加载中...
共找到 17,859 条相关资讯
Operator: Ladies and gentlemen, good day, and welcome to the Leonardo DRS Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the conference over to Steve Vather, Senior Vice President, Corporate Development and Investor Relations. Please go ahead. Stephen Vather: Good morning, and welcome, everyone. Thank you for joining today's quarterly earnings conference call. With me today are John Baylouny, our President and CEO; and Mike Dippold, our CFO. They will discuss our strategy, operational highlights, financial results and outlook. Today's call is being webcast on the Investor Relations section of the website, where you can also find the earnings release and supplemental presentation. Management may also make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. For a full discussion of these risk factors, please refer to our latest Form 10-K and our other SEC filings. We undertake no obligation other than as may be required by law to update any of the forward-looking statements made on this call. During this call, management will also discuss non-GAAP financial measures, which we believe provide useful information for investors. These non-GAAP measures should not be evaluated in isolation or as a substitute for GAAP performance measures. You can find a reconciliation of the non-GAAP measures discussed on this call in our earnings release. With that, I will turn the call over to John. John? John Baylouny: Thanks, Steve, and thank you all for joining us today to discuss our fourth quarter and full year 2025 results. I want to begin by thanking Bill Lynn for his leadership and commitment to DRS over the past 14 years as Chairman and CEO. The company is stronger because of his impact. We're grateful for his contributions. I am honored to step into the role of Chief Executive Officer and could not be more excited to lead the next chapter for DRS. I joined the company nearly 40 years ago as a staff engineer and over the course of my career, I've had the privilege of serving and operational leadership roles across each of our incredible businesses. That frontline perspective, combined with my experience over the past decade as Chief Technology Officer, and most recently, Chief Operating Officer, has given me a deep appreciation for our leading market positions, our balanced and diverse portfolio, a truly differentiated technologies and above our -- above all, our exceptionally talented people. As I look ahead, my priority as CEO are clear, build on our foundation of success we have a remarkable business with distinctive differentiation that is well positioned for long-term growth, accelerate our operating cadence. Our goal is to put innovation capabilities into the hands of our customers even faster without compromising the quality, reliability and affordability that they expect. This is precisely what the Department of War is asking as an industry. While we've already been operating at speed and investing in innovation for years, we are encouraged by this call to action and are accelerating even further. And three, continue to empower, invest in and reward our people. There is no question that our talented employees are the bedrock of our success. My formula is straightforward, maintain a sharp focus on meeting and exceeding customer needs and that will propel growth for the years to come. Turning to the macro environment. The operating backdrop remains dynamic. Global threats persist and the nature of warfare continues to evolve rapidly. Our customers require next-generation capabilities to maintain the decisive advantage over adversaries. And they need them delivered at speed, at scale and with uncompromising quality. Against that backdrop, our nation and our allies are investing in these capabilities as demonstrated by significant recent and projected increases in defense spending. We are encouraged by the enactment of the fiscal '26 Defense Appropriations early signals for fiscal '27 and supplemental funding, including in last summer's tax reconciliation package. In aggregate, these indicators support our confidence in sustained demand. Our relentless customer focus, disciplined investment and advanced capabilities and consistent execution has positioned us well for growth. The results of that strategy are demonstrated by the fourth consecutive year of a book-to-bill ratio of 1.2 or better. Equally important, customer demand is well balanced throughout our portfolio, validating the strength of our technology-led platform-agnostic approach. That consistent customer demand, combined with our strong financial position, has enabled significant multiyear increases in both research and development and capital investment. Let me frame the magnitude of investment growth. In 2025, we increased internal R&D investment by 40% and capital expenditures rose more than 60%. Our R&D investment is focused on expanding our footprint in high-growth markets, including airborne, missiles, space and unmanned markets while continuing to build share in our core ground enabled domains. Additionally, the emphasis of our R&D initiatives is on advancing platform AI and enabling platform autonomy, stronger security and modularity and extending our platform-agnostic capabilities to new missions and platforms. With respect to CapEx, our 2025 investments were focused on progressing our new naval power facility in Charleston, South Carolina along with targeted growth initiatives across the portfolio. In 2026, we expect CapEx to increase even further and trend toward approximately 5% of revenue. We are ramping operations in Charleston as well as expanding production capacity and modernizing facilities to deliver enhanced capability across the business. Key areas seeing upsized investment include our tactical radars, air defense products and advanced infrared sensing. Additionally, some of the increased CapEx supports dedicated germanium processing capacity with suppliers, an important part of ensuring stable supply going forward. In summary, we intend to maintain our approach of innovating, executing at speed and investing ahead of demand to support customers and drive long-term growth. Let me briefly highlight our full year 2025 financial performance. We delivered another year of record bookings, and that was accompanied by robust organic revenue growth of 13% marking back-to-back years of double-digit growth. Year-end backlog stood at $8.7 billion, providing clear visibility into 2026 growth. Full year adjusted EBITDA growth tracked closely with revenue. While margins were flat, performance was shaped by several factors. First, we intentionally increased our internal R&D investments substantially. Second, we managed supply chain complexity related to shortages of critical raw materials, most notably germanium. As we enter 2026, these constraints are contained with remediation measures firmly in place and being executed throughout this year with confidence. Through a combination of recycling initiatives, strategic allocations from customers, securing more reliable North American and European sources we have adequate coverage for our demand in the short, medium and long term. We've also entered into firm long-term supply agreements. And as I noted earlier, co-investing to secure dedicated refining capacity. While price volatility may persist in the near term, we will reprice contracts renewals on a rolling basis to reflect market conditions and incorporate contractual protections against future potential shocks. Third, as we close out the year, we have 2 unusual items with largely offsetting revenue and profit impacts. We entered into a 10-year $100 million license agreement with a leading quantum technology company, enabling them to leverage certain laser intellectual property for quantum computing applications. This license agreement monetizes an exciting and attractive commercial opportunity while allowing us to remain focused on capturing abundant growth in our core defense markets. We also executed a memorandum of understanding to jointly conclude of legacy foreign ground surveillance program initiated more than a decade ago. Technology evolution and obsolescence issues caused the program to be no longer viable for either party. As a result, we recognized a non-anticipated loss on the program. While disappointing, the circumstances surrounding this program were unusual and isolated within our portfolio. To be clear, we don't see any other program with similar characteristics that would be expected to drive comparable impacts. The conclusion of this legacy effort along with the IP license agreement clears the slate and allows us to focus on growth and execution across our core competencies. Finally, despite materially higher CapEx investment, we delivered 19% growth in full year free cash flow in 2025 driven by higher profitability and improved working capital efficiency. On balance, 2025 was a strong year, and we're focused on building on that momentum in 2026 and beyond. Turning to fourth quarter highlights. First, let me commend the team on a tremendous win in the space market. Space has been a multiyear growth initiative for DRS and I'm pleased that our persistence was validated with a landmark position on the SDA tracking layer Tranche 3 program. We're teamed with one of the prime awardees who will deliver a differentiated infrared sensing approach. This is an exciting opportunity, not only to showcase our innovation, but more importantly, to advance critical national defense capabilities against missile threats. Now that we've opened the door to this win, our focus shifts to execution excellence to deliver on our commitments. Strong performance will position us for additional SDA opportunities and for other customers, including the potential to leverage our expertise in space-based sensing for the Golden Dome initiative. Also in space, we successfully demonstrated secure data transport using a next-generation crypto multichannel software-defined radio. This innovative capability enables high-performance secure satellite communications across multiple frequencies and networks simultaneously and we look forward to delivering it to customers in the near term. In infrared sensing, we continue to grow in ground-based applications are seeing green shoots in adjacencies, particularly space and airborne, across both manned and unmanned platforms. Our high performance cooled infrared sensors are being leveraged on advanced airborne platforms. Our uncooled capabilities are being adopted on unmanned platforms as customers prioritize an assured electronic supply chain. Our advanced infrared gimbals are being used to designate and direct ammunitions to neutralize strong threats. We are engaged on multiple primes on several strategic missile programs to provide next-generation sensing capability and expand production capacity. We're also making capital investments to support this demand growth. We remain a market leader in Counter UAS and are closely partnered with customers to field effective solutions. We are committed to a platform and effective agnostic approach which is why we have demonstrated capabilities across multiple vehicle platforms, including the JLTV and unmanned ground vehicles. We're enhancing both kinetic and nonkinetic factors in our offerings, including cost-effective ammunitions and nonkinetic tools, such as electronic warfare and directed energy. Turning to tactical radars. We continue to see immense global demand driven by an imperative to field Counter UAS and air defense capabilities. Our radars are not only highly effective in tracking UAS threats, but also in supporting missile defense and active protection missions. We're also seeing increased demand in growing relevance and maritime-based Counter UAS applications alongside the continued momentum on ground-based platforms. More broadly, we're seeing increasing potential beyond tactical radars in the unmanned surface vessel market, opportunities to pull through in integrated sensing and computing offering across leading platform providers are becoming a growth vector while we're well positioned on the Navy -- as the Navy crystalizes its USV strategy and begins deploying funding in this area. Staying with Naval, our Columbia Class program continues to execute exceptionally well. We're delivering on time and with quality and our results reflect the financial benefits of that solid execution. As the Navy adjust surface combat and modernization strategy. We remained engaged at the center of propulsion architecture discussions across platforms. Our Electric Power and Propulsion solutions are modular and remain highly relevant to the power demands of next-generation platforms. Finally, I want to congratulate Sally Wallace on her new role as Chief Operating Officer. Sally is a strong leader a trusted partner and a more than 20-year DRS veteran with deep understanding with customers and a strong track record of delivering mission-critical technology. We've made a few other changes to the team. As a result, we have an exceptional team, and many of those changes reflect expanded responsibilities for long-standing leaders who have delivered strong results. I'm confident in each of them and will be successful in expanding roles. Mike, over to you to walk through the details of our financial performance and 2026 outlook. Michael Dippold: Thanks, John. I appreciate the team's steadfast focus in delivering another year of solid financial results, particularly in light of several unique factors we faced in 2025. I'll walk through fourth quarter and full year 2025 results by key metric and then discuss our 2026 outlook. Overall, our full year 2025 results exceeded our expectations. We executed at the high end of or above the guidance range provided on our last call. These results were delivered amid a prolonged government shutdown for most of the fourth quarter. Revenue in the fourth quarter was $1.1 billion, up 8% year-over-year. Robust demand for tactical radars, electric power and propulsion and advanced infrared sensing drove core growth. The quarter included a net benefit from the quantum laser IP license agreement partially offset by the conclusion of the legacy foreign ground surveillance program John discussed. For simplicity, I will refer to the net effect of these items as the net nonroutine impact. While the net impact is not significant at the consolidated level, it is more visible in the segment results for both the quarter and for the full year. Full year revenue was $3.6 billion, representing 13% organic growth versus 2024. This marks back-to-back years of teens revenue growth. Growth was broad-based across demand sensing, network computing, force protection and electric power and propulsion, and that was reflected in the segment trends. Our advanced sensing and computing segment delivered revenue growth 9% in Q4 and 11% for the full year. Our Integrated Mission Systems segment delivered year-over-year growth of 5% in Q4 and a healthy 15% for the full year on the back of robust performance in electric power and propulsion and counter UAS programs. Moving to adjusted EBITDA. Adjusted EBITDA was $158 million in the fourth quarter and $453 million for the full year, representing year-over-year growth of 7% and 13%, respectively. Margins were 14.9% in Q4 and 12.4% for the full year. Full year margin was flat as higher volume and improved profitability on the Columbia Class program were offset by higher R&D investment and less efficient program execution, driven by material cost growth. Increased R&D created a 70 basis point year-over-year headwind to margin. At the segment level, ASC adjusted EBITDA and margin were bolstered by the license -- the laser license agreement in both Q4 and the full year. Excluding this item, ASC adjusted EBITDA and margin would have declined primarily due to higher company-funded R&D and raw material cost headwinds primarily related to germanium. IMS adjusted EBITDA was negatively impacted by the legacy program conclusion in both Q4 and the full year. Excluding this item, IMS adjusted EBITDA and margin would have increased meaningfully, driven by operating leverage from growth and improved profitability on Columbia Class. Now to the bottom line metrics. Diluted EPS and adjusted diluted EPS increased 15% and 11% year-over-year in the fourth quarter, respectively. For the full year, diluted EPS and adjusted diluted EPS increased by 29% and 24%, respectively. In both periods, strong operating profitability, lower interest and other expense as well as a lower effective tax rate supported EPS performance. Moving to free cash flow. Fourth quarter free cash flow generation was robust and totaled $376 million, bringing our full year free cash flow to $227 million. Our strong cash generation in 2025 leads the balance sheet with net cash at year-end. Subsequent to year-end, we entered into a new $500 million revolving credit facility, providing lower interest costs and added borrowing flexibility. Turning to 2026 guidance. Robust customer demand and bookings over the past few years provide visibility into continued growth. We are initiating a revenue range of $3.85 billion to $3.95 billion, implying a 6% to 8% organic growth. Our backlog provides a clear path to executing within this range. Key factors influencing revenue include the pace of material receipts, labor execution and to a lesser extent, the timing of customer orders for book-to-bill revenue. For adjusted EBITDA, we expect $505 million to $525 million in 2026. The implied year-over-year margin improvement is 70 to 90 basis points, driven by improved profitability in Columbia Class, favorable program mix and operating leverage from growth. We plan to continue robust company-funded R&D investment at a comparable percentage of revenue to 2025, but we do not expect it to pressure margins to the same extent as last year. Amortization is expected to be flat in dollars and depreciation should increase modestly given recent CapEx. Together, they should approximate 3% of revenue. For adjusted diluted EPS, we are initiating a range of $1.20 to $1.26 per share. Our guidance assumes an 18.5% tax rate and a fully diluted share count of $269 million. We also expect free cash flow conversion of 80% of adjusted net earnings. As John mentioned, we are increasing projected CapEx meaningfully in 2026 as we complete the Charleston facility and make additional investments across the business to enhance capacity and capability. As a result, we expect CapEx to be just under 5% of revenue. Improved working capital efficiency is expected to partially offset the higher CapEx. Finally, we expect Q1 revenue to range in the low 800s with an adjusted EBITDA margin in the low 11% range. Revenue and adjusted EBITDA linearity is expected to be comparable to recent years. The second half of the year should contribute slightly more than half of revenue and more than half of adjusted EBITDA. We anticipate a similar quarterly trend in our free cash flow with modest linearity improvements as we continue to drive working capital efficiencies. Let me turn the call back over to John for closing remarks. John Baylouny: Thanks, Mike. I'm incredibly proud of the team's relentless focus and their immense contributions in support of our critical national security priorities. The results we delivered in 2025 and over the past few years reflect the strength of our portfolio and the soundness of our strategy. DRS is in an excellent position, and we're building on this strong foundation to drive another year of significant growth, while also nurturing long-term opportunities that will define the next chapter of the business. We are investing, innovating and executing at a time when our customers need these capabilities more than ever. As we look ahead, we remain focused on delivering these cutting-edge capabilities to the customers with speed, quality and scale, positioning us for continued growth. With that, we're ready to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Robert Stallard with Vertical Research. Robert Stallard: John, maybe just to kick things off. You mentioned at the start of your comments, the potential benefits from the reconciliation bill that was passed last year. We're starting to get some details on that. And I was wondering if you've seen anything there that suggests some upside for DRS? John Baylouny: Well, thanks, Rob. Yes, we are starting to see some of the money flowing now and we believe that we have alignment in some of the priority areas where some incremental funding could flow. Again, it's early days, though. I think we haven't seen the money get all the way to our customers yet, but there is certainly some alignment with where we're investing and where the money is going. Robert Stallard: Okay. And then as a follow-up, you highlighted that you've seen 4 years of at or above 1.2x book-to-bill. I was wondering, does this suggest there's going to be a step-up in your revenue growth in the years ahead? Or does this order intake just extend similar kind of growth further into the future? John Baylouny: Well, Rob, we're certainly optimistic on growth. But I want to acknowledge that we do have a diverse portfolio we are due to the fact that we're stepping up to a higher level in capabilities and solutions, we do have an elongated conversion cycle. It's certainly our goal to continue growing like we did in 2025, and we're optimistic. But you have to acknowledge there's other elements. Operator: Our next question comes from the line of Michael Ciarmoli with Truist. Michael Ciarmoli: Nice results. Just a follow-up on that last line on growth. I don't know, John or Mike, did you size the ground revenue program that's rolling off? Just trying to get a sense of -- you've got a big portfolio. Is anything specifically winding down or creating a headwind? I mean it just seems like the funding environment, the budget environment is getting better. I know you're lapping 2 years of low teens growth, but why should we think growth is really going to decelerate here? Michael Dippold: Yes, Mike, I'll take that. I think that ultimately, when you look at the portfolio as diverse as ours, it's always going to be elements that are growing at a different rate. So although we're aligned in a lot of the swim lanes that I think are going to get good allocated funding in terms of shipbuilding our recent winded space. There are pockets mainly in the network computing area that are growing at a little lesser rate. And that's what we're -- John was kind of commenting on there. Michael Ciarmoli: Okay. Okay. And then just one more on kind of cap structure, capital deployment. You're probably going to end the year here with a net cash position of -- in excess of $400 million, you just mentioned the new $500 million revolver. How should we think about putting that balance sheet to work? And is that the most optimal structure right now? John Baylouny: Well, thanks, Mike. Yes, certainly, our top priority has always been and will continue to be organic investments first. And you're seeing us invest in CapEx. You're seeing us invest in IRAD. We expect it to drive growth in the out years but organic first and then inorganic. And we're going to be kind of picky about what we look at in the M&A space. So -- but first organic, then inorganic. