms. This quarter, we continued to enhance delivery reliability and communication with the rollout of real-time delivery tracking for big and bulky deliveries across all categories. This enhancement gives our customers greater visibility and certainty on the timing of their delivery. We know that as we remove friction from the experience, we see incremental customer engagement, leading to greater sales across all points of interaction. During the fourth quarter, we hosted our appliance, Gift Center and Black Friday events. We saw strong engagement across all of these events with our Gift Center and Black Friday events posting record sales years. We are looking forward to the year ahead, particularly with the spring selling season right around the corner, and we have a great lineup of innovative products that provide our customers with tremendous value from outdoor living products, including patio and grills to our lineup of outdoor power equipment, whether it's our RYOBI 40-volt lawn mower with a brushless motor and lithium-ion batteries, which deliver more power and longer run times or our Milwaukee 18-volt string trimmer kit designed to meet the needs of the landscape professional. And our spring Gift Center event continues to lean into cordless technology with a wide assortment of products from RYOBI, Milwaukee, Makita and DEWALT, many of which are exclusive to The Home Depot in the big box retail channel. We're also excited about our live goods program. Every year, our merchants partner with our national and regional growers to provide our customers with new and improved varieties to enhance the overall garden experience. Investing in our relationships with our growers allows us to continue to drive innovation and value to meet the needs of our customers and improves their shopping experience while building loyalty to The Home Depot. We remain focused on delivering the best brands, assortments and value to our customers. With that, I'd like to turn the call over to Richard. Richard McPhail: Thank you, Billy, and good morning, everyone. Before I comment on our results, I would like to remind everyone that fiscal 2025 consisted of 52 weeks, while fiscal 2024 consisted of 53 weeks. The extra week added approximately $2.5 billion in sales to the fourth quarter of fiscal 2024. When we report our comparable sales or comps, we report them on a 52-week to 52-week basis by comparing weeks 1 through 52 of fiscal 2025 with weeks 2 through 53 of fiscal 2024. In the fourth quarter of 2025, total sales were $38.2 billion, a decrease of $1.5 billion or approximately 3.8% from last year. During the fourth quarter, our total company comps were positive 0.4% with comps of negative 0.2% in November, positive 0.1% in December and positive 1.3% in January. Comps in the U.S. were positive 0.3% for the quarter, with comps of negative 0.3% in November, negative 0.2% in December and positive 1.4% in January. For the year, our sales totaled $164.7 billion, an increase of $5.2 billion or 3.2% versus fiscal 2024. For the year, total company comp sales increased 0.3% and U.S. comp sales increased 0.5%. In the fourth quarter, our gross margin was approximately 32.6%, a decrease of approximately 20 basis points from the fourth quarter last year primarily reflecting a change in mix as a result of the GMS acquisition, which was in line with our expectations. For the year, our gross margin was approximately 33.3%, a decrease of 10 basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately 105 basis points to 22.6% compared to the fourth quarter of 2024. Our operating expense performance reflects natural deleverage from top line results as well as lapping the 53rd week. For the year, operating expenses were approximately 20.6% of sales, representing an increase of approximately 70 basis points from fiscal 2024. Our operating margin for the fourth quarter was 10.1% compared to 11.3% in the fourth quarter of 2024. Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 10.5% compared to 11.7% in the fourth quarter of 2024. Our operating margin for the year was 12.7% compared to 13.5% in 2024. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.1% compared to 13.8% in 2024. Interest and other expense for the fourth quarter decreased by $57 million to $551 million. In the fourth quarter, our effective tax rate was 22% and for the year was 23.9%. Our diluted earnings per share for the fourth quarter were $2.58, a decrease of 14.6% compared to the fourth quarter of 2024. Diluted earnings per share for fiscal 2025 were $14.23, a decrease of 4.6% compared to fiscal 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $2.72, a decrease of 13.1% compared to the fourth quarter of 2024. Adjusted diluted earnings per share for fiscal 2025 were $14.69, a decrease of 3.6% compared to fiscal 2024. Recall that fiscal 2024 included a 53rd week, which added approximately $0.30 to diluted earnings per share and adjusted diluted earnings per share for the fourth quarter and the year. During the year, we opened 12 new stores, bringing our store count to 2,359 at the end of fiscal 2025. At the end of the quarter, merchandise inventories were $25.8 billion, up approximately $2.4 billion versus last year, reflecting higher inventory costs and the acquisition of GMS. Inventory turns were 4.4x, down from 4.7x last year. Turning to capital allocation. During the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2025 to approximately $3.7 billion. And during the year, we paid approximately $9.2 billion in dividends to our shareholders. Today, we announced our Board of Directors increased our quarterly dividend by 1.3% to $2.33 per share, which equates to an annual dividend of $9.32 per share. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 25.7%, down from 31.3% in the fourth quarter of fiscal 2024. Now I will comment on our outlook for 2026. As we shared at our Investor and Analyst Conference in December, there are a number of dynamics we are observing that are pressuring housing and home improvement demand. The current mortgage rate environment and significant increase in home prices since 2019 have impacted housing affordability. Housing turnover has remained at historical lows since 2023, which has significantly reduced demand for projects and other purchases associated with buying and selling a home. Our customers also tell us they have concerns over general economic uncertainty, including inflation, growing job concerns and higher financing costs. As we look ahead to fiscal 2026, we anticipate these pressures will persist as we have not yet seen a catalyst for an inflection in housing activity. As a result, we affirm the preliminary fiscal 2026 guidance we provided at our investor conference. We expect to continue to grow our market share and for our comp sales to range between flat to 2% growth with total sales growth of between approximately 2.5% and 4.5%, reflecting the contribution of the GMS acquisition, new stores, branches and tuck-in acquisitions. For the year, we expect SRS to deliver mid-single-digit percent organic sales growth. We plan to open approximately 15 new stores and 40 to 50 new SRS locations. Our gross margin is expected to be approximately 33.1%. Further, we expect operating margin of approximately 12.4% to 12.6% and adjusted operating margin of approximately 12.8% to 13%. Our effective tax rate is targeted at approximately 24.3%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share and adjusted diluted earnings per share to both increase approximately flat to 4% compared to fiscal 2025. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2026. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement. Thank you for your participation in today's call. And Christine, we are now ready for questions. Operator: [Operator Instructions] Our first question comes from the line of Steven Forbes with Guggenheim. Steven Forbes: Ted, I was down at IBS and I was talking to Chip down there about some of the digital planning tools and some of the initiatives you guys have to improve delivery. So I don't know if maybe you could just explore the topics on some of the initiatives you're trying to lean into here, digital planning tools being one of them. You mentioned product management. But what are some of the bigger initiatives that you guys are leaning into in 2026 to improve the overall value proposition for your Pro? Edward Decker: Sure. And Mike is here, and he can go into some more detail, but we know we talked about the capabilities we need to deliver for the Pro experience. We continue to mature our sales force, order management, as you say, our trade credit platform, delivery has gotten better and better. We've been looking for 2 Sigma on time and complete for our delivery to our Pros, and we achieved that this past year. And also now with the advent of AI tools, we're introducing a number of project management and list builders for our Pros, including things like an AI takeoff scheme, letting Pros build projects, just typing in the type of project they're working on in a pre-populated list of the project in the app for the Pros, so they don't have to go through and put the hundreds of items that pre-populates and then they can edit that list, they can save that, repeat it for future jobs. So there's a tremendous set of activities. Michael Rowe: Yes. I mean you captured a lot of it, Ted. Hence, the performance that we had in the fourth quarter, pleased overall with the investment in the capabilities, both when it comes to in-store investments as well as outside sales. We've improved in-store tools and processes that drive greater engagement with our Pros that have resulted in higher sales there, record levels of delivery reliability from our order management investments, and we're continuing to take that to another level with job site preferences that we're including in our order management tools as well as business hours of our customers. We've taken customer communications to a whole new level. We used to only be able to communicate to one person on the job. Now we can communicate to many, including the owner and those that are kind of on the job site when it comes to those deliveries. As Ted spoke to, our online B2B sales outpaced our overall online sales growth driven by the features that we've added, such as the projects tool where we're seeing tens of thousands of projects each week being started, and those result in higher conversion and greater engagement around transactions for complex sales. And we saw