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: Nice results. I wanted to start off asking about the profitability in IMS in the fourth quarter. If we add back the international program termination, it was a very healthy margin. Was there a catch-up on Colombia? Or should we think about the -- what should we think about what the fourth quarter margin implies for going forward in IMS. Michael Dippold: Yes. Thanks. Appreciate the question. We certainly saw a strong demand across the segment of IMS coming from our naval power business, bolt-on Colombia, but also on the surface ships also had an inflow of revenue on the counter UAS and efforts that we have there. So a lot of the margin was coming from the volume leverage that we saw. So we had a big growth in the quarter which materialized the margin. As you're aware, we've peer to expense G&A, we peer to expense the IRAD. So that operating leverage fall to the bottom. So that was a big element of it. The performance at Colombia certainly continues to be a tailwind, not a major catch-up but certainly a tailwind for the quarter. Seth Seifman: Okay. Okay. Excellent. And then maybe following up when we think about Charleston and the new capacity coming online there. It seems now that we might have some new ships a little bit faster than previously expected when you guys announced that in terms of a new frigate, and we'll see what happens, but maybe even a battleship. What are discussions like at this point about your ability to use that capacity on these new ship process? John Baylouny: Yes. Thanks for the question. Look, I think that we're seeing that space evolve, right? And we've said in the last call, we talked about the need for future combatants have to have greater -- to fight from greater distances. They need more power to meet that distance need and more powerful radars, more powerful electronic warfare or directed energy, et cetera. And to do that, they're going to need electric propulsion system that allows them to move energy from one part of the ship to another and make use of all of the energy on the ship. What we're looking at going forward here is -- and we're embedded in some of these discussions with the Navy is about building a capability for modularity. So whether they build a battleship or a destroyer a cruiser or a frigate or even, frankly, a medium-sized USV, they should be using the same architecture, that electric architecture, propulsion architecture that will allow for on -- what I've been calling out is common chassis, like you see in the automotive world where all the different size cars are built off the same kind of structure. And so if that's the case, and we head down that path, regardless of what the Navy ends up building, we'll be able to utilize that capacity down in Charleston for different size components. We've been investing in different size motors, different size drives, different size components for those ships that would be applicable to any size ship, whether it's a battleship all the way down to a medium-sized USV. So that's where we're headed. That's where we think that the Navy is going to head down that path. And again, that capacity that we built out down at Charleston will be the enabler for that capability. Operator: Our next question comes from the line of Austin Moeller with Canaccord. Austin Moeller: So just my first question here. Can you comment on the Tranche 3 tracking layer infrared payload award, what the contract value might look like and how this might grow as part of the Golden Dome now that over $13 billion was appropriated in the space force budget for '26. John Baylouny: We're not going to -- Austin, thanks for the question. We're not going to comment on the size of the award due to the fact that that's competitive. But we're really excited about this award. It's taken us some time incredible amount of innovation to find a different way to do this mission. Now that we've won that award, and we're squarely focused on executing the program and bringing that execution excellence to that team so that we can deliver on time. As we move forward to what other opportunities there might be in space, we look to help solve the bigger the bigger question of connecting for -- potentially for Golden Dome connecting the threat to the -- or the interceptor to the threat which is one of the reasons why we want to put the software-defined radio with the software-defined crypto into space that would allow us -- and we put some compute up there as well. So it would allow us to now connect and decrypt the data compute and then re-encrypt the data so that we can send it down to the interceptor so that the decisions, the yes/no decision happens on the ground, but the connectivity happens up at the edge in space. And so we're looking to solve the bigger problem the Golden Dome has, which is time. The intercept time has to happen, we believe, up in space that connectivity, otherwise, you're not going to make the time line. So what happens with the SDA tracking layer, portfolio? And how does dovetail into Golden Dome is still a question mark. The preliminary architecture is still being discussed and not completely public but we believe that all of the sensors that are up in space, all of the sensors on the ground to include over the horizon Radar will be part of the solution for Golden Dome. Austin Moeller: Okay. And based on the fiscal year '26, $27 billion shipbuilding budget, and what you're hearing from the Navy, do you expect a higher mix of like small or medium USVs in the force structure and would one design versus the other impact your ability to build an electric drive system or provide compute content or impact profitability on such a system? John Baylouny: It's a great question. I think you're going to see -- and it's an opinion. You're going to see a different ship classes being built. The battleship, whether they end up building a battleship or not, we'd love to see it or it becomes a destroyer or cruiser. But you're going to see a lot more as you kind of led here to smaller surface combatants, whether they're MUSVs or small USV or medium or small USVs, you're going to see a lot more quantity of those. We've been investing in capabilities for those small and medium USVs by putting mission equipment packages on them, putting them -- to see last year. We think there are missions out there for whether it's counter UAS or ISR or other missions for those small combatants. As far as the propulsion systems for those, we -- again, we've been investing in small, medium, large and extra large different components. We have some of our propulsion components on some of the USVs that are being tested now. And of course, Columbia Size motors would be applicable for some of the larger compaction. So we think we can address any number of different size ships and we do expect that the Navy will buy a whole portfolio of different capabilities. Operator: [Operator Instructions] Our next question comes from the line of Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: Congrats on a nice year. I was wondering if you could address the Quantum laser license that you signed. Can you go into a little bit more detail what that technology allows the customer to do, number one? And number two, are there more opportunities beyond that as quantum becomes the next tech over the horizon? John Baylouny: Yes, John, let me take that. Thanks for the question. Depending on the architecture of the quantum computing structure, some of them are -- some of them utilize lasers to excite the ions. And in this particular case, that's exactly what they're doing. They're using the quantum cascade laser technology that we make for military use to excite the ions for quantum use. To the question about are there other applications like this, we certainly look for noncore areas of the market to license our technology. We're not in the commercial space. We focus our attention on the military and defense space. And so when we see an application like this, and this is the second time we've seen it, and we'll look for others going forward. We like to license the technology out and allow the other companies to take advantage of the technology in the markets that we're not in. And so we'll continue to do that in the future. I can't say we have another one in the bag ready to go, but we'll continually look for them. Jonathan Tanwanteng: Okay. Great. A question about the CapEx. You mentioned that you're increasing for the year. What is the specific -- what are the specific programs that the increase is tied to? Is it production of components? Is it other stuff that's going on? Michael Dippold: Yes, Jon, I'll take that one for you. So thanks for the question. From a CapEx perspective, as John alluded to earlier, organic investment is where we're focused. And right now, from a CapEx perspective, that's about capacity. So we spoke about the naval elements that we're doing down in South Carolina, but also throughout the whole naval portfolio, we're looking to expand capacity and make sure that we're contributing to the more efficient shipbuilding aspirations of the department. So there's an element of CapEx going there. I would also say from a counter UAS and maybe more finite, the tactical radars the demand continues to be robust. I think we're continuing to see the performance of these radars, and that's requiring us to also increase capacity for that output. So those are the 2 primary areas that we're seeing. But the other things we're trying to do is also continue to have demo assets ready to meet the need of this kind of speed to market. So we want to have mission equipment packages to go on USVs that are ready to go. That's also an element of the CapEx, but mainly capacity, but also some demo assets for demonstration and speed to market. John Baylouny: Let me just add a little bit more to that in another area in the missile area, where as you look at, they come to realize that in the battlefields of the future, it's going to be dominated -- they're going to be dominated by autonomous platforms and weapons like load emissions and such. And sensing is a key part of every one of those platforms. And of course, we make exquisite infrared sensors and radars and other sensors as well. The demand signal for those low-cost highly attributable platforms is there. So we're investing some in capacity to expand those capabilities. And on the missile front, all the way from the very low end capabilities all the way to the very high-end capabilities are things that we're investing in and including capacity for those capabilities. Jonathan Tanwanteng: Understood. If I could sneak one more in there. How do we expect OpEx and R&D to grow maybe as a percent of revenue this year? Or do they stay roughly the same? Michael Dippold: Certainly, from an IRAD perspective, we expect to see that as a similar percentage of revenue. I think the margin impact that you saw as we ticked it up to that mid-3% of sales range was a onetime thing. I think we're going to be stabilized there that will contribute to our ability to expand margins. And then from a CapEx perspective, I would say that we're looking to pick that up and it will be somewhere in the neighborhood of 5% of sales. Jonathan Tanwanteng: Got it. I think I said OpEx, not CapEx. Michael Dippold: I'm sorry. Yes, I would expect from an OpEx perspective that you see a little bit more moderate of an increase. I think in 2025, we had a big jump that we saw, and I would not expect that to continue at that pace. Operator: Our next question comes from the line of Andre Madrid with BTIG. Andre Madrid: Looking at your prior 2026 target, I know you guys had outlined 14% EBITDA margin. That's obviously not going to be the case with what's implied right now. But when do you think that, that could feasibly be achieved down the road? And then I guess, too, as we just look at 2026 kind of being the endpoint of your targets from the last Investor Day, I mean what insight can you just provide at large about how the remainder of the decade might look like. Michael Dippold: Yes. So our intent is to provide multiyear targets probably in the first quarter of 2027, Andre. So we're not going to get out in front of that now, but I'll give you some directional points. The first is we think the business is structured to be in the mid-teens margins, right? So there is a continued path to grow the margins I think our guide showing that in the increase that we're expecting in '26. And I don't expect that to be any different as we look out into '27. So we should be able to get into the mid-teens comfortably there. And that's what I'd kind of give you that confidence there as we look out into the future. Andre Madrid: Got you. Got you. And then I guess as we look at book-to-bill, I mean, demand has just been so strong. I mean we've looked at 16 consecutive quarters either at or above onetime. I mean are you worried about this softening at any point? Or is there any particular area in which we might see a softening. John Baylouny: Well, Mike explained that we are looking at some of the areas that are not going to grow as fast as other areas. But we focus all of our attention on the portfolio to see where we can invest to increase the speed of growth. And so I wouldn't point out any one particular area of the business that we say is the demand is going to fall off. I just think it's a matter of how fast they grow. Operator: Our next question comes from the line of Ron Epstein with Bank of America. Ronald Epstein: So you've covered a lot of ground already, but maybe one area where we really haven't talked much is what are you seeing for the company in terms of opportunities in Europe, right? European defense spending should, I don't know, go to, I don't know, what, $850 billion by the end of the decade, maybe if everybody spends what they say they're going to do. That's a pretty big market. And then also, how has sort of the transatlantic tension impacted your business, be it that your primary shareholder is a European company? John Baylouny: Yes. Thanks, Rob. Let me take that. I think, first of all, you're right. There's certainly the macro environment today, the U.S. is looking for speed. Europe is looking to be self-reliant. And there's urgency on both sides. And that's a conducive environment. for partnership, frankly. You mentioned our parent. They're a key partner for us in driving that international growth capability. Given their footprint in Europe, and around the globe, we're looking to further leverage that position and accelerate and expand our growth, especially now that they have this Iveco defense and through their JV with Rheinmetall. Given the fact that they've got a strong portfolio, we're looking to utilize those technologies capabilities in the U.S. And of course, we'd have to Americanize the capability to apply to the U.S. market but -- and vice versa, right, moving in the other direction. The self-reliance in Europe often starts with licensing technology from the U.S., and we've got technology that we could do. So this is the right time for us to be having the discussion and your question is timely to be having the discussion about increased collaboration with Leonardo to address both the European markets and the urgency on the U.S. side. Ronald Epstein: Got it. Got it. Got it. And then maybe just a detail. Is the laser IP licensing a sign of just more expanded -- I mean, I guess this is sort of already asked, but more expanded work outside defense. John Baylouny: Yes. Look, I think that we want to stay focused. We want to stay focused on defense. We want to make sure that we play to our strengths and our capabilities. And so when we see a market like this, it's outside of our core capability and focus we tend to want to get it licensed out. We want -- will help, but we want to get it out of our portfolio and moving into another domain. This will keep us focused on the growth markets for defense, which is where we're -- which is our strength. Michael Dippold: Yes. And Rob, I'll just add one thing here. The laser IP that we're talking about has a lot of utility in nondefense outlets. So we've looked at this in the past, we have had some successes. We're going to continue to do so. But really, where John is going is that utility of that IP, just as broad-based applicability. And we're not going to be able to chase every one of those opportunities. So we're keeping focused on the defense space and get a look for these license opportunities as they emerge. Operator: Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to John for closing remarks. John Baylouny: Thank you. I want to thank everyone for joining today's call. We're proud of our strong continued organic growth our expanding presence in the space market and our disciplined investment alignment with customer needs. We're excited about the opportunities ahead. Focus remains on driving profitable growth and delivering differentiated capabilities for our customers. If you have any further questions, Steve and the team will be available after today's call. We look forward to speaking to you again. Thanks, again, and have a great day. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Xometry Fourth Quarter 2025 Earnings Conference Call [Operator Instructions] Please note that today's conference is being recorded. I will now hand the conference over to your speaker host for today, Shawn Milne, VP of Investor Relations. Please go ahead. Shawn Milne: Good morning, and thank you for joining us on Xometry's Q4 and Full Year 2025 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; Sanjeev Singh Sahni, our President; and James Miln, our Chief Financial Officer. During today's call, we will review our financial results for the fourth quarter and full year 2025 and discuss our guidance for the first quarter and full year 2026. During today's call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth and overall future prospects. Such statements may be identified by terms such as believe, expect, intend and may. These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U.S. Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2025. We caution you not to place undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in our expectations. We'd also like to point out that on today's call, we will report GAAP and non-GAAP results. We use these non-GAAP financial measures internally for financial and operating decision-making purposes and as a means to evaluate period-to-period comparisons. Non-GAAP financial measures are presented in addition to and not as a substitute or superior to measures of financial performance prepared in accordance with U.S. GAAP. To see the reconciliation of these non-GAAP measures, please refer to our earnings press release distributed today and in our investor presentation, both of which are available on the Investors section of our website at investors.xometry.com. A replay of today's call will also be posted on our website. With that, I'd like to turn the call over to Randy. Randolph Altschuler: Thanks, Shawn. Good morning, and thank you for joining our Q4 2025 earnings call. Our record Q4 quarter and record full year 2025 powerfully demonstrate the success of our AI native marketplace in the massive, complex and highly fragmented custom manufacturing market. Our revenue growth and profitability accelerated as 2025 progressed, and we are encouraged by our strong start to 2026. Alongside reporting record financial results, today, we announced the planned transition in Xometry's leadership. Effective July 1, 2026, I will transition to become the Executive Chair of the Board; and Sanjeev Singh Sahni, Xometry's current President, will become Chief Executive Officer. This transition is a result of a deliberate long-term succession process with our Board, and we are aligned in our conviction that Sanjeev is the right leader for our next chapter. Together with Laurence Zuriff, I co-founded Xometry in 2013 with a mission to make the world's manufacturing capacity accessible to all by digitizing the vast, highly fragmented custom manufacturing market. We stay true to that vision from the start, and that consistency is now delivering scale and accelerating growth and profitability. I'm proud that in 2025, our marketplace served over 80,000 active buyers around the world. The record performance we are reporting today and the momentum that built throughout 2025 and is carrying into the first quarter of 2026 reflects the investments and changes we've been making in our product, technology and go-to-market strategies and leadership. As we continue to lean into product-led growth, I've decided that this is the right time to hand over the leadership of Xometry to Sanjeev. Sanjeev has been my close partner since he joined in January of last year and has held the operational mandate for our global teams. During his tenure, Sanjeev has been instrumental to Xometry's accelerated revenue growth and expanded profitability while further deepening our suite of advanced technology and AI capabilities across the business. Sanjeev's track record at Xometry and his background of driving global growth, innovation and scale with large global marketplaces makes him the right leader to drive our next stage of innovation and profitable growth. Sanjeev has done a terrific job as our President, and I expect that he will continue to outperform as our CEO. In my new role as Executive Chair and as the largest individual long-term shareholder, I will remain closely involved in the company's future, focusing on strategic growth initiatives and key corporate partnerships. In short, I'm not going anywhere. While this transition will be a milestone for Xometry, as always, our focus remains on executing the significant opportunity in front of us. It is a pivotal time in manufacturing, driven by accelerating digital transformation, increasing customer demands for speed and transparency, rapid AI-driven innovation and the crucial need for resilient supply chains, including the push towards reshoring. This new era necessitates resilient digital workflows and robust supplier networks. Xometry's AI native marketplace is digitizing how custom manufacturing is priced, sourced and fulfilled by replacing manual legacy processes. Our networks of buyers and suppliers, alongside the proprietary data they generate through their interactions in our marketplace continue to grow and create increasing network effects. Over the last year, we've accelerated our product development to meet these increasing expectations and requirements of custom manufacturing buyers. We have enhanced flexibility in manufacturing selection by expanding the portfolio of high-performance manufacturing materials and certifications. For rapidly innovating sectors across all end markets, Xometry provides a secure certified platform that facilitates AI-enabled sourcing with improved visibility into qualified domestic suppliers to meet the growing need for speed, scale and compliance. As I said earlier, Q4 was a record quarter for Xometry across many fronts, including revenue, gross profit and adjusted EBITDA. Q4 revenue growth accelerated, increasing 30% year-over-year, driven by 33% marketplace growth through our expanding networks of buyers and suppliers and deepening enterprise engagement. Q4 marketplace gross margin expanded 80 basis points year-over-year to 35.3%. The expansion of our marketplace gross margin underscores the significant economic value generated by our AI native marketplace. Our competitive moat continues to increase as we grow our networks of buyers and suppliers and gain more data to continuously train our algorithms. This continuous improvement has driven substantial and steady growth in our marketplace gross margins, moving from 25% 4 years ago to approximately 35% in 2025. Enterprise growth remained robust in Q4, finishing off a strong 2025 as revenue from marketplace accounts with last 12-month spend of at least $500,000 increased by over 40% year-over-year. We are focused on driving further penetration in our largest accounts, each with an estimated potential spend of at least $10 million annually. In 2025, we ended with 4 accounts with at least $10 million of spend, driven by strong execution from sales in our technology solutions and an acceleration in large multiyear production programs across key end markets. Our strong Q4 financial results capped a transformative year for Xometry as we delivered accelerating revenue growth and 4 consecutive quarters of positive and increasing EBITDA margins. At the same time, we invested in and strengthened our platforms to deliver robust secular growth and expanding profitability in the coming years. We're off to a strong start in Q1 and expect robust growth to continue in 2026, which James will discuss later in the call. I will now turn it over to our President, Sanjeev Singh Sahni, to discuss some of the initiatives that are driving our strong growth and increasing profitability. Sanjeev Sahni: Thanks, Randy, and good morning. I'm honored and excited to step into the CEO role at Xometry on July 1. Under Randy's leadership, Xometry has been defined by a singular unwavering mission to make the world's manufacturing capacity accessible to all. I look forward to working closely with Randy and our talented global team to accelerate our product-led growth and further cement Xometry as the essential marketplace for the custom manufacturing industry. Reflecting on the past year, I continue to be impressed by our large market opportunity and long runway of growth ahead as we increasingly become a product-led company. We are focused on key growth initiatives, including expanding our marketplace offerings, driving structural growth for enterprise accounts and building out our global supplier network. Let me start by talking about expanding marketplace offerings. In 2025, Xometry accelerated the pace of innovation, enabling better pricing, speed and selection for our buyers and finding the optimal match for suppliers in our network. Xometry launched auto quotes for injection molding services in the U.S. and Europe, providing customers immediate access to pricing and lead time estimates for one of the most critical production processes and one of the largest categories in custom manufacturing. We expanded our marketplace capabilities, including AI-powered design for manufacturing or DFM, which utilizes machine learning and automated algorithms to identify and correct production issues early in the design phase. We recently added the ability to interpret technical drawings within our AI DFM, further enhancing our proprietary data set. In Q4, we added a portfolio of high-performance materials for additive manufacturing technologies to the U.S. marketplace. These materials are critical for advanced applications in aerospace, defense and medical device industries. Additionally, we introduced a preferred subprocess feature for CNC machining. Also in 2025, we launched our highly successful Teamspace feature in the EU. Teamspace continues to scale with over 11,000 teams created globally since launch. Additionally, Xometry EU launched its parts library, simplifying how customers manage and reuse part data across projects. The EU parts library consolidates the client's entire upload part history into a single filterable interface, enabling users to quickly reorder previously quoted or produced parts. In 2026, our focus remains on key marketplace expansion efforts. These include: first, increasing our marketplace offerings. In injection molding, we will expand our capabilities, further enhancing the buyer experience and growing the associated supplier network. Also, we will continue to add material and finished offerings, enabling us to service more complex and production scale programs. Second, continuing to advance our pricing intelligence, including more personalized pricing based on customer context and order characteristics. Third, further raising the bar to deliver a world-class e-commerce experience through deeper integration of automated DFM analysis and AI-assisted customer and supplier workflows. One of the key drivers of accelerating growth of our marketplace has been our ability to drive structural enterprise growth. As Randy mentioned, we delivered strong enterprise growth in 2025 with 40% plus revenue growth from our larger customers. Xometry is becoming more embedded within the enterprise customer workflows, which in turn drives larger and more predictable spend. In 2025, we ended with 4 accounts with at least $10 million spend driven by strong execution from sales and the efficacy of our technology solutions. We expect more accounts to join the $10 million-plus threshold in 2026, driven in part by many multiyear production programs across key end markets. In 2026, we are focusing on driving further structural enterprise adoption through deeply embedded sales and marketing motions and increasing use of technology solutions, including Teamspace and ERP procurement integrations. Now let me talk about our Commerce Industrial sourcing platform. We made significant progress in 2025, modernizing our commerce platform so we can return to growth. Thomas is a leading digital platform connecting industrial buyers with over 500,000 listed North American suppliers. Thomas supports manufacturers, distributors and service providers with tools and resources to drive business growth. In Q4, we launched a new dynamic ad serving model and Thomas Smart Search, setting the stage for a completely new experience on the Thomas platform. We are pleased with the early results from the Thomas platform. In 2026, Thomas is focused on improving how buyers and suppliers interact across the Thomas network by allowing the buyers to describe requirements more naturally and quickly to find local suppliers. We will improve search results, relevance and help our advertisers better access the extensive demand on Thomas. To continue to grow Thomas awareness, we are strengthening the Thomas brand with a new marketing campaign. Finally, we are focused on expanding our global supplier network and improving the supplier experience. Our global supplier network of approximately 5,000 active suppliers is a significant strategic advantage, giving buyers unmatched speed, capacity and resilience, allowing for immediate scaling and offering sourcing flexibility across 50 countries on 4 continents. In the U.S., we expanded our supplier base with a focus on larger suppliers with key quality certifications to ensure the needs of our enterprise customers. Globally, we expanded our sourcing network to include more suppliers in Europe, India, China and Turkey. In 2025, we launched the new Workcenter mobile app, to improve supplier experience and engagement. The Workcenter platform is Xometry's proprietary all-in quote-to-cash solution, enabling its partners to source and consolidate work, manage operations, monitor performance and secure cash flow. By providing easier access to the job board and job management, we expect to drive increasing supplier engagement. In 2026, we will continue to strengthen marketplace density by enhancing supplier matching precision and expanding network depth across geographies and capabilities, especially in India. We will further increase the choice of processes and lead time from suppliers across the world. In 2026, we have an exciting road map of updates and new features for our Workcenter mobile app, including improving usability by enhancing how users review jobs and designs. There's much more to come in the following months as we focus on further improving buyer and supplier experiences and expanding our platforms. As Randy mentioned, our momentum remains strong in Q1. We expect robust profitable growth to continue in 2026, given strong demand on our marketplace and our product road map. I will now turn the call over to James for a more detailed review of Q4 and our business outlook. James Miln: Thanks, Sanjeev, and good morning, everyone. Having worked closely with Randy over the past 2 years, I've seen firsthand how his and Laurence's vision have translated into the rapidly growing profitable business we are reporting today. I would like to thank Randy for leading the company to where we are today and setting Xometry up for our next chapter. Looking ahead, I speak to the entire executive team when I say we welcome the opportunity to work alongside Sanjeev to accelerate our momentum. He has been a disciplined partner in driving our 2025 performance, and we are excited to continue to scale the business toward our long-term targets under Sanjeev's leadership. Turning now to our financial results. Xometry had an excellent Q4, marked by accelerating revenue growth and a significant increase in marketplace gross profit. This performance highlights the real-time responsiveness of our marketplace to customer demand and solidify Xometry's position as the digital rails for the largely off-line and fragmented custom manufacturing industry. As we progress toward $1 billion in revenue, we anticipate continuous improvements in profitability alongside ongoing investment in our growth initiatives. 2025 was a standout year for Xometry as we accelerated annual revenue growth 800 basis points to 26%, further expanded marketplace gross margin by 120 basis points and delivered full year profitability with $18.5 million in adjusted EBITDA compared to a loss of $9.7 million in 2024. At the same time, investments in our platforms have positioned us for robust secular growth and increased profitability in the coming years. In Q4, revenue grew 30% year-over-year to more than $192 million, a 200 basis point sequential acceleration from Q3. Q4 marketplace revenue was $178 million and supplier services revenue was $13.9 million. Q4 marketplace revenue increased 33% year-over-year, driven by strong execution, expansion of buyer and supplier networks and growth with larger accounts. Marketplace growth was robust across many verticals, including aerospace and defense, electronics and semiconductors, energy and automotive. Q4 active buyers increased 20% year-over-year to 81,821 with a net addition of 3,539 active buyers, driven by efficient corporate marketing initiatives. Q4 marketplace revenue per active buyer increased 11% year-over-year, primarily due to strong enterprise growth. We view accounts with at least $50,000 spend at the top of the enterprise funnel. In Q4, the number of accounts with last 12 months spend of at least $50,000 on our platform increased 18% year-over-year to 1,760. Enterprise investments continue to show returns with strong revenue growth from marketplace accounts, ending 2025 with over 140 accounts with last 12 months spend of at least $500,000. Our enterprise strategy focuses on our largest accounts, which we believe each have $10 million plus in potential annual account revenue. Services revenue declined approximately 1% quarter-over-quarter as we have largely stabilized the core advertising business. We are focused on improving engagement and monetization on the platform, which remains a leader in industrial sourcing, supplier selection and digital marketing solutions. Q4 gross profit was $75.2 million, an increase of 27% year-over-year, with gross margin of 39.1%. Q4 gross margin for marketplace was 35.3%, an increase of 80 basis points year-over-year. Q4 marketplace gross profit dollars increased a robust 36% year-over-year. We are focused on driving marketplace gross profit dollar growth through the combination of top line growth and gross margin expansion. The growth in our marketplace gross margin underscores the significant value our AI-native marketplace is providing. Moving on to Q4 operating costs. Q4 total non-GAAP operating expenses were $67 million, increasing 15% year-over-year, demonstrating strong leverage by growing at half the rate of our revenue growth. We are applying strong discipline and rigor to our capital and resource allocation across teams while investing in our growth initiatives. In Q4, sales and marketing decreased 20 basis points year-over-year to 15.6% of revenue. Marketplace advertising spend was 5.2% of marketplace revenue, which was down 40 basis points year-over-year as we delivered accelerating growth and expanding profitability. In Q4, operations and support decreased 80 basis points year-over-year to 8.1% of revenue. We are focused on driving increasing automation with AI across operations and support. Q4 adjusted EBITDA was $8.4 million, an increase of $7.3 million year-over-year, driven by strong growth in revenue, gross profit and operating efficiencies. In 2025, we delivered our target of approximately 20% incremental adjusted EBITDA margin. In Q4, our U.S. segment adjusted EBITDA was $10.8 million or 6.8% adjusted EBITDA margin, a $6.8 million improvement year-over-year, driven by expanding gross profit and strong operating expense leverage. Our International segment adjusted EBITDA loss was $2.4 million in Q4 2025, a $0.5 million improvement from a loss of $3 million in Q4 of 2024. We expect continued improvement in International segment operating leverage in 2026. At the end of the fourth quarter, cash and cash equivalents and marketable securities were $219 million. We generated $6.1 million in operating cash flow in 2025, driven by strong operating leverage and focus on working capital efficiency. In the fourth quarter, we invested $10.3 million in CapEx, almost entirely software related, reflecting our technology investments in the platform and accelerating product rollouts. We are focused on improving working capital efficiency and cash flow conversion given our asset-light model and limited capital spending. Throughout 2025, our AI native marketplace delivered strong revenue and gross profit growth, along with significant operating leverage, showcasing our disciplined execution. As we progress towards $1 billion in revenue, we anticipate to continue to deliver at least 20% incremental adjusted EBITDA leverage annually. Given the vast market opportunity and our low penetration rates, we will continue to strategically balance future investment with the relentless pursuit of operating leverage. Now moving on to guidance. For the first quarter, we expect revenue in the range of $187 million to $189 million or 24% to 25% growth year-over-year. We expect Q1 marketplace growth to be approximately 27% to 28% year-over-year. As Randy mentioned, trends remained strong in Q1, even as we are mindful of the uncertain macro environment. We expect Q1 services revenue to be largely flat quarter-over-quarter as we work through the transition of the recently launched Thomas Ad serving platform and search upgrades. In Q1, we expect adjusted EBITDA of $6.5 million to $7.5 million compared to roughly breakeven in Q1 of 2025. In Q1, we expect stock-based compensation expenses, including related payroll taxes to be approximately $11 million or approximately 6% of revenue. For the full year 2026, we expect at least 21% revenue growth, driven by our Q1 outlook and at least 20% growth in Q2 to Q4. Our guide for the year reflects us continuing to be mindful of the uncertain macro environment. We expect 2026 marketplace gross margin to be higher than 2025 as each quarter of growth and technological advancement incrementally fuels performance in the subsequent quarters. For 2026, we expect services revenue approximately flat year-over-year with modest growth in the second half of the year. For the full year 2026, we expect incremental adjusted EBITDA margins of at least 20%. I want to close by thanking our dedicated Xometry team members worldwide, whose tireless commitment, professionalism and passion are instrumental to our continued success. We are incredibly proud of our shared accomplishments and look forward to continuing to revolutionize the manufacturing industry together. With that, operator, can you please open up the call for questions? Operator: [Operator Instructions] Our first question coming from the line of Cory Carpenter with JPMorgan. Cory Carpenter: Maybe, Randy, one for you and one for you, Sanjeev. Randy, could you just expand a bit on why now for the CEO change? Why was this the right time for you? And where do you expect to focus your time? And then, Sanjeev, look, clearly, a ton in the product pipeline that you're -- but maybe could you just talk about what are you most excited about? And what initiatives do you think could have the most meaningful impact on growth this year? Randolph Altschuler: Great. Well, Cory, good morning. Look, while this is news today, this transition is the result of a deliberate succession process. And as we undergo this transition, I think it's important to remember that even though we're changing the person in the seat, and I'm sitting right next to him right here, we're not changing the destination on the map. And my commitment to Xometry is as strong as ever. And the timing of this transition is deliberate and it reflects the strength of our position. With a record 2025 results, we're on a clear increasingly profitable trajectory, making this the ideal window for a leadership transition later this year on July 1. And these results, frankly, from last year and the momentum we're seeing in the first quarter of this year reflect the impact of Sanjeev's leadership and his focus on product-led growth, which have been key components of our recent success. And as the largest individual long-term shareholder here, I'm not going anywhere. As you asked, I remain deeply involved in our future, specifically driving our strategic growth initiatives and corporate partnerships. I plan on developing across industry initiatives from a strategic vantage point, specifically where Xometry has a significant opportunity to become the essential platform for an industry that is rapidly moving towards a digital-first AI-powered model. And we are very uniquely positioned, and I think there's a lot of strategic partnerships we can build based on that. And I'll hand off to Sanjeev. Sanjeev Sahni: Thanks for the question. Executing on growth initiatives, which are driving significant market share gains in this massive fragmented market is really critical for our growth ongoing. We expect the pace of new product introductions to continue in '26 as we further expand