continued growth in our trade credit efforts, along with strong early days from our AI blueprint takeoffs. So with all of that in mind, just pleased with the continued momentum in Pro. Steven Forbes: I appreciate the color there. And maybe just a quick follow-up... Edward Decker: Jordan and Michael, you can hit the handheld delivery. Michael Rowe: Yes. One of the other capabilities that we've recently rolled out that allows our drivers to stay connected with our customers' needs is our delivery handheld device. This is a tool that we use to track the status of all of our deliveries and the progress that we're making as well as all of the other request that we get from our customers to make sure that we're fulfilling the exact needs of the service that they require on their particular job sites. Jordan Broggi: Yes. And then -- this is Jordan. As we said in our prepared remarks as well, as Billy called out, that also enables our live tracking on big and bulky, which customers have come to expect on small items, but to be able to track live of bulky delivery, whether that's a flatbed rolling down with lumber to a job site or an appliance showing up at the home, that's been a really big win for our customers, and they are loving that feature that we've rolled out, which was enabled by our new handheld. Steven Forbes: Appreciate all that. And just a quick follow-up, maybe for Richard. If you could maybe set the base for SRS sales in 2025 and then comment on how GMS performed in the fourth quarter relative to that $1.1 billion framework or guidance framework that you had? Richard McPhail: Sure. So look, we were really pleased, continue to be really pleased with SRS' performance. I think it's important to provide some context. So SRS was down low single-digit comps year-over-year for the fourth quarter. But if you look at the industry, in the fourth quarter, according to ARMA data, total industry shipments of shingle squares were down 28% year-over-year. That's the lowest industry volume since 2019. And so that fourth quarter literally pulled the whole year of 2025 shipments down to the lowest annual volume since 2019. So it was a remarkably bad quarter for the roofing industry. With that, SRS performed exceptionally and by all external measures, took share in the quarter. And with respect to GMS, we've owned them for 5 months of the year, and we're pleased with their performance. And very happy to welcome them to The Home Depot family. And I'll turn to Mike in a second just to talk about the power of SRS and GMS with Home Depot. But let's talk about SRS a bit more. So look, that lack of demand in the market did put significant pressure on the pricing environment for SRS in the fourth quarter. We expected that when we reset our guidance at the end of Q3, we knew that given the absence of storms in Q3, the industry was likely to see pricing performance. So they did invest in price to maintain share gains that will bleed over into our margin expectations for the first quarter. But as Ted said, we anticipate and expect them to grow organic sales mid-single digit for 2026 and are really excited about what we're seeing. And Steve, you'd mentioned the IBS, hopefully, that came to life. The ties between SRS and GMS and Home Depot. Mike, maybe you can just talk a little bit about how we're working together. Michael Rowe: Yes. I mean that's the opportunity for us to focus further on revenue synergies. We've had a number of examples where we've approached our customers in a combined fashion, but also a number of customers, frankly, asking for that from us. One particular example at the moment amongst many is the ability to turn a multifamily construction and property management company from a significant customer of one of our companies to be that way for all of Home Depot, HD Supply, SRS and GMS. And this, as our national account structure continues to grow take an opportunity to support our customers better. Beyond that, we're pleased also with what we're seeing in some pilot markets with Home Depot and SRS with our Pro Referral project on roofing leads. We've also done the mapping of our common customers for HD reps to be able to contact HD Supply reps to be able to contact SRS or GMS sales rep to have that common approach. So very much focused on driving these revenue synergies. Operator: Our next question comes from the line of Zach Fadem with Wells Fargo. Zachary Fadem: So as you look back through 2025, could you talk about the performance of markets like Florida and Texas that saw a more challenging housing turnover and home price appreciation environment compared to those markets with perhaps a more favorable or normalized outlook for turnover, and whether you saw any change or bifurcation between these two types of markets through the year into early '26? Edward Decker: Sure, Zach. I would say that first and perhaps most important throughout the year, we don't have perfect adjustments for storms and the like. But as best as we can adjust, our comp performance was relatively stable across the 4 quarters of the year, and something under 1% consistent underlying demand comp across the country. Now obviously, the geographies that we're lapping, the significant storms from last year and didn't have any storm