the marketplace menu, setting up for continued growth in wallet share. We are focused on growth initiatives across the board, including expanding our marketplace offering, driving structural growth for enterprise accounts and building out our global supplier network. As I have grown and scaled marketplaces in my career, I have seen how the financial models are inherently attractive. Network effects that build competitive moats are able to generate increasing value as the companies grow. As the last few years have demonstrated, we've been able to reaccelerate growth while continuing to improve gross margins and deliver at least 20% incremental adjusted EBITDA margins. Xometry scales, I expect that we will be able to continue to demonstrate consistently strong leverage, delivering increasing profitability and cash flow. Operator: Our next question coming from the line of Andrew Boone with Citizens. Andrew Boone: You guys printed a really strong 4Q with acceleration. As I look at the guidance for 1Q '26 and then 2026 in total, it implies a deceleration. Can you just speak to that? Is that conservatism? Is there something from macro that you guys are seeing? Or anything else that you want to highlight there? And then as I think about the pacing of international investments, you guys talked about improvement for 2026. Can you guys just elaborate on that in terms of what our expectations should be as we think about the path to profitability for international? Randolph Altschuler: Yes. This is Randy, Andrew, and thank you for the question. Let me just start by saying we have a lot of momentum. We've mentioned, I think, a couple of times in the script, and we raised sort of the guidance for Q1. So Q1 has started very strong. I think we are mindful of the macro. So that's why -- but just to be clear, we also raised our guidance for the year as well. So as the year progresses and hopefully, as we keep the momentum, we'll continue to update. But so far, there's been no change, lots of strong momentum, and we're hopeful and confident that will continue throughout the year. James Miln: Yes. Andrew, this is James. Just to build on that. I think, as you point out, Q4 was a great quarter seeing marketplace growth accelerate to 33% year-over-year. I think that does really reflect the progress the team are making, particularly the enterprise growth we've been driving becoming more embedded in those workflows with our largest customers, seeing those enterprise accounts more than 500,000 grow to more than 140, seeing the revenue per buyer up 11% year-over-year and seeing the traction that we're making there is really encouraging. And behind that is also the product-led initiatives. And we really feel like we're taking significant share here. I think as we look forward, Andrew, you say like we always are mindful of that macro environment. We control what we can control. And I think we're very pleased with being able to increase the outlook for Q1 here and for the year ahead. And I think as we go through each quarter, we'll be able to continue to give you updates as we move forward. The second question, was that international? Randolph Altschuler: Yes. James Miln: On international.. Andrew Boone: International profitability... James Miln: Yes. And so on that, too, really pleased with the overall opportunity and performance we've had in international. What we've talked about before is the unit economics that we're seeing, the gross margin, the gross profit structure are very similar internationally as we see in the U.S. And as we penetrate deeper into different international markets, really see very common use cases and needs for our buyers and a common opportunity for us to take advantage of our marketplace offering for our suppliers. So I think that over the long term, certainly continue to feel very strongly about international being able to grow into a larger part of our business going up to 30% to 40%. And I think over time, show very similar economics. And so it's great to see the U.S. leading the way and getting to nearly 7% adjusted EBITDA margin here. And I think we'll continue to just balance those choices on profitability and growth as we continue to grow the international business. Operator: Our next question in queue coming from the line of Brian Drab with William Blair. Brian Drab: Randy, congratulations on the decision. And it's been an amazing run so far. I was wondering if you -- one thing that stood out, and I'm joining the call late, but one thing that stood out was the slide showing what you're doing with some of the larger customers and how fast those customer counts are growing and the revenue with those customers are growing. You now have 4 customers over $10 million in revenue. Can you talk about what you're doing as specifically as you can for those customers and how you're having success, whether it's like working yourself into the bill of materials for production runs, ERP systems, et cetera, to build those big customers because it looks like it's really happening. Randolph Altschuler: Yes, Brian, thank you. And I think these larger customers, and as we've talked about, we've got that a bunch of these customers now that we think can have a $10 million spend. We're probably we've got 4 of them now. We've got the 140. I don't know, Brian, you heard that if you joined the call, we have over 140 customers now that have more than $500,000 LTM spend with us. That's up from 40% from last year when we had 100. So that's been growing rapidly. And there's a couple of keys to that. It starts with the technology. We are embedded more and more in the workflow, and we're embedded in their supply chain. Our punch-outs, our integrations with their ERP and their purchasing systems are instrumental in that. So that just makes us part of what they're doing every day. Then you layer on top of that the improvements that we're continuously making with Teamspace, which has been a terrific product for us. And Teamspace also lends itself to larger products -- projects. As we talked about, we have more and more multiyear projects with these customers. Teamspace helps facilitate that, and we're constantly adding features to that and enhancing that. So that's that product-led growth. And then marrying that are the investments that we've been making in the last couple of years in our sales force, in our go-to-market. And now we're marrying that also with making changes in the marketing side as well. Stephany Verstraete joined us in the beginning of last year as our new CMO. So all the things are coming together to build out those larger customers. Brian Drab: For those types of customers, is the work very -- is it varied across your different process offerings? Or does it -- do they focus typically on one? Randolph Altschuler: No, it's vary. And I think, Brian, a couple -- that slide was intended to show a couple of things. First of all, that our platform is extensible. We're in multiple different industries. We have strength in many industries. Number two, it also -- if you go through it, like we're doing multiple different processes as well. So that's one of the advantages of a marketplace and our platform. It's extensible. And also, we can continue to add, and we mentioned in that script, new processes, the instant quoting for injection molding that we had at the end of last year in the U.S. and we had Europe, the new materials, all that's adding to more one-stop shopping. I did want to mention one more thing, Brian, which is the macro is shaky. There's a lot of noise out there. There is a flight to reliability and security and safety and the Xometry platform provides that particularly as a public company with the transparency, with the systems we have in place, the security we have in place. For larger customers, that is very important as they think about ensuring that they can deliver to their end customers, they want a partner that can make that happen and our platform is that partner. Brian Drab: And then just lastly on this topic, and then I'll pass it on. The next Slide 11 shows the different work. I like these slides that you show different work that you're doing for some major customers. I don't know if those are the same customers. I imagine there's some overlap between these slides. These are probably customers that are at least doing or $50,000 with you. But for the customers that you're doing the $10 million in revenue with, are those customers that are generally doing production work with you, low-volume production and you're in the bill of materials, it's this recurring production that you're involved in? Or is it just a ton of development work? Or is it both? Randolph Altschuler: It's certainly more heavily weighted towards production, Brian. And we are increasingly in the BOM, just as you diligence it to the BOM. Absolutely. Operator: Our next question coming from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: I wanted to build on sort of a couple of the answers you've given so far. When you think about the verticalization of the platform today, what are you seeing as the biggest tailwind to growth on an industry vertical standpoint today? And how are you thinking about continuing to maintain or build on some of that operating momentum in certain industry verticals? And which ones do you feel you're under-indexed to today? And what do you think you need to do in terms of changing some of the indexing across some industry verticals or maybe you feel are more opportunity sets looking longer term? Randolph Altschuler: Yes. Look, I think, Eric, as I mentioned earlier, we are pretty well diversified across multiple verticals. And that's the advantage of our technology platform. It's extensible. And so when you see the growth that we're getting, it's across multiple industries. I wouldn't say there's one vertical versus another. I think overall, and this is for me, one of the most exciting things about Xometry and while, why we're going to have durable, enduring large growth for many years to come, we're underpenetrating the overall market. The TAM is huge, and I'm super proud of the results that we have. But we should be -- continue to grow super well for a long time because that TAM is massive out there. And look, I think there is definitely a trend towards digitization. More and more people are using AI-powered models as the leader in that, as we can get the word out, more and more companies are -- that's the tailwind is people realize this is a better solution. People want resilient supply chains. People want it to be digital. People want to have the latest technology available to them. And we're at that intersection of many things between manufacturing and technology, between design and delivery, and we play that key role. So the more we can get that word out, the more that we can build these integrations, and this is one of the many things that Sanjeev is bringing to the table, you'll continue to see that growth continue and hopefully even accelerate. James Miln: Eric and Randy, just add, I think as we build out our global supply network, the enterprise capabilities that we have across multiple verticals are of important added value that we bring, whether that's in aerospace or cybersecurity and defense and medical and then having the Workcenter platform being able to -- whatever the vertical, be able to put up these jobs to the optimal supplier, the best match who has those capabilities can deliver a quality that us continuing to build on that performance across all of these categories to Randy's point, helps us penetrate where we still have a lot of opportunity ahead. Operator: Our next question coming from the line of Ron Josey with Citi. Ronald Josey: Randy, congrats and Sanjeev, looking forward to working more closely with you. I wanted to ask a little bit as a follow-up to Eric's question here, just the brand awareness amongst your buyer base. Randy, you just talked about the TAM being so large, and we're just sort of getting started on getting the buyers. So talk to us about brand awareness with what Xometry is offering, particularly as sales and marketing spend, I think that accelerated in the quarter. And so just talk to us about how you balance, call it, overall profitability in sales and marketing with building that awareness. And then, James, as we think about 2026 and the 20% incremental adjusted EBITDA margins, I believe that's consistent with '25. I'd love to hear your thoughts about how the management team is balancing incremental investments with just overall greater EBITDA as we do get to this scale? Or are we just super early given the size of the TAM? Randolph Altschuler: Yes. So let me tackle this and Sanjeev and James will jump in. So let me just start by saying, look, there are -- there's a pool of millions of buyers. And we are balancing though profitability and making sure we've got profitable growth in marketing. We've got some good slides there that shows that that's becoming more and more efficient as we've been going on. So I'd say we are -- we've got robust growth. And as we talked about, Q1 has started very strong as well. But there certainly is a balance between growth and profitability, and we're trying to optimize for both that 20% incremental profitability. So I think we have a long way to go on the awareness side. We're making good strides. But again, that's where you should expect to see durable long-term growth year after year from us, as more and more people learn about us. It's also where the technology is critical. And by integrating, by these Punchouts by becoming embedded in the workflows, as Brian mentioned earlier, being part of -- as Brian mentioned earlier, being part of the bill of material, that enables you without spending marketing dollars to get much greater awareness within your customer base. And in these large customers, these $10 million-plus customers that we now have in these -- that $500,000 plus, it's great next step to hit that milestone. Those are key ways to get out because those companies have often tens of thousands of employees in different locations. The more we can be embedded in their systems, that gets you like free advertising, free building. And particularly, as I mentioned earlier, as more and more customers are in this environment, looking for resilient supply chains and want security and reliability, that also helps drive more people to our platform. Sanjeev Sahni: Let me just add a couple to that, Ron. As you know, Xometry has been an AI native marketplace for inception. So use of data science, machine learning and foundational models has been key. But even as the AI overviews and AI-enabled answer the optimization engines or GEOs are gaining scale. We actually think of them as a new organic channel for brand messaging and awareness. We are investing in AI marketing capabilities internally, but continue to strengthen where we are with those efforts. In fact, we believe that we are very well positioned to take advantage of this change in how people search because we've been known to create high-quality content and expertise across multiple different categories that we operate in. So I think with new opportunities with answer engines and AI overviews, we actually are using them to drive some of that message home. James Miln: And Ron, on the investment and profitability question, over the last 2 years, you've seen us reaccelerate growth and deliver our full year adjusted EBITDA profitability and incremental margins of 20% and more. Actually, we've actually delivered those incremental margins over the last 3 years. So I think that is helping really demonstrate very tangibly the leverage that we see in the marketplace model. To your point, I think it is still very early. There's still a huge opportunity ahead. We're very focused on giving some guideposts here as we scale to $1 billion to continue to deliver at least 20% incremental adjusted EBITDA even as we continue to invest in those growth initiatives. The advantage of being an asset-light model with strong cash flow conversion from adjusted EBITDA means that as we continue to grow here and approach $1 billion, we'll be seeing that come through both in adjusted EBITDA and in the cash flow. And I think that gives us a lot of optionality as we think about the capital allocation and the opportunities ahead to really further scale the business. So it won't always be linear quarter-to-quarter, but certainly, you've seen us demonstrate this over the last few years, and I think we continue to expect to do that on our path to $1 billion here. Operator: Our next question coming from the line of Greg Palm with Craig-Hallum. Greg Palm: Yes. Congrats on the results and obviously, to Randy and Sanjeev, congrats on the planned transition here. I wanted to maybe start with a macro question because there is some thought that we may actually see a broader rebound in manufacturing this year. It's been a while since we've kind of had that. Number one, have you seen any change in, call it, supplier behavior on a year-to-date basis relative to last year or the last few years? And just in terms of the marketplace overall, what kind of impacts would that might have both on revenue and also from a gross margin standpoint, if we did see, call it, a rebounding manufacturing market and thus maybe a byproduct with some tighter capacity industry-wide? Randolph Altschuler: Yes. So just to start, I think it's been business as usual. And I want to be clear, I don't think our results are the beneficiary of any sort of pull forward or anything tariff related, et cetera. I think it's just as we've been gaining more and more market share as we become more and more embedded in our customers, more people are looking for digital solutions that's helped us. And so we really haven't seen any change from a macro perspective. I think as we gave our guide for this year, we mentioned we are mindful of the macro. But if there was an upturn in the macro, that would absolutely be a tailwind for us. It would be helpful for us. I think the improvement in our margins reflects our AI approach. We're training our models. Our algorithms are improving as we get more and more data, we get more and more accurate. And as we grow those networks of buyers and suppliers, that the data plus the growth of those networks, that's what's enabling us to grow our gross margins, and we've been doing that very steadily and consistently year-over-year since we went public. So I think you should expect, as James said, in 2026 for our gross margins to be higher than they were in 2025. We're excited for Q1 gross margins to be higher year-over-year and sequentially. And I think that if we do get a tailwind from a favorable macro, that will only be helping us even not only on the growth side, but also on the bottom line as well. Greg Palm: Makes sense. And then I wanted to just follow up on the cohort analysis because there's some interesting stuff there. In terms of the makeup of those $10 million accounts, I just want to be clear, are they doing -- is it a quantity or a quality? Like are they doing a lot more projects? Or are they doing bigger, higher value? And in terms of like how these accounts are serviced from an account manager standpoint, anything differently in terms of how that started and has evolved through that relationship that maybe you can use to push more accounts into this specific cohort? Randolph Altschuler: So a couple of things. So there's certainly -- with those larger accounts, there's more and more production work. So there's certainly larger projects. As we sort of talked about earlier, there is overall more volume. And I think I'm not sure you see the number of users that we've got in those accounts. So it's a combination, but certainly larger projects are helping there. And then we're built into -- as I mentioned earlier, we are built into, as Brian mentioned earlier, we’ are built into bill of materials, that's great, like that creates a lot of stickiness for you as you become the go-to for certain parts of that customer for a long time. And again, those technology innovations help a lot with this. I think as we -- you're asking about what's the key to those larger accounts. So they all start small, where we get the awareness. I think particularly these integrations being embedded in their workflows and in their technology, that has been critical to the growth. And then -- and when you get those technology lock-ins, that makes it very sticky. It makes it easier for the customer to default to you, and it provides additional awareness, particularly in those larger customers across a bigger base because these are large companies. So those things really help. We also have, obviously, as you can imagine, our sales force, we've got a tiered sales force like a lot of other companies. So in terms of account management, you've got some different motions there, too. But it's really the technology that's the critical element that helps that happen. Operator: Our next question coming from the line of Josh Chan with UBS. Joshua Chan: Congrats, Randy, Sanjeev, on the transition. Maybe just 2 quick questions from me. Number one, on -- obviously, very strong demand from customers. I guess, how do you feel about your momentum adding active suppliers? Are you concentrated more on active larger suppliers, so maybe the count doesn't matter quite as much? And then second question is, as you continue to grow EBITDA, what are your thoughts about potentially getting to a breakeven free cash flow at some point in the near future? Sanjeev Sahni: Thanks for the question, Josh. This is Sanjeev. Let me take the first part. I think -- as you mentioned, I think supplier growth is a key element of continuing to drive the marketplace growth. As you mentioned, we have close to 5,000 suppliers overall. And our system balances how we do margins across buyers and suppliers. So continuing to grow both sides of the marketplace is equally important to us across those spaces. But yes, as we think about the ongoing growth in the large enterprise accounts and the kind of needs they have, we continue to make sure that in our network, we not only have suppliers that are capable of delivering those programs, but also have the right certifications and requirements that are needed to meet the quality certifications of that customer. And so therefore, balancing the network for both size, breadth and depth, so size in terms of number, breadth in terms of geographical spread where we want to make sure that we can service the customer needs from anywhere in the globe and then depth in terms of processes that they can service for us remains critical, and we continue to invest our time there. James Miln: Josh, on cash flow, so good question. I think you've already seen us go positive or very close to positive on a couple of quarters in the last year. So generally an asset-light model with good cash conversion. Cash flow is coming after adjusted EBITDA. So we had our first full year of adjusted EBITDA profitability at $18.5 million, so I would expect over the last -- over the next year, we'll start getting to sustainable free cash flow positive as well as we continue to grow. Just to put a little bit more framing around that, I think CapEx -- operational cash flow last year was actually positive at $6 million. We have been investing in our product-led strategy. And so you've seen CapEx that was $10.3 million in the quarter. I think if we assume a similar sort of percentage of revenue in the year ahead at around 6%, then when we hit the $225 million quarterly run rate, we would expect to be a free cash flow positive on a sustainable basis. Operator: Our next question comes from the line of Matt Swanson with RBC Capital Markets. Matthew Swanson: We've touched on this in a couple of different parts, but I wanted to focus a little bit more on the Workcenter mobile app and just kind of what benefits that might give you from the competitive environment of just making it easier to work with for suppliers. They obviously have a limited number of hours every day their machines can be running. How does that kind of help to make sure that they're running on Xometry product projects? Sanjeev Sahni: Thanks for that question, [ Matt ]. I think the Workcenter mobile app is proving to be a substantial lock-in with our partners and suppliers across the globe. The advantages that we see are across 3 different interactions that those partners and suppliers have. One is on the job board itself, which is accepting a job when we offer them. A lot of the suppliers are not always in front of their computer to be able to actually accept jobs and the flexibility that a mobile app provides them to be able to accept the job where they might be actually at a machine and/or they might be away from their desk at home given the size and scale of some of these suppliers, that's the huge benefit just to get started. The second one is around management of the job itself. And I think the big advantage there is as they work through those jobs, they want to make sure that they are able to provide us with most timely inputs, both in terms of updates on the job, but also questions that might arise during manufacturing. So improving the analysis around the DFM piece that we were talking about before. So it acts as a mechanism for us to get real-time data back from the manufacturing flows coming back into our models and helping us improve those. And then finally, of course, managing their own cash flows. As you can imagine, a lot of these suppliers are trying to balance lots of jobs that they have, like you mentioned, but also trying to manage the outcomes for their business. So this has been the 3 areas of engagement that we continue to see increase. Matthew Swanson: I appreciate that. And I know there's been a lot of questions on the large customer front because these are some impressive numbers you guys delivered. But I guess what I was wondering is when you're thinking about how customers go from $50,000 to $500,000 to $10 million, are there any internal metrics that you look at that kind of signal people are starting to upsize? Have you seen any correlation with like the further spreading out of Teamspace or anything else that kind of gives you more confidence that the enterprise momentum we've seen in '25 will kind of continue to build in 2026? Randolph Altschuler: I think it starts with those customers, we have a pretty good idea or estimate of what their total spend is. So it just starts with qualifying that these companies can spend $10 million plus with us. And I think if we were to share the names with you where those customers are, they're spending many multiples more than that $10 million. So even if we have a modest share of their total spend, that is a very achievable number. So it just starts with that. And again, because of our platform, it's very extensible, you can imagine that it's relevant to lots of industries, and there's lots of big customers that are buying billions of dollars of custom manufacturing, a lot more than that. So it starts with just that qualification. I think if you sort of correctly sort of alluded to, as we get more and more buyers who are adopting the platform as more and more teams are created because that's a way for customers to invite their colleagues to join and use the platform. That's obviously a great signal. And then as we get traction with our integrations with the PunchOuts, get embedded in the workflows, become included in those BOMs, those are also great signals. But these are customers that clearly are spending the money. It's our job to show them that this is the best solution. And then -- and that's why we're seeing the momentum there. We would expect that number of $10 million plus to grow every year and that group of $500,000 plus to grow as well. Lots more to go. Operator: And there are no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Geoffroy d'Oultremont: Good afternoon, everyone, and welcome to Solvay's Fourth Quarter and Full Year 2025 Earnings Call. I'm Geoffroy d'Oultremont, Head of Investor Relations. And with me today are our CEO, Philippe Kehren; and our CFO, Alexandre Blum. This call is being recorded and will be accessible for replay on the Investor Relations section of Solvay's website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risks and uncertainties. The slides shared today are also available on the website. We will first discuss our full year earnings and the outlook for 2026 and then take your questions. Philippe, over to you for the introduction. Philippe Kehren: Thank you, Geoffroy, and hello, everyone. In 2025, we delivered healthy margins and strong cash flow despite the challenging environment. In this context, we remain disciplined and act to secure our competitiveness, leveraging energy transition and footprint optimization. Our strategy has proven to work and we continue to focus on being a leading essential chemical company with safety and sustainability at the heart of it. Let me share more details on this, starting with safety. Safety remains our top priority and we continue working towards our zero-accident objective. In 2025, we launched a major safety culture transformation program designed to improve safety performance across all our sites. While the reportable injuries increased slightly compared to last year, the severity of the incidents decreased overall. This is a sign that our efforts are starting to pay off. We're not there yet, but we are fully committed to continuing our transformation in 2026. Let me now share with you our progress on sustainability, implementing our 4 generations road map across the business, moving to Slide #6. We've progressed well on our greenhouse gas emissions targets. Our CO2 emissions, Scope 1 and 2 have decreased by 29% compared to 2021 and that's already close to our 2030 target of minus 30%. The reduction was driven equally by decarbonization projects and also by lower activity levels. The largest structural contributors were the coal phaseout projects in our Soda Ash plants in the U.S. and in Germany, which were completed in 2024 and which delivered their full impact in 2025. The next steps will be the new cogeneration unit in Dombasle, France, which will substitute coal with refuse-derived fuel and which is expected to be operational later this year. The new cogeneration project in Torrelavega in Spain announced in 2025 is expected to be operational in 2027. One year ago, we also announced our new biodiversity commitment for the group. In 2025, we launched a pilot at our Dombasle site, testing the science-based framework provided by the IUCN, the International Union for the Conservation of Nature. This framework aims to develop a blueprint for effective biodiversity actions that can be replicated across global operations. At the end of 2025, already 16% of our lands are under conservation or restoration. We'll continue working closely with the IUCN and the next step will be a second pilot at our Rosignano site in Italy, where we will further apply and refine the methodology. We also moved forward on our better life KPIs. As mentioned earlier, safety improved slightly compared to last year and we are dedicated and focused on improving this even more. We've been steadily moving on our diversity target with 28.8% of women in mid and senior management. Lastly, on living wage, we're very proud to have achieved our target already 1 year in advance with 100% of our own workforce throughout the world receiving a decent living wage. Now turning to Slide #7. Before Alex takes you through the details of the results, let me leave you with 3 key messages for the year. First, in 2025, we continue to deliver healthy margins and strong cash. The transformation of the company is progressing well and the operational excellence savings associated with it are supporting our performance. In 2025, the overall environment remained very challenging and we had some transformation expenses generating cash outflows. These are expenses tied to the separation, including phasing out the transition service agreement and building a new simplified ERP as well as essential initiatives for the new Solvay, including the ongoing fluorine business restructuring. At the same time, we generated EUR 350 million of free cash flow, thanks to our disciplined cash allocation framework and decisive working capital management throughout the year. This is a real achievement in such a difficult year. 2026 will be another challenging year. On the top line, the demand environment is not yet showing any sign of recovery and the bottom line will be impacted by the transformation expenses. So in this context and this is my second key message, we continue taking actions to make sure we can emerge stronger. Strengthening our competitiveness is essential. One key lever is accelerating our energy transition with a particular focus on phasing out coal across our European operations. Our decarbonization road map is progressing well. But at the same time, we need to align the European climate policies, ETS and CBAM with industrial reality. We cannot force decarbonization decades ahead of the 2050 target without the right framework. Extending free quotas until 2050 is a technical necessity to fund the transformation of historical sites instead of shutting them down. We need the support of the authorities for a competitive energy access. This is critical if we want to maintain competitive supply chains in Europe. The other key lever is industrial footprint optimization to safeguard long-term competitiveness. We regularly assess each site to ensure we can remain competitive in the evolving environment. When this is no longer the case, we act decisively. This has led to the restructuring of our fluorine operations in Germany to the closure of our Salindres site in France in 2025 and earlier decisions to close our peroxides plant in Warrington in the U.K. and in Povoa in Portugal. Yesterday, we launched a consultation process to reduce our production capacity at the Torrelavega plant in Spain from 600,000 tonnes to 420,000 tonnes starting in Q3 2026. This measure allows us to define a very clear industrial road map for the site, which will focus on local soda ash customers and competitive and low-carbon high-grade bicarbonate. All these measures strengthen the overall performance and agility of our European manufacturing base. Together, our footprint optimization and energy transition initiatives enable us to maintain an asset base that is highly competitive in its markets. So in summary, one, we deliver; two, we act to protect and reinforce our competitiveness. Third key message is that we remain focused on the deployment of our essential chemistry strategy. We continue the long-term transformation, which is about simplification of our organization and digitalization of our plants. We are preparing the future and we invest where demand justifies it. In 2025, we inaugurated our new rare earth workshop in La Rochelle for permanent magnets. And we doubled the capacity of our electronic grade of hydrogen peroxide plant in China. In January 2026, we inaugurated our production line of BioSource silica in Livorno, Italy. It's the first of its kind in Europe. And we have more projects with a clear potential of additional developments in La Rochelle, for instance, where we will start separating heavy rare earths already this year. So you see we're very committed to our strategy. At the same time, we act when necessary to make sure we will emerge stronger. We carefully look at our portfolio and we assess if changes are needed, but we also continue to invest in selective areas where it makes sense to prepare for the future. All of this while being laser-focused on our financial policy, a stable growing dividend and an investment-grade rating. Now over to you for the financials, Alex. Alexandre Blum: Thank you, Philippe, and good morning, good afternoon, everyone. Moving to the financial with 2 key messages. First, on cash generation. In 2025, we were able to generate strong free cash flow by rapidly adapting to our environment. Second message is that our balance sheet is healthy and this fully support the execution of our strategy. Moving to Slide 11. As usual, I remind you that my comments are based on organic evolution, meaning at constant scope and currency, unless otherwise stated. Underlying net sales in 2025 reached EUR 4.3 billion, down 6% versus 2024. The decline was mostly driven by lower volumes, which were down 4% year-on-year, mainly in Soda Ash and Coatis business units. ForEx had a negative impact for the year from the strengthening of the euro against the U.S. dollar and the Brazilian reals. In Q4, volumes were also down, mainly driven by Coatis and the Soda Ash export market and with a slightly more pronounced seasonality in the silica business. However, volumes in bicarbonate, peroxide and special chem remained very resilient throughout the year. Let's now move to the EBITDA bridge on Slide 12, where you see that despite all the headwinds, we have retained a healthy EBITDA margin. Underlying EBITDA amounted to EUR 881 million in 2025, down 13% compared to 2024, but within our revised guidance range. The EBITDA margin remained strong, close to 21%. Volumes and mix were mostly down due to Soda Ash and the absence of a peroxide license, but this was partly compensated by the positive impact of the optimization of our portfolio of European CO2 credits. Net pricing decreased year-on-year, primarily driven by the seaborne Soda Ash market and Coatis. Margins in the other businesses remained extremely resilient. For fixed cost and other, we can highlight 3 main moving parts. In fixed cost, minus EUR 23 million of negative impact from the temporary stranded costs related to the split. And then we have 2 nonrepeat elements from 2024 offsetting each other. Last year, we had plus EUR 20 million linked to a one-off TSA reinvoice in fixed cost versus minus EUR 29 million from provision in order linked to our Dombasle Energy project. Moving now to look at our structural cost saving on Slide 13. As expected, our structural cost saving program continued to deliver significantly in 2025 when we have achieved EUR 101 million of gross structural savings, bringing the cumulative amount since the start of the program to EUR 211 million and so exceeding our 2025 target. We will continue to focus on what we can control and we expect cumulative savings to be around EUR 300 million by the end of 2026. I now move to the segment review, mainly focusing on Q4 development and starting with basic chemical on Slide 14. Sales in the Soda Ash and derivative business unit were lower for the quarter by 13% with Soda Ash volumes and pricing steady in the domestic market, but showing a continued sharp decline in the seaborne market. Bicarbonate volume and pricing, on the other hand, continued to be extremely resilient and are up year-on-year. In peroxide, our electronic grade for semiconductor industry continued to deliver double digit growth, supported by AI-related investment, while volumes remained broadly stable in the merchant market. Overall, the segment EBITDA was down by 20% in Q4, mostly due to the lower volumes, including the non-repeat of peroxide license and lower pricing in Soda Ash exports. The EBITDA margin reached 25.1%, slightly lower compared to Q4 2024. Moving now to Performance Chemicals on Slide 15. This segment has a certain degree of seasonality in Q4. Year-on-year, silica sales were impacted by slightly lower higher volumes, while the consumer and industrial good markets remained stable. Coatis continued to struggle with volumes and prices down in all end markets due to the difficult environment caused by U.S. tariff and we will see if the recent changes can help the local industry to recover. Special Chem, on the other hand, increased in Q4 with higher rare earth volume in electronics and medical applications, which offset slightly lower demand in autocatalysis and fluorine. Overall, the segment EBITDA was down 18%, while the EBITDA margin decreased to 14%. I will now cover the Corporate segment. In 2025, the Corporate segment result was impacted by EUR 23 million of temporary stranded costs due to the TSA exit. They will continue to impact our performance in 2026, while OpEx related to the ERP will impact both 2026 and 2027. As of 2028, our target operating model will be fully in place, generating a new wave of savings, allowing to reach a run rate below EUR 50 million for the Corporate segment. Overall, the full year 2025 EBITDA was minus EUR 40 million, including a positive impact of EUR 40 million from the CO2 emission rights optimization. Moving to Slide 17 to look at our free cash flow, which, as you know, is at the top of our priorities. We delivered a strong free cash flow of EUR 350 million despite a weaker EBITDA generation. First, we have limited our CapEx to a level below EUR 300 million as guided. The EUR 292 million includes around EUR 240 million of essential CapEx, of which EUR 26 million for energy transition project. The rest, roughly EUR 50 million was dedicated to targeted investment in new capacity, including the completion of our new Soda Ash capacity in Green River, the doubling of our eH2O2 capacity in China and the BioSource silica unit in Italy. So even in a difficult year, we continue to invest to make Solvay future proof. The other cash driver was working capital, whose positive contribution reflect a strong discipline, the low level of activity at year-end and the positive impact from the exit of TSA with Syensqo in our receivable. As expected, provision cash out were high at EUR 260 million for the year. They include approximately EUR 130 million of what you could call normalized cash out for the provision linked to pension, environmental liabilities and some restructuring. And on top, there was EUR 60 million related to Dombasle Energy project and EUR 70 million of additional restructuring and other expenses related to the transformation we have initiated since the spin-off. As indicated, financing costs were higher in 2025 as it was the first year of full interest payment for the bond issued in April 2024. Let's move to the Slide 18, where I guide you through the temporary cash impact on the free cash flow. Here, we have the main element behind the transformation expenses and how they will temporarily weigh on our cash generation. First, the stranded cost, which mainly impact 2025 and 2026. In 2025, we stopped rendering services to Syensqo, but it will take 1 to 2 years to adjust our support functions. Second, the cost related to the new ERP. With the split, it becomes a necessity to design and deploy IT system that are adapted to our new operating model. Third, the restructuring cash. They mainly relate to the exit of the TSA partially compensated by Syensqo and the restructuring of our fluorine business. They were the highest in 2025 and gradually decreased starting in 2026. To wrap up the 2025 financial, let me take a word on the debt on Slide 19. Underlying net debt was EUR 1.6 billion at the end of 2025, roughly stable compared to 2024. The leverage ratio remained healthy at 1.8x. Regarding provision, in December 2025, we took an important step to derisk our balance sheet. We did a lift out. This means that we transfer a portion of our U.S. pension plan to an insurance company, which is now solely responsible for managing the benefits and the underlying investments. The transaction resulted in a reduction of our liabilities of EUR 159 million and of our assets by EUR 155 million, hence generating a profit of approximately EUR 3 million in Q4. Based on the free cash flow generation and in line with the dividend policy of the