activity. It was quite remarkable that 2025, really from hail to wind to hurricane, there were literally no storm activity in 2025. So those are the most pronounced geographies where you have tough comp compares of '25 over '24. We're also seeing geographies where you are starting to see some housing price declines and you're seeing some markets with lower turnover rates than others. And as we've always said, if you look over time, the highest correlation to home improvement activity is probably home prices and secondly, turnover. I think because we're sort of bouncing -- hopefully, we're bouncing along the bottom of turnover, and we're not seeing meaningful price declines. We haven't seen a lot of difference in regional geographical performance just based on price alone. We have some markets that you'd look at and say, yes, price is still going up. Sales are a little stronger. We look at other markets that price is more challenged and you can see a weaker comp. But then we have things in between. We have markets where prices are adjusting down but actually had quite strong comps. So we always talked about prices being certainly very important, but a lag, and I think the price declines that have happened are still within that window that we're not seeing statistical relevance. And on turnover, while there are some markets that have weaker turnover, we're at, what, 30-, 40-year lows across the country. So again, with everyone sort of bouncing along decade lows, we're not seeing a big differential. Zachary Fadem: Got it. And then thinking through some of the moving pieces for '26, I'm looking out the window, and I'm seeing 2 feet of snow on the ground from last night. We've got larger tax refunds coming, perhaps also a more manageable tariff environment. Could you talk through these dynamics, particularly as you think through first half versus second half within your flat to 2% comp outlook? Edward Decker: Sure. I'll do a higher level, and then Billy can talk a little more specifically about tariffs. I mean, we very purposely obviously have a range, and we maintain that range from December of flat to 2%. We think the overall market is likely down 1% to up 1%. So in each instance, we believe within our range that we would be outperforming the market. The things that could point to a little stronger market performance would be improved affordability, and that would be -- we have incomes rising. We have some nice improvement in mortgage rates. I think this morning, we came just under 6% on the 30-year. And in the longer -- medium, longer term, modest price adjustments after the 50% increase from the end of 2019 would be helpful from an affordability perspective. Tax stimulus, you mentioned, we're actually not counting on a lot of support from tax stimulus. We've seen very large ranges of what will show up in household pocket books. And we've seen as low as $70 billion and as high as $200 billion in terms of refunds and adjusted rates for 2026. If you take the midpoint of that, $135-odd billion, and you look at our share, Home Depot's share of PCE, which is about 60 basis points, you would get at the midpoint, maybe 0.5 point of comp support at that high level analysis of tax relief. But we're hearing that it's just as likely that, that's either going to be used for debt paydown for lower income deciles or saved by higher income deciles. So we're not planning on a lot. We're thrilled to get some tax stimulus benefit, but we're not planning on a lot of it. And then tariffs, I mean, this news is breaking by the moment. And Billy, why don't -- you and your team have been at it for almost a year now. William Bastek: Yes, Zach, thanks for the question. I just -- from a high level, just a reminder, we've talked about this in the past. But it's important to remember that more than 50% of our projects are sourced domestically and haven't been subject to tariffs. Obviously, the announcement on Friday and then the administration over the weekend, we're still analyzing the impacts of those decisions. I can tell you that we're going to continue to be the customers' advocate for value. I can't say enough about how pleased I am with the merchants, our finance teams, our supply chain and logistics folks are sourcing offices all over the world, have done an incredible job and spent the better part of almost a year now working through that. And just to give you some context, we're mostly done with tariff-related pricing actions as it relates to the impacts back to April. And to give some, again, context around that. If you think about -- our exposure was kind of mid-single digits. And then if you think of like SKU price, that's right about 3% just in terms of the impact. So we feel great about our position. Our teams, along with our merchants, our suppliers have done an incredible job continuing to advocate on low prices and being the customers' advocate there. So we look forward to spring, as I mentioned in my prepared remarks. And as I said, we're mostly done with the related pricing actions around what we've seen so far. Edward Decker: And Zach, what may drive us to the lower end of the range would be if the market is not performing as well. And the #1 driver of that would be continued consumer uncertainty. That's