company, the Board of Directors has decided to propose to the shareholders a total gross dividend of EUR 2.43 per share, which includes the interim dividend paid in January. Let me leave you with a final key message. Whatever the environment, our capital allocation framework drives all our decisions. Our essential CapEx are the priority. Then we have an equally important and clear dividend policy. And then we have options to prepare for the future growth of the company. The last bucket is more variable as it will be always sized based on merit and affordability. It will be mostly for organic investment and might be supported with inorganic opportunities if they become available, makes sense and meet our rigorous criteria. With that, Philippe, back to you for the outlook. Philippe Kehren: Thank you, Alex, and let's move indeed to the outlook now. So as I said at the beginning of this call, we know that 2026 will be another challenging year, but we are acting decisively to protect our competitiveness and to focus on our long-term transformation. We don't expect the situation in our Soda Ash or Coatis businesses to change rapidly. For Soda Ash, the overcapacity in China is a challenge for the Chinese and the Southeast Asian markets. And it also creates some pressure outside of the region, for example, on the exports from the U.S. As for Coatis, it continues to suffer from the situation generated by the introduction of the tariffs. Our other businesses are much more resilient, but we remain cautious as we currently have little visibility. So for 2026, we expect an underlying EBITDA between EUR 770 million and EUR 850 million. This already includes negative impact year-on-year of EUR 20 million from currencies, another EUR 40 million from the transformation expenses and a positive contribution similar to last year from the sale of EUA that we've done in January 2026. Free cash flow to Solvay shareholders from continuing operations will exceed EUR 200 million and that is after covering EUR 90 million of transformation expenses. We ask the teams to remain very disciplined with investments and we will limit again our CapEx to under EUR 300 million for the foreseeable future until the environment improves. Our strategy is solid and we are executing it in a disciplined way. We accelerate its deployment where it makes sense and we take actions to mitigate the environment in which we've been for the last 2 years. You can count on us to relentlessly keep our focus on costs and on cash. So this concludes our prepared remarks. Thank you for listening and we're happy to take your questions. Now back to you, Geoffroy. Geoffroy d'Oultremont: Thank you, Philippe and Alex. Gaia, you may now open the line for questions, please. Operator: [Operator Instructions] The first question is coming from Martin Roediger from Kepler Cheuvreux. Martin Roediger: First is on your EBITDA guidance. With a high comparison base in Q1 and also adverse FX effects in Q1 and partly in Q2, should we expect a different earnings trajectory in 2026 being more back-end loaded? And linked to the EBITDA guidance to say with that, just to clarify, you did not factor in your guidance any sale from licenses, i.e., in hydrogen peroxide, but you factor in another sale of CO2 emission rights. Is that correct? And then finally, sorry to come back to the Coatis business. Philippe, you said that the Coatis business will continue to suffer in 2026. Can you provide some background information? I heard that there are some hopes that the Brazilian government could interfere here and may support Brazilian players. Is that true? Philippe Kehren: Thank you, Martin, for your questions. And I will let -- I will start answering some of your questions and then let Alex complement. So in terms of phasing, I mean, difficult to say at this point. You know that the business is relatively nonseasonal. So I would say the base load performance of the business, you should not expect too much of a phasing. However, as we said, we sold -- because the market conditions were good, so we sold the CO2 quotas already. So you might expect a little bit of -- I mean, this impact in Q1. So it will be a little bit front-loaded, but we also have other elements in the course of the year. So for Coatis maybe and then I will let Alex complement on the other elements of the EBITDA. I mean, a lot of parts are moving to be clear. I mean, we just heard -- you heard the decision from the Supreme Court on the tariffs. And typically, Coatis and Brazil have been the area which have been the most impacted by the tariff because it has impacted very much our customers. And you remember that we have a 50% tariff on Brazilian export to the U.S. This could, of course, be a game changer if this value would change. On top of this, you're right, there are currently discussions with the Brazilian authorities to implement, first, a mechanism that would support the Brazilian chemical industry. And second, also some measures potentially being implemented to protect the Brazilian market from imports from China. So we're watching this very closely. We didn't put anything in our outlook regarding this. So it could be potentially an upside. But frankly speaking, for the time being, I think it's too early to say anything. Now Alex, if you want to say a few words on the EBITDA elements. Alexandre Blum: Yes, so as Philippe explained, EBITDA, take it roughly equally spread during the year. You may have small variation, but it's roughly equally spread. So your question is whether we have included license on the one side of CO2. If I take a step back, what just defined the range of EBITDA? Primarily, the range of EBITDA is driven by volumes. That's one of the main uncertainty of the year. We are quite clear on the short term, but I mean, we know the situation can change. The single uncertainty factor are the few business opportunities we are considering. And one of them, obviously, is licenses. We want to continue to do so, but we do it only if it's quality customers and if it generates some value. So it's part of the uncertainty factor. Third factor of uncertainty are more the margin, price of energy, the tariff impact, which is also an uncertainty factor. And CO2, yes, we have included only one sale. We knew from the data, we always monitor our exposure to CO2 in Europe to make sure we are well covered until 2030, early 2026, we saw that volumes in Soda Ash in the short term should not see a very different change. We saw favorable regulatory environment. We see things tends to improve, not deteriorate. And at the same time, the CO2 -- EUA prices at the beginning of the year in Europe are quite favorable. So we've decided to derisk this element. Operator: The next question is coming from Tom Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two questions, if I may. The first question is just trying to understand the dynamics around these CO2 emissions rights sales. Hypothetically, if volumes were to recover to peak levels very quickly, again, let's call it, by the end of the year and you need to increase your utilization rate heavily in your European business, do you then have to go and buy these credits back from the market in order to produce those tonnes? And is your assumption that you'd be able to pass on that cost if required, because the European market suddenly became tight? I'm just trying to think about what the sacrifice is on recovery here that you're making as you shut down assets in Europe and then sell the associated CO2 rights. That's my first question. My second question, if I may, is just on the Soda Ash contract price that's embedded in your guide. I think CMA reported Europe down 3% year-over-year. Can you confirm that's your price, broadly speaking? And associated with that, was there a very -- what was the kind of -- what was the thought process behind that if you try to support price but cut volumes and therefore, you'd expect to take a disproportionate volume hit this year in Soda Ash because you've tried to protect price? Just trying to understand the dynamics that took place in that contract. Philippe Kehren: Yes. Thank you, Tom. So first, on EUAs, clearly, I mean, if ever the volumes would recover at some point later this year, we are -- we have enough quotas, right? I mean, so until 2030, we are covered. So there is no need to go back to the market at this point to hedge our CO2. And more broadly, you mentioned the capacity reduction and the fact that we would lose this capacity if ever the market would recover. Well, it's very simple. The capacity that we have typically in Spain here, it's a capacity that was used to export out of Europe to the seaborne market. We consider that this capacity is not sustainable, right? First, because we would have to invest massively to do the energy transition on this capacity and we would not be able to get the return on this investment on the seaborne market. And second, we have enough capacity in the U.S. to supply the seaborne market. So this is the right move to do for the long term, okay? So no regret. This is strategic and done on purpose. Now on Soda Ash, obviously, we will not comment on the detailed price movements linked to the negotiations. What we can say is that basically, Europe has been resilient. And there's a little bit of pressure on price, but which is very limited and we kept the volumes, so good resilience in Europe. The opposite on the seaborne and in particular in Southeast Asia, margins are at the trough with the overcapacity in China and the pressure put by this Chinese overcapacity. So here, we signed very short-term contracts because we don't want to commit at this level of price. And we even produce a bit less. This is, by the way, why we also have some EUAs to valorize in Europe because we're not producing at full speed in order to sell in this very depressed market. In the U.S., it's a little bit of a mix. In the U.S. -- sorry, in the U.S., it's strong pressure on export. And so this puts pressure on the U.S. production. So the situation is a little bit mixed in the U.S. But overall, I would say the domestic prices are relatively resilient. Operator: The next question is coming from Hannah Harms from BNP Paribas. Hannah Harms: I just wanted to clarify on your free cash flow guidance. So my understanding is obviously that includes this carbon credit sale. So what other levers do you have left if you're looking to cover the dividend for the year? And would you have an appetite to raise leverage? Philippe Kehren: Thank you, Hannah, for your question. I will let probably Alex complement my answer. So indeed, the free cash flow guidance includes the CO2 sales that we've done in Q1. And this -- with this into -- taken into account, our guidance is to generate at least EUR 200 million of free cash flow despite, as we said, the EUR 90 million of temporary transformation costs. So then what are the levers that we have? Maybe, Alex, you wanted to explain a little bit what we plan to do. Alexandre Blum: Yes. I think if you really try to compare 2025 to 2026, so EUA, it's quite comparable, okay? We had it last year. We had it this year, broadly same. CapEx, same financing, tax, assume that more or less is stable. The big difference is the fact that last year in 2025, we could activate working capital, we've optimized it and we ended with quite a low level of activity. That has generated EUR 170 million of working capital reduction while in 2026, we have assumed this to be broadly stable. That's the main source of variation. Then we have all these transformation expenses, which are broadly flat, slightly higher. On the other side, we have provision cash out and especially Dombasle Energy project were quite high in 2025, will be lower in 2026, but it's not the same magnitude as our working capital variation. Operator: The next question is coming from Geoff Haire from UBS. Geoffery Haire: A lot of my questions have been answered. I just have one left. Obviously, there's been speculation recently about changes to the European ETS scheme. If those changes that have been put in the press come to fruition, what does that mean for Solvay? Is that a positive or a negative? Philippe Kehren: Yes. Thank you, Geoff, for the question. No, it's positive, obviously, it's very positive. And I think it makes sense, right? Because it won't change anything until 2030. I mean, until 2030, except the fact that we know that now that the CBAM will not take place. So we are comforted in the strategy that we presented, which is to be covered until 2030. Now there were and there are still, to some extent, a little bit of uncertainties as to what will happen after 2030. We already cut our CO2 emissions by half since 2005 when the ETS was implemented. And our commitment is to reach minus 30% in '23 versus 2021. We will do it. No doubt about that. And then the other commitment is to do carbon neutral in 2050. So in 2050, not in 2030, not in 2039. And that's, by the way, in line with the target of the EU, which is to be carbon neutral by 2050. So what we're saying is that we need to align the ETS to the 2050 target. So instead of having cliffs or disruptions in 2030, in 2033, in 2039, whenever, we want to align the trajectory to 2050. So this is good news because it will allow us to do in a good condition to finalize the energy transition and move to carbon neutrality. Operator: The next question is coming from Katie Richards from Barclays. Katie Richards: Yes, I just had one follow-up on the ETS too. I mean, can you just clarify what you meant about with reference to CBAM there, the rules changing? And also just try to understand what exactly -- if you could have your dream scenario here would be the best case for Solvay. Would it be for pushing back the free allowance date later? Would you rather the ETS costs move to EUR 30 to EUR 40 like [ Micron ] is pushing for? What would be your dream scenario? And my second question would be on the energy costs. Could you please clarify the degree of the energy cost pass-through in the Soda Ash contracts and whether the current energy tailwinds would be retained in the unit margins or could decline further due to competitive pressure, please? Philippe Kehren: Okay. So my reference was to say there is an option to include Soda Ash and only Soda Ash in our portfolio into the CBAM. We know that this will not take place at least before 2030 and we are currently discussing and realizing that integrating Soda Ash to the CBAM would raise a lot of questions and concern. That's why, by the way, also the European Commission is starting to say we could envisage to continue to give free allowances, in particular for volumes that are exported because obviously, if you don't give free allowances to exports, you would put those volumes under tremendous uncompetitive pressure. Now we don't have dreams. We're talking about reasonable and efficient trajectories with the European Commission. And I would say that what would be the most efficient would be to have an extension of the ETS with a trajectory that would bring us to neutrality in 2050, right? So something that is much more realistic than what is envisaged today and something that will also be in line with the fact that today, there is no competitive low-carbon energy available in Europe. So you cannot ask the consumers like us to be carbon neutral if there is no carbon-neutral energy available on the market. So it's just to have a reasonable trajectory for the ETS going forward after 2030. And I think this is something that really is resonating more and more with the European policymakers. Now on your question, I guess it was on the energy clause that we have in the Soda Ash contracts. So those energy clauses still exist, right? Because we've been through a period where energy prices went up and peaked in extremely strong movements. And so we still have those protections, but they operate when really prices are extremely high. So in the current market situation, we don't expect those energy clauses to be operational and to have an impact to be activated. Operator: The next question is coming from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Firstly, just wondering on Q1. I'm trying to think about the underlying earnings power of the company this year, given you have some temporary impact on EBITDA in the guidance. If you strip out the exceptional impact from the sale of CO2 credits, is the consensus for Q1 of around EUR 205 million a reasonable base level of earnings for this year's kind of run rate? Or is it fair to say it would likely be lower than that given that the Q4 was EUR 170 million and given that you've talked about not seeing too much seasonality in the business in the past? Philippe Kehren: Yes. Thank you, Tristan. Well, clearly, I mean, it's difficult to give any guidance, of course, for Q1. From a business perspective, I would say that we -- what we see in Q1 so far is very in line with what we observed in the second semester of last year. Q4 was softer, and that's known, right? We know that the end of the year is always softer in some of the businesses. We also had some accruals to take and so on. So Q4 was not representative, I think, of the business performance over the year. So that being said, what you can take into account is that we're -- we have a guidance of EUR 770 million -- between EUR 770 million and EUR 850 million. And that we suppose business-wise that there is no significant phasing over the year. Tristan Lamotte: Okay. Got it. And then secondly, sorry to come back on ETS, but I'm just wondering what the size of the risk is here in a kind of downside scenario. So I'm wondering in the absence of free allowances, is it fair to take your Scope 1 emissions, which I think were around about 6.8 million tonnes and multiply that out by the carbon price of EUR 70 to come to a theoretical cost that you would bear in the absence of free allowances? Just to understand the size of that risk without free allowances as it stands. Philippe Kehren: No, no. I mean, it's not at all this number. I mean, the number that you mentioned is the total emissions globally and a big part of those emissions are not part of ETS, right? You have emissions in the U.S., emissions in Brazil in a lot of areas. So it's not at all this number. And again, as we said, there is no scenario today, I think, where we would stop getting free allowances. I mean, there's no one in Europe today saying that we should stop giving free allowances. On the contrary, the momentum today and I'm much more positive today than I would have been probably a few months ago is to say we need to continue and even to protect even more the European industry because what will happen is that we will shut down our industry and we will import the carbon content from outside. So it wouldn't make any sense. Operator: The next question is coming from James Hooper from Bernstein. James Hooper: First question is around working capital. You did a great job on that in the fourth quarter. To what extent the -- can you just take us through how you managed to make such a big improvement? And then whether you'd expect -- how you'd expect to maintain working capital at that level? I mean, you mentioned in the SCF question that you're looking for working capital to be flat. And then the second question is about the footprint because obviously, you're working and you have yesterday's announcement. If we stay in the current macro picture, is there further restructuring to come here kind of after the plans that we've got in 2026? Is the footprint -- if you're starting Solvay again tomorrow, would the footprint look like it is? Philippe Kehren: I will let Alex answer the question on the working capital, but I will take the one on footprint. So first, I mean, there is no further announcement planned clearly for this year. We, of course, continuously optimize our industrial footprint. This is what we've done for 160-plus years. And we are operating on markets where all the players are doing that and are making sure that they always have on a given market, the best possible assets. So we will, of course, continue to do that, but we don't expect any big movement in terms of footprint. Now would we build the same footprint? Probably not. I mean, every year, we would build it in a different way, but we have, of course, a footprint that is good and that is sustainable and we're making sure that it's the best one in the long run as well. So no, that's why we have this very important discussion with the European Commission on the future of the ETS is to make sure that we have a footprint that will be able to operate in a fair competitive landscape, right? Alex, if you want to comment on the working capital? Alexandre Blum: Sure. So on working capital, as we said, it's the combination of an internal program and the demand trend, you may remember, end of Q4 last year, it was before the tariff, there was -- the demand was quite good until the end of the year while this year it was quite slow. We can see that in Solvay, but we could also see that in our customers and in our peers. So you have one driver which is different. But a large part of the improvement is a program we have on inventory, receivable, payable. As our products are quite bulky, it will be more on receivable and payable and we've looked at all the businesses, all the item and we've pushed it. What it means is that if you look our working capital on sales at the end of the year, we are in the 10-plus percent, which is among the best-in-class in the chemical space. It's possible to maintain this level with the current level of activity. If the activity picks up, we will have to -- it will be a good problem to have. We will have to rebuild a little bit of working capital just proportionally and maybe give a little bit more safety on different elements. But for the moment, as our guidance for 2026 assumes, it remains broadly flat. James Hooper: Can I ask a quick follow-up actually just on the market? Just China, have you seen any rationalization or any evidence of capacity changes or demand improvements there in Soda Ash? Philippe Kehren: Not yet. Not yet. We know this will happen, right? Because I don't see why in the long term, plants would run and burn cash every month. It doesn't make any sense. But at this point, we have not seen that happening yet. What we've seen linked to the [ MCL ] evolution, but on other -- in particular on other businesses is that China is now really looking very, very carefully at the new permits. So before getting a new permit for a new capacity, you need really to demonstrate that it makes sense and that it's not an overcapacity that we are going to generate. Alexandre Blum: Not specifically on Soda Ash. Philippe Kehren: Not specifically on Soda Ash, on other types of businesses. Operator: The next question is coming from Chetan Udeshi from JPMorgan. Chetan Udeshi: My first question is on rare earth. It seems things have gone quiet. Since some excitement at some point last year, nothing seems to have happened. Maybe it's a wrong impression, but I was just curious if you can update us on what's happening. Are you seeing more activity? Are you seeing more requests from European Union in terms of building the capacity because they have been talking about building the rare earths and other critical minerals value chain in Europe? And the second question was just around this EU ETS thing. Can you remind us how much of your allowances or how much of your emissions rather are covered by free allowances today in Europe? Is it 100% because you're clearly not producing at full run rate? Or in other words, how much are you buying from the market every year? What I'm trying to get to is if we have, let's say, 2% lower reduction of free allowances every year, is that meaningful for Solvay in terms of benefit? Or is that virtually no impact because you don't buy any of the free allowance -- sorry, any of the emissions from the market anyway? Philippe Kehren: Thank you, Chetan. So on rare earths -- well, Chetan, when things are quiet, it's not necessarily a bad news. So what I can say is that right now, we continue to have discussions with all the stakeholders, with the buyers because they are more and more interested, of course, to diversify their portfolio, their purchasing of those critical materials and also with the policymakers, both in Europe and in the U.S. And there are currently discussions on what would be the best mechanism in order to secure the volumes and the prices in the long term. And there are in particular discussions about floor prices, both in the U.S. and in Europe. So I hope things will move very, very quickly now. But I can tell you that it's a bit more silent, but it's quite active. On the ETS, no, we have a deficit very clearly. I mean, we are emitting more than the free allowances and that has been the case from the beginning from 2005 onwards. So what we do is we manage our emissions and we protect them with a portfolio of different instruments. So we have, of course, the level of production, which is a key parameter. We have our energy transition project road map. And so the more we secure and derisk those projects, the more clarity we have on our future emissions. We have the free allowances. We have some quotas that we have in inventory and that we purchased a long time ago. We started a long time ago. That's why the price today has nothing to do with the market price. We also have forward positions. So we have a portfolio of things. And we reassess this position continuously. And this is why sometimes we say we can sell some quotas that we have in inventory, or we can unwind some of our forward positions and so on and so forth. So we manage this very, very actively. So 2% is at the same time, not too much, but it is quite significant and it's an element that we take into account to make sure that we are covered. Now what is really important is what will -- what happens when we have disruptions. This is why the post-2030 discussions are important because we know exactly what will happen until 2030. The only uncertainty is, I would say, the level of production, our project in Dombasle, if it starts one or a few weeks later or a few weeks earlier, that can have a little bit of impact, okay? But everything is known until 2030. What is not known is what will happen afterwards. CBAM with or without free allowances, what will be the new benchmark. This is why the discussions with the EU policymakers is important. Operator: There are no more questions at this time. So I hand the conference back to Geoffroy for any closing remarks. Geoffroy d'Oultremont: Thank you, Gaia, and thank you, all, for your participation today. And if you have any further questions, please feel free to reach out to the Investor Relations team. We have a few events planned in March, roadshows and conferences. They are available on the financial calendar page on our website and we will publish our first quarter earnings on the 7th of May. Thank you very much. Philippe Kehren: Thank you. Operator: Thanks for participating to today's call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Viper Energy Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chip Seale, Investor Relations Director. Please go ahead. Chip Seale: Thank you, Britney. Good morning, and welcome to Viper Energy's Fourth Quarter 2025 Conference Call. During our call today, we will reference an updated investor presentation, which can be found on Viper's website. Representing Viper today are Kaes Van't Hof, CEO; and Austen Gilfillian, President. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I will now turn the call over to Kaes. Kaes Van't Hof: Thank you, Chip. Welcome, everyone, and thank you for listening to Viper's Fourth Quarter 2025 Conference Call. The fourth quarter capped a transformational year for Viper highlighted by more than $8 billion of mineral acquisitions and meaningful growth in both absolute and per share metrics. Year-over-year, we grew our Permian Basin acreage by nearly 2.5x and our oil production per share by 7%. Activity across our Permian acreage remains strong, supported by Diamondback and third-party operators focused on development of long lateral high-quality inventory. Looking ahead, we've initiated average daily production guidance for the full year 2026 that implies mid-single-digit organic production growth from our Q4 2025 exit rate. The Diamondback relationship continues to be strategic and meaningful to Viper's growth even after two significant acquisitions in 2025 and greater exposure to other leading operators in the Permian Basin. Beyond visible near-term growth, Viper is better positioned today than we ever have been in terms of the scale, longevity and overall quality of our asset base and future inventory. Another significant achievement was the work we did on our balance sheet. Following our non-Permian divestiture, we fully repaid our $500 million term loan and outstanding revolver balance resulting in pro forma net debt of roughly $1.6 billion, just over one turn of leverage. Now turning to return of capital. Our Board approved a 15% increase to our base dividend and a $1 billion increase to our share repurchase authorization reflecting confidence in our long-term cash-generating ability and disciplined capital allocation approach. This base dividend represents approximately 50% of estimated 2026 free cash flow at $50 WTI and is fully covered below $30 WTI. This increased base dividend provides an attractive yield while also allowing us continued financial flexibility to optimize capital allocation through additional returns via a combination of our variable dividend and opportunistic share repurchases. Given the strength of our balance sheet, we returned 90% of available cash during the fourth quarter. And now following the closing of our non-Permian divestiture, we are well positioned to increase our return of capital upwards of 100% of cash available for distribution. Importantly, we expect to execute on this comprehensive return of capital strategy while also continuing to deliver on differentiated growth in per share metrics. I'm pleased with our accomplishments in 2025 and the strong position Viper is in today, but there's still much to achieve. Looking ahead, Viper is well positioned to generate strong free cash flow deliver attractive shareholder returns and continue to pursue accretive Permian consolidation opportunities as they arise. Operator, please open the line for questions. Operator: At this time, we will conduct the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Neal Dingmann with William Blair. Neal Dingmann: Kaes, my first question for you, Austin, is just on the Barnett specifically, last night and this morning, [ FANG ] Barnett update really seem to be positive and certainly, I think, positive for Venom. I'm just wondering, could you give any color on how Venom's ownership translates across [ FANG's ] Barnett position? Kaes Van't Hof: Yes, Neal, I'll give you some of the high level. I mean, I think that's what we've continued to try to preach at Viper is the benefits of mineral ownership and you own from the surface of the earth to the center of the earth in perpetuity. And as operators try new things or try new zones or try new techniques, the benefit of that accrues to the mineral owner without the need to spend capital or take too much risk. So pretty exciting for Viper. We kind of kicked this off a couple of years ago in terms of leasing, but Austen is going to give some color on where we are today and what we're seeing. Austen Gilfillian: Yes. No, we're still early stages on the actual leasing program. So Diamondback directly and also in some of the JVs that they've done have been very active in taking new leases from Viper to give them the right to develop those deeper zones in the Midland Basin. Spanish Trail was a big chunk of that, that we leased with Diamondback back in 2023. But as we sit here today, I would say we still only lease about 10% to 15% of the acreage that would potentially be open in the Midland Basin. So that should be a tailwind to come both from a lease bonus perspective, but also new inventory locations that are going to come into play and kind of support the production profile over the years to come. Neal Dingmann: Great point, Austen. And then second question, just on return of capital. Specifically, now you've mentioned that you're positioned to return upwards to 100% of cash available from distribution in addition to the share growth. And I'm just wondering, it looks like last quarter, that 41% the cash available for distribution went to base dividend and then followed by what was a '27 buyback, '23 variable and 9% debt repayment. How -- will this stay in this range? Or a case, is this just largely share price dependent? Or I mean, I'm just thinking more on sort of broad terms and ranking. Should we -- will we see the base dividend still probably be the highest? Or how should we think about it? Kaes Van't Hof: Yes. I mean, listen, the Board decided to increase the base dividend by 15%. I think that's a meaningful number. I think it shows that we've done a good amount of accretive deals. Balance sheet is strong. That's always going to be the first call on capital. We've also said, hey, when we get to $1.5 billion or $1.6 billion of net debt, we're going to ramp the shareholder returns to almost 100%. And I think we're there. I think it all depends on the market and the stock price and where things are headed. Obviously, the decision to buyback shares is less obvious today than it was at $37 a share. But we think we recognize that we have done a lot of accretive buybacks at Viper. We'll probably be ready should any of our nontraditional holders like the private equity owners want to sell, we'll help them get out like we did in Q4, we bought back 1 million shares directly from one of the private equity holders. So I just think having that flexibility is key. But in general, I think shareholders still want a lot of cash back. And at these prices with commodity improving and the stock price improving, we probably lean more towards cash return outside of unique situations. Operator: Our next question comes from the line of Betty Jiang with Barclays. Wei Jiang: My question is on the third-party activity outlook that you're seeing there. I think given the rig count declines in the Permian, it's notable how resilient Diamondback's or Viper's third-party activity has been holding up fairly well in the last few quarters. Where are you seeing today in terms of your activity backlog? Are you seeing any slowdown at all? Or could this be another area that perhaps is enhancing the production growth that you might see this year? Kaes Van't Hof: Yes. Good question, Betty. We really haven't seen much of a slowdown at all across the third-party activity. We put some new disclosures in this quarter on Pages 14 and 15 of the deck that breaks down kind of some of the key third-party operators by both the Midland and Delaware Basin. And kind of as you look through that list, right, it's dominated by some of the larger players in the industry. So I think that's really helped. I think also it's just kind of supportive of the view that we've had of trying to acquire high-quality royalty interest. And as you look at the amount of activity that our acreage position has captured over the years, it's really been consistent in capturing pretty much 50% of everything that happens by third parties across the entire basin and then you get the kicker of the concentrated development by Diamondback as well. So we'll see what happens over the course of the year. Right now, the guidance only takes into account what we can see, meaning existing DUCs and permits. So if activity holds like it can today, that might help a bit on the production outlook. But overall, I would say the key takeaway is that third-party activity continues to be very strong. Austen Gilfillian: Yes. And Betty, we always put our operator hat on when we're buying minerals. So we always buy under well-capitalized operators on the third-party side in acreage that we covet. And that usually means that acreage that we covet gets developed first, which is why we've had such strong activity levels on the third-party side. Wei Jiang: Yes. No, that makes sense and can really see how resilient that activity are broadly is despite the basin overall levels. A follow-up on the lease bonus. And it's related to the Barnett for the deeper zones as well. Lease bonus have been coming in fairly strong in 2025 and got another decent quarter in 4Q. As the basin continue to chase deeper zones, how does that benefit you guys from the lease bonus income perspective? Kaes Van't Hof: Yes. I mean it's -- any kind of lease comes available, whether it be because of a vertical well doesn't hold down to these new emerging deep rights or an operator fails to fulfill some of the requirements in the lease, meaning drilling a well by a certain day or producing a certain amount of production, that lease would terminate and those rights revert back to us as the mineral owner and then we can go take a new lease and get that lease bonus and kind of set the clock again on the development requirements. We spent a lot of time and effort building teams and systems and processes here to manage all of those tens of thousands of leases and the production data associated with that, so we can really proactively manage that and have an active leasing program. I think you're seeing that benefit play out with the lease bonus that we achieved last year and really over the last couple of years. And I think that's going to be a continuing theme, both from a price perspective as well as just operators needing to meet continuous drilling requirements and overall, the rig count being lower, so that being harder for certain operators to fill. Operator: Our next question comes from the line of Neil Mehta with Goldman Sachs & Company. Neil Mehta: Kaes, what's the environment out there right now in terms of the bid ask for other royalty assets? Is there another Sitio waiting out there? Or a lot of the big prize has already been taken? Kaes Van't Hof: Yes. I mean it's a good question. Minerals are interesting. When commodity prices are lower, there's not really a need to sell unless there's some other use of proceeds that the seller has. So there hasn't been a ton of large deals for us to look at over the last six months or so. And I think generally, investors wanted a little bit of a break from deals at Viper, big deals in particular and proved that we could integrate Sitio and the drop-down, and we've done that. But I'd say we're ready to look at larger deals. They're just kind of hard to get done at these prices. And that kind of ties to the thesis around the Viper balance sheet and return of capital. We've kind of said, hey, listen, debt-to-EBITDA at Viper is very close to debt to free cash flow and $1.5 billion of debt, we're well protected at $50 oil. And also at $50 oil, we don't need a ton of cash for deals because it's harder to get them done. So that's kind of why we set that debt target. And as you think about going above that, as prices recover, I think the psyche for sellers changes, and we might be able to get some deals done. But from a size perspective, it's been hard to get really big deals done over the last few quarters. We've done a couple of small things that add up over time, but that's kind of how I see the market. Austen, do you want to add anything? Austen Gilfillian: No, I agree. The ground game, as we call it, is tough off here, but we have a team dedicated to that. And I think we have the relationships in the basin to get some some good value adds that help on the margin. I think the -- to Kaes' point, there are bigger strategic deals to be done when the time is right. We just haven't seen those over the last couple of quarters more so because of the commodity price environment. Neil Mehta: That's great. And then the follow-up is just geography. I mean it seems like the position is certainly more concentrated on the Midland side, and that's where you have the asset overlap with the parent. How does Delaware fit into the portfolio? Where specifically could you see yourselves leaning in from an activity perspective? And then I think I know the answer to this, but this is a Permian pure-play story, right? We wouldn't be surprised if you try to diversify outside of that. Kaes Van't Hof: Yes. It's definitely a Permian perfect story. I think the unique attributes of the Permian with the stacked pay and the emerging zones and kind of also some of the modern lease clauses, really benefits you more as a mineral owner, even more so than some of the obvious things that you would appreciate from the operated perspective. It's who we know, it's what we know, and I think most of the sizable deals here exists in the Permian, given the still very highly fragmented royalty ownership across Texas and New Mexico. For us, on the royalty side, I think we still see a lot of value in the Delaware Basin. It's a little bit of a different story given that you're not going to be able to rely on the Diamondback drill bit to drive that visible growth. But as we dig in, there's still some really high-quality unbilled locations there that exists under well-capitalized operators. And that's kind of how we view it, right? It's like what is the likelihood of that next inventory location getting developed. And for us, we get that confidence either via knowing Diamondback's development plan or by just looking at what the operator economics are. And I think a lot of that exists today, especially in the Northern Delaware. So we'll focus there where we can. But for us, rock is rock and value is value. So it will just kind of be depending on the assets that are available. Operator: Our next question comes from the line of Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: My first question is on the 2026 oil guide. It's quite wide. Wondering what that reflects. Is it visibility that you have on the activity? Or is it performance related as third in the basin are trying out new stuff? And if it's visibility related, is it fair to say that visibility is better near term and less so in the second half of the year? Austen Gilfillian: That's right, Kalei. Maybe on the second point. So on the third-party operated side, we have the same visibility that you do really being that it's limited to existing DUCs and permits. If you look at conversion rates and also the conversion time lines on wells that have been drilled currently, those typically get converted to production within about 5 to 6 months. So we feel very good about the first half of the year and what that growth outlook looks like. As we move to the second half of the year, it becomes a little bit more tricky calculus and having conversion rates and time lines on permits. So we've modeled the permits that we can see today. But as we progress through the year and potentially activity gets brought forward or new wells get permitted that are included in the guide, that could help move you up to the higher end of the range. And really, the wide guide right now is just that we can only guide to what we see today and a lot will happen that we don't know about today in the back half of the year. Kaleinoheaokealaula Akamine: My second question is on the gas contracts that were announced at Diamondback that are starting up later this year. To the extent that secures higher gas realizations, wondering if that also benefits Viper on the revenue side? . Kaes Van't Hof: Yes. We do everything essentially heads up between Viper and Diamondback. So any marketing contract benefit rolls through, it won't be for all of Viper's production, but for a good majority, the gas realization thesis works pretty well for Viper too, particularly now on the third-party side, a debottleneck Permian, given the Viper Delaware exposure could be a good positive rate of change story as well Kaleinoheaokealaula Akamine: I hope you guys don't mind me trying the third question, but I imagine that there's a portfolio of lower zone rights at Viper. Maybe not all of that is viewed as being competitive today, given where the activity on the Midland side of the basin has been, but the proportion that is competitive, should we assume that's already been transferred to Diamondback? . Kaes Van't Hof: Yes. Not all of it has been leased yet. There's still a lot of unleased deep rights that at Viper. And as we get closer to development at Diamondback, it's logical that Viper will be a first call. We got to do things on a market basis and a heads-up basis, but this relationship between parent and sub, mineral owner and operator, I think, is going to pay some long-term dividends with deeper zone development. I think the great example was we leased Spanish Trail, which is 100% of the minerals are owned by Viper, and that's what started this business 15 or 11 years ago going public. And a 10,000-acre block at 100% NRI is as good as it gets in the Permian Basin. Operator: Our next question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: I wanted to start on the Barnett. Regarding the interval and the 200,000 net acres you referenced for Diamondback earlier today, how much coverage do you specifically have with Viper? And does Diamondback have any activity planned at Spanish Trail, the area you were just mentioning, which you guys have a very high NRI for. Kaes Van't Hof: Yes. So without getting into the specifics, I would say a lot of the work that Diamondback has done has kind of been with third parties. We had the big chunk kind of the 10,000 to 15,000 acre block in Spanish Trail, which is going to provide the great alignment between Diamondback and Viper. I think Diamondback had a little bit more flexibility to handle the leases with Viper as they come up and a bit more term on the development plan, where a lot of what they've done has kind of been more bigger strategic options. So I think you'll see the alignment continue to improve as we progress through the year. And then on Spanish Trail, I think if you listen to the Diamondback call, there's been some references to some offset test, but the first 2 wells that are going to be tested on Spanish Trail proper, those wells have been permitted and should have production kind of in the mid-part of this year. So very excited to see those results and see what that might mean for Diamondback to apply more of a full-scale development approach where Viper own 100% of minerals. Derrick Whitfield: Yes. No question, great development for Viper. And maybe just going back to some of your M&A comments earlier on the ground game. With the inclusion of the Sitio guys who had really focused on the ground game, I guess how would you characterize the growth you're seeing in organic additions throughout 2025 and kind of what you see ahead for you in 2026. Austen Gilfillian: Yes. I mean, listen, we're continuing to look at every deal that crosses our desk, right? We're in the flow. We know everybody. They're bringing the deals. I'd just say it's not that we're not getting anything done. It's just that from a materiality perspective, it takes a lot more effort on the ground game to equal something of the scale that we did last year. So don't count on the ground game. I think that's still going to be an important part of the story. It's just going to have to add up over time. And then you have the big deals really moving the needle from a size, scale and flow liquidity perspective. Operator: Our next question comes from the line of Paul Diamond with Citi. Paul Diamond: So one sticking on M&A. You guys have been kind of progressing towards that $1.5 billion net debt number, one turn leverage. I guess in the presence of potentially or potentially larger deals, how much are -- would increase sale? How much are you willing to flex that up? Kaes Van't Hof: Yes. I mean I think we probably feel like a little bit of 1.5 turns, a little bit above that as a stretch and then you pay it down, wouldn't hurt. I think we're very cognizant of maintaining and improving our ratings profile, getting to investment grade was a big deal for us last year, pretty unique access to capital at Viper versus peers in the space. So I wouldn't want to stretch the balance sheet. And I think our currency offers a very unique opportunity for sellers as well. We've done a few of these deals with OpCo units where taxes can be deferred and a lot of large mineral owners -- mineral owners have very little basis in their minerals and like that tax deferred status. So -- we stretched a little bit. I think half a turn of leverage is a big number now, which is a good thing. And any deal that we do is going to come with significant cash flow. So that's how I would frame it. Paul Diamond: Got it. Understood. And then just a housekeeping question on hedge plan. 2026 looks pretty well locked in. Is there any volatility level that would really move off these marks? Or are you guys comfortable with the current levels? Austen Gilfillian: We're comfortable with it. We've had this approach for a while now where we just try to protect against the extreme downside through deferred premium puts. So we've been able to take advantage of some of the volatility over the last couple of quarters and have a good position built through Q3, which especially given where the debt level is, I don't feel like we need to do much more there. As we continue to progress through time and if you see debt levels stay low like they are now, you can probably just see less protection, meaning either a lower percentage of our volumes hedged or potentially a lower strike price on the put and you can get them for a little bit cheaper. But in general, we just want to protect against the extreme downside, ensure that we can continue to pay out a lot of our capital and not have to panic if things go south quickly again and try to start working cash. So I think it's just a prudent approach that we've had that's worked well for us the last couple of years. Operator: Our next question comes from the line of Leo Mariani with ROTH Capital. Leo Mariani: I wanted to follow up on lease bonus income. Obviously, that popped a bit in 2025. I know it's difficult to kind of have any precision guide, but would it be fair to assume that maybe '26 is not dramatically different in terms of lease bonus income? Are we kind of in a bit of an upcycle versus kind of a handful of years ago? Obviously, there's some new zones that are coming to bear as you guys have described on both this and the fan call. Kaes Van't Hof: We'll see. I mean it's a little bit out of our control, given it's dependent on operators typically filling to meet certain lease provisions or lease requirements or alternatively having deep rights being open. I think we are seeing the deep right story play out on both the Midland and Delaware side for Viper in terms of the ground leasing that's happening. I think something also that's going to be interesting to happen, especially post Sitio as you move into 2027 and gas takeaway gets better, we'll be able to explore what new development areas might look a little bit better with higher gas realizations, and that could help as well. So maybe it's being optimistic, but I think we can have 2026 look similar to 2025. And really, it's going to be the benefit of having a much larger asset base today and a team fully dedicated to proactively managing the position. Austen Gilfillian: Yes. I mean that's the key. We're getting a lot better at proactively managing our position despite its size, and that's where some of the Sitio team members that are focused on automation, reviewing title, reviewing leases. This is where I think -- I think AI is going to be important for Viper. We don't have a ton of manpower to study 50,000 wellbores and 40,000 leases, but a machine can do it. And I think that's going to make our shareholders more money. Leo Mariani: All right. That's good color there. And I just wanted to ask on kind of oil cut. Your oil cut here was kind of mid-50s several quarters ago. It's kind of trending a little bit more towards low 50s. What do you attribute this to? Is this just more secondary zone development and of course, just wells get older, GOR sort of increases? Kaes Van't Hof: Yes. I mean I think if you think about Viper as a bond for the Permian Basin, it actually kind of gives you a good look into where GORs are headed throughout the basin. And -- last year, we added a lot of Delaware exposure through Sitio. So that's part of the equation. But I think outside of that, we've seen these gas systems and gas plants operate a lot more efficiently in both basins. So you've seen just the gas and the NGL beats be pretty dramatic across the board. And I think that's telling you something about the basin. It's not necessarily just secondary zones. I think it's all of the above. Operator: Our next question comes from the line of Tim Rezvan KeyBanc Capital Markets. Timothy Rezvan: I appreciate you let me on here. I want to kind of circle back on the repurchase comments. It sounds like, Kaes, from your comments that, that $1 billion authorization may be as much focused on liquidity for the unnatural holders as it is to open market repurchases today. So I'm just trying to kind of -- I know you can't show your cards too much, but shares are up 17% year-to-date. You're still well below where shares traded in '24 and '25 at a higher oil price. So just trying to kind of get your arms around the attractiveness of open market repurchases today. Kaes Van't Hof: Yes. I mean it's a good question, Tim. I mean it's a relative question, too, right? Obviously, open market repurchases were more obvious in Q4 than they are today. And so we're trying to walk this balancing act of how to return capital to shareholders. And with the balance sheet where it is, we do have more cash that can go to shareholders in the form of the distribution or repurchases. So I think you should expect us to continue to be flexible. I don't think we need to spend every dollar we make on repurchases at these levels, but it's still a part of the story. I just think the bigger slugs could come from unnatural holders that want to get out. And just having that ability to make sure the stock is not heavy and have the repurchase in place is -- I think is a good thing for Viper shareholders. So I'm talking on the buyback a little bit relative to Q4 because Q4 was a much different environment than where we are today. But who knows? I mean we could drop from here, and that's why the authorization is there to lean in. Timothy Rezvan: That's good context. I appreciate that. And then, Kaes, if I could quickly ask a macro question. We saw pretty strong third-party turn-in-lines in the fourth quarter relative to the full year run rate. I know some of that is probably due to the Sitio acquisitions. But it seems like industry-wide concerns on Permian oil rolling over, those concerns seem to be fading. So given the lens into aggregate activity that you have through Viper, do you expect Permian oil to grow this year? Kaes Van't Hof: Yes. I mean we've been very vocal on the Diamondback side about production and U.S. production. I think the Permian has always kind of been an outlier. I would say at these oil prices, I haven't heard about operators dropping a rig since kind of the first week of the year, we had the Venezuela noise. So I mean, since then, that's gone very quiet. I think overall, Permian probably grows here and some of the larger operators, the majors are continuing to grow. Some of the privates still have deals to do here and there. So in general, I think the Permian looks strong relative to the rest of North America and the conversations about reductions in activity have gone very quiet. Operator: I'm showing no further questions at this time. I would now like to turn it back to Kaes Van't Hof, CEO, for closing remarks. Kaes Van't Hof: Thanks, everybody, for taking the time to listen in today. If you have any questions, please reach out, and we'll talk soon. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is [ Jereko ] and I'll be your conference operator today. At this time, I would like to welcome everyone to the Repligen Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Jacob Johnson, Vice President, Investor Relations. You may begin. Jacob Johnson: Thank you, operator, and welcome, everyone, to our 2025 fourth quarter report. On this call, we will cover business highlights and financial performance for the 3- and 12-month periods ended December 31st, 2025, and we'll provide financial guidance for the full year 2026. Joining us on the call today are Repligen's President and Chief Executive Officer, Olivier Loeillot; and our Chief Financial Officer, Jason Garland. As a reminder, the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning risks related to our business is included in our quarterly reports on Form 10-Q, our annual report on Form 10-K and our current reports, including the Form 8-K that we are filing today and other filings that we make with the Securities and Exchange Commission. Today's comments reflect management's current views, which could change as a result of new information, future events or otherwise. The company does not oblige or commit itself to update forward-looking statements, except as required by law. During this call, we are providing non-GAAP financial results and guidance, unless otherwise noted. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this morning, which is posted to Repligen's website and on sec.gov. Adjusted non-GAAP figures in today's report include the following: non-COVID and organic revenue and/or revenue growth, cost of goods sold, gross profit and gross margin; operating expenses, including R&D and SG&A, income from operations and operating margin, tax rate on pretax income, net income, diluted earnings per share, EBITDA, adjusted EBITDA and adjusted EBITDA margin. These adjusted financial measures should not be viewed as an alternative to GAAP measures but are intended to best reflect the performance of our ongoing operations. With that, I'll turn the call over to Olivier. Olivier Loeillot: Thank you, Jacob. Good morning, everyone, and welcome to our 2025 fourth quarter call. We had a great finish to 2025 with $198 million of fourth quarter revenue, which translated to 14% organic growth in the quarter and $738 million of revenue for the full year. As a result, we exceeded the high end of our October guidance for both revenue and adjusted operating income. We were thrilled to return to robust growth in 2025 with 16% growth on both a reported and organic non-COVID basis and full year organic growth of 14% exceeded the high end of our initial 2025 guidance. Once again, the diversity of our portfolio was on display in the fourth quarter as Proteins and Process Analytics both grew over 30% with Chromatography not far behind with more than 25% growth. The same was true for the full year as Protein grew greater than 30%, while Analytics grew 37% on a reported basis or 21% excluding M&A. This highlights our team's strong execution on the growth opportunities that exist across our portfolio. Filtration grew high single digits for the quarter and the year. Consumables drove the growth in the quarter with over 20% growth. Capital equipment was essentially flat year-over-year due to a tough comparison, but up 10% versus the prior quarter as we saw capital equipment revenue grow sequentially throughout the year. Capital equipment benefited from downstream analytics demand. Outside of a couple of specific growth drivers, we saw relatively muted demand for equipment. In terms of end markets, biopharma led the way and revenue growth was strong across all geographies. While we are no longer providing detailed order commentary, the strong orders trend we saw throughout 2025 continued in the fourth quarter. In short, we had a great year with momentum across the portfolio, allowing us to significantly outpace market growth in 2025. As we turn the page to 2026, we're excited about the product portfolio we have, the team we've built and the strategy we're executing. We recently held our global commercial meeting and after spending time with the team, it's clear we've built a world-class organization and the team is highly energized. Our initial 2026 guidance calls for $810 million to $840 million of revenue or 9% to 13% organic revenue growth. This includes a 2-point headwind from a gene therapy platform. Jason will provide more details on our 2026 guidance, but I wanted to share a few high-level thoughts. There are a number of signs that macro backdrop is strengthening, including improved biotech funding, M&A activity and more positive pharma sentiment. After a recovery year in 2025, the current environment is more balanced, though it remains early for some of these tailwinds. As a result, we believe our guidance is prudent with the low end appropriately balancing some near-term uncertainty around FDA policy and biopharma strategic response to MFN, while the high end assumes we're able to convert certain funnel opportunities in 2026. Our team is focused on executing opportunities that will arise as the year plays out. At the midpoint, our guidance calls for 150 basis points of operating margin expansion in 2026. As we highlighted earlier this year, we are committed to margin expansion while balancing the investments required to support future growth. We expect operating leverage in 2026 with a growing contribution in coming years. Unpacking our performance by end market. Fourth quarter biopharma revenue grew over 20% year-over-year, driven by growth from both pharma and emerging biotech. Revenue from emerging biotech customers grew for the third quarter in a row. Activity from this customer base remains below historical levels, so we believe it's too soon to call this a trend. CDMO fourth quarter revenue grew low single digits year-over-year due to a tough comparison as we were lapping greater than 14% growth in the prior year. Notably, we saw strong growth from our Tier 2 CDMO customers. From a geographic point of view, we saw strength across all regions led by Europe. New modality revenues were consistent with our expectation for a muted back half. For the year, new modalities grew low single digits or high single digits when excluding the impact from a gene therapy customer. We saw strength in cell therapy, while mRNA demand was a headwind. Turning to strategy. In 2025, we delivered on all 5 strategic priorities we outlined at the beginning of the year. First, we accelerated growth with a transformed customer experience. As I mentioned earlier, we delivered 16% growth in 2025. This was driven by momentum across our portfolio, customer base and geographies and a testament to our commercial strategy. We continue to capitalize on our broad portfolio with our key accounts team, which is focused on approximately 20 large pharma and CDMO customers with the objective of further penetrating these accounts by increasing both the number of product lines they purchase and their overall volume. As we highlighted earlier this year, we are now selling 2.5x as many product lines to these customers versus 2019. In addition, our commercial team is incentivized to cross-sell our entire portfolio. We continue to see a long runway for key account penetration and cross-selling opportunities. In 2025, we made notable progress on our Asia Pacific strategy. We will continue to invest in 2026 given the growth opportunities in this region. Finally, we would highlight our investment in services, which was accretive to growth in 2025, and our guidance assumes it will be a gain in 2026. We have a high attachment rate for services in our analytics franchise and are working to replicate this success across the rest of our capital equipment portfolio. As Jason will discuss in more detail, in 2025, we balanced margin expansion with critical investments in the business. We expanded adjusted operating margin by 90 basis points to 13.8%. Excluding M&A and foreign currency, we expanded operating margin by 240 basis points. In 2025, we made important investments, including legal, finance and IT leadership, along with AI and infrastructure investments. These are critical to ensure we have a scalable foundation to support the growth we see in coming years. Third, we had an active year of new product launches in 2025 across our franchises. In analytics, we launched our SoloVPE PLUS, the next generation of our SoloVPE with increased accuracy and faster readout time. We saw traction with the SoloVPE PLUS in 2025 as we benefited from the first wave of upgrades. We believe this upgrade cycle represents a multiyear opportunity. In filtration, we launched our new ProConnex MixOne single-use mixer. We began demos in 2025 and expect to deliver our first placements in 2026. In proteins, we developed and launched a variety of new resins, including 3 new catalog resins in December for the new modality market. We also saw traction with custom resins developed for specific key accounts. In 2026, innovation remains a top priority. Fourth, we executed on our M&A road map. In March, we acquired 908 Devices' bioprocessing portfolio, which is now part of our recently rebranded PATsmart portfolio. In 2025, we cross-trained and merged our upstream and downstream analytics teams. This has resulted in a growing funnel of opportunities. We also made progress on our integration of Tantti. Finally, in July, we announced a strategic partnership with Novasign to develop and