still the #1 reason. Our people are telling us, our customers are telling us that they're not investing certainly in large projects. And that has everything to do with consumer confidence and sentiment, jobs picture, overall price levels and affordability in the economy. Home prices, if we do start to see some wider spread home price decrease that may have a negative psychological impact, turnover stays low and that there's a little more price elasticity. As Billy said, while we have a modest year-over-year price outlook for the year, we could see higher responses of elasticity. So that could be on the macro why we would have a more challenged year as an industry. And then we have a little unique profile of the year by quarter going into '26, which Richard will take us through. Richard McPhail: Sure. Yes. So you mentioned the shape of the year, and we thought that it would be helpful to give a little more color than typical on the shape of the year. First, we expect our comps in the second half to be slightly higher than our comps in the first half. This is a reflection of compares to 2025 storm activity and the absence thereof. That is, in essence, what is shaping our comp expectation for the year. Second, we expect gross margin to be down by about 24 basis points year-over-year, reflecting the annualization of GMS. So recall that the pro forma impact of GMS to gross margin is about 40 basis points per year. And so that 24 basis points reflects about 7 non-comp months of ownership. This annualization means that we expect our first half gross margin to be down about 50 basis points versus last year, and our second half gross margin to be right around flat to last year. And so you're going to see the largest year-over-year impact to gross margin in the first quarter, and then that will gradually improve through the year. In addition, due to the timing of expense comparisons versus last year. And this is also driven by the addition of the GMS expense base compared to the first half of last year. So the addition of that expense base along with some other timing means that we expect operating expense as a percentage of sales to be at their highest level of the year in Q1. So as a result of all this, our expectations are that our year-over-year EPS performance will be mid-single-digit percentage negative in Q1, improving through the year, and this is solely due to acquisition, annualization and a few timing comparisons. Operator: Our next question comes from the line of Michael Lasser with UBS. Michael Lasser: You mentioned that SRS was a little bit more aggressive on the pricing side in the fourth quarter in order to maintain market share, and you expect some of that to persist in the first quarter. So do you think that's going to linger beyond the first quarter? And are you seeing signals of that behavior happening in anywhere beyond just the roofing category such that it could lead to more volatility in The Home Depot's gross margin rate over time? Edward Decker: Thanks, Michael. I don't think it would lead to significantly more volatility over time. I think with the dramatic fall in roofing shipments in 2024, again, as Richard said, down 28%. SRS just took an opportunity, which we fully supported to take share. And remember, not having storms in the back half of '24, stronger impact in the back half of '25, but some of that will bleed into Q1 as well. So we're not expecting a robust building materials environment in Q1, and we're happy to make the investments and take share. Richard McPhail: And that's all embedded in our guidance for the year. Michael Lasser: Okay. If you had perfect insight that housing turnover was going to remain muted through 2027, would that change any of your capital allocation priorities, especially now that The Home Depot has made a lot of foundational investments, both organically as well as through acquisitions. How are you going to approach balancing returning capital to shareholders with continuing to build out the capabilities that are necessary to capitalize on the Pro ecosystem that you've built? Edward Decker: Well, Michael, if turnover in starts and all housing activity is more or less flat through '26, then we'll have the absence of further declines. And in '25, as the market continued to drop off, we took share and we'd look to take share in '26 as well. At this point in the level of potential downs, we said minus 1, potentially to plus 1, that would not be a significant enough drop in the overall macro of our space to come off our investment profile. We're extremely happy with the strategy that we laid out in December that we are focused on our core and our culture, and we continue to invest in our stores, in the maintenance of the stores and in the shopping environment and also building new stores. Interconnected penetration continues to grow, delivery continues to grow. So we never come off all the investments we're making and the strong results on our interconnected portfolio. And Pros represents in any market environment, still that $200 billion of white space for us, that is the share we're capturing, and we would continue to invest in that to take share. Richard McPhail: And again, from a capital allocation perspective, our principles haven't changed. As Ted said, we reinvest in the business first. And look, we have a high bar for what we are willing to invest in. Every project has to provide an exceptional return on investment, and we feel like that is our profile. And after that, we return our capital to shareholders in the form of dividends. And once we return to an excess cash position, which we anticipate will be sometime in the first half of 2027, we would expect to return to share repurchases. Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: I want to follow up on consumer health. Can you talk about if the consumer is behaving a little more value conscious? And then there's always this higher spending you're going to get from a turning home versus a non-turning home. Is there anything that you're seeing in that multiplier that's changing? Is the consumer not spending as much when they are turning a home over? William Bastek: Simeon, it's Billy. Thanks for the question. I'll take the first part just around what we're seeing from a customer standpoint. We haven't seen -- it's really been balanced throughout the entire year. Obviously, you have different points in time. I mentioned the record sales we had in our Black Friday events, in our Gift Center, so great interaction across our entire interconnected experience. We haven't seen a lot of trade down, but we've seen some, as we've talked about, countertops and things of those nature. We saw a little bit in our appliance business as well but haven't seen that more broadly, but just very consistent across every single quarter. Outside of the dynamics we've talked about, whether those are storms or other things, we continue to see strong customer engagement, don't really see a decline or trade down, if you will, from what customers are engaging in. And as I mentioned, we had a record Q4 across our events. So where we've continued to create great value for customers, we're seeing just great interaction across the board. Edward Decker: Yes. I think, Simeon, a dynamic we're seeing in others in our space who have reported on the supplier side and have said some similar things that with turnover down and people still wanting to move, they're not spending as much in their home if they anticipate moving in the next year or 2. So there's maybe a bit more repair than replace. And you've heard us talk before about the cumulative underspend in home improvement, which we use some third-party consulting folks who put that at $22 billion today that people have underspent in the aging home. So turnover obviously helps people fix things up before they sell, and the new owner modifies the house to how they want it, but it also has an impact to the people who think they're going to move and just waiting in more of a repair than a replacement cycle. I don't necessarily think that's going to get any worse, but we're certainly bouncing along with what we hope would be a bottom in things like turnover. Simeon Gutman: Okay. And just a follow-up to the earlier question on the Pro, when you bought SRS, we talked a lot about order management and trade credit as capabilities that needed to be implemented for The Home Depot. It sounds like the rollout of that is done, or is '26 continued rollout of those capabilities across the rest of the enterprise? It's not clear how much of that is in place versus how much of that needs to get done versus now you can execute and drive the business? Michael Rowe: Yes, it's Mike here. I mean I would say a good high percentage depending on the capability is done. On Pro trade credit, there's continued investments this year to bring it online, to bring it down to a store level throughout the year versus a bit more focused on our outside sales right now. So those capabilities will come out this year. On the pricing side, we are into a number of pilots right now that we're looking to expand later this year to bring it across the country. And from an order management standpoint, we're pleased with the improvements that we've seen in delivery, reliability year after year after year from John's team and beyond. But there are still opportunities for some order consolidation work to go on. And those will happen kind of throughout the year using our One Supply Chain system versus having to rely on our stores that we do in some cases when it comes to some of our non-stock deliveries out to our customers. And then further on the B2B side, the opportunity to invest there further in areas such as E-Procurement integration for spend management tools that a number of our customers use along with construction management software integration when it comes to job management software that customers use. So there is a continued healthy build-out in 2026 to be done, although a significant portion has been completed already. Edward Decker: But Simeon, on the vision of SRS and now GMS, ultimately cross-sell opportunity and further penetration with large remodelers and builders. We're super excited about that and starting to see some really nice wins in cross-selling, where either The Home Depot, the GMS or the SRS sales rep who have a line of business with a particular customer have done the introductions, and we're winning, frankly tens of thousands of incremental homes through a warm handoff with the other product categories that -- of the team that was introduced. And also on commercial roofing, SRS does some commercial roofing. So when you think of our stores and our warehouses and our larger suppliers and builders of those commercial properties are also happy to use SRS' commercial roofing capabilities. So the vision of being a point of contact for that Pro and cross-selling is really gaining momentum, which we're really, really happy about. Operator: Next question comes from the line of Steven Zaccone with Citi. Steven Zaccone: I wanted to follow up on the same-store sales outlook. First question just on how to think about ticket versus transactions within the outlook? Any cadence to be mindful of there? And then big ticket saw an inflection in '25. How do you see that performing in 2026? Just curious on the balance between replacement cycles and innovation versus large private project activity still being a drag. Richard McPhail: Great. So thank you for the question. As Billy said, for 2026, you're likely to see ticket reflect that 3 percentage point increase in retail as we end our -- or really are essentially done with our price actions. You'll see that on average through the year. It will be a little higher at the beginning of the year, a little lower at the end of the year than that 3%. And right now, our guidance assumes negative transactions offsetting that ticket. And Billy, maybe talk about big ticket. William Bastek: Yes. We were pleased with our big-ticket comp transactions, as I mentioned, transactions over $1,000, up 1.3% for the quarter, that's now multiple quarters where we've seen positive impact. The dynamic of that was a little bit different as Ted alluded to around kind of the maintenance and repair. So you think of plumbing and electrical and certainly our power business in the quarter, all drove significant gains as it relates to that performance. And that's a little bit of a change as we've seen in some of the areas around appliances where it's a little more duress related at this point in time. But a similar composition, as I mentioned for the last quarter, and we look to see a very similar performance in 2026. Steven Zaccone: Okay, great. Then the follow-up I had is just I'm also looking at 2 feet of snow out my window, as Zach mentioned. Should we expect any differences like first quarter comps versus second quarter? Just being mindful of the fact has snow caused any sort of disruption? And then also, where we've had this prolonged winter, can that sometimes lead to a later start to spring in certain markets? Edward Decker: All of the above, Steven. I would say, again, as Richard said, we're looking for back half comps to be stronger than the first half, and that's really more of a normalized -- we don't plan for storms, but in the normal case, there's storms in your base. The timing of spring, you're right, when you have a really rough winter in the north, you get a lot of landscape damage and roofing and gutters and all those things will be -- need to be repaired, and that will be helpful for Q1. But then if you, obviously, get a cold late spring, and then that pushes -- we've talked about the bathtub effect for years, and that pushes the core spring business into Q2 and don't have a crystal ball at this point on how spring is going to play out. But there will be -- there will definitely be some damage repair from all this ice and snow in the north. Operator: Our final question comes from the line of Zhihan Ma with Bernstein. Zhihan Ma: I'll ask my one and follow up in one go. So just one quick clarification on the big ticket side of things, can you talk about the big ticket discretionary projects? How sales trends are trending there? And are you seeing any improvement? And secondly, just quickly on inventory, up about 10% year-over-year. Can you talk about how much of that is driven by GMS versus the cost going up? Is there any underlying increase in the inventory buildup as well? Edward Decker: I'll take the big ticket question. That's really the telltale for us of when we think the demand profile is going to change for the upside. And we still have not seen that. That's -- you've heard us consistently now saying things are improving. Our comp clearly improved, a positive comp in 2025. But we have not seen the increase in big ticket. And that will be a telltale for a turn in the market. And then Richard, you can cover inventory. Richard McPhail: Sure. Inventory is more of a year-over-year dynamic rather than a sequential quarter dynamic. The increase in inventory year-over-year primarily reflects the addition of GMS' inventory onto our balance sheet. It also reflects higher cost of inventory, reflecting tariffs and then some year-over-year increase in inventory levels as we leaned into our accelerated delivery speed through the year. We think our in-stocks and our inventory position are in great shape, and we feel fantastic about how we're positioned for 2026. Operator: Ms. Janci, I'd like to turn the floor back over to you for closing comments. Isabel Janci: Thank you, Christine, and thank you, everybody, for joining us today. We look forward to speaking with you on our first quarter earnings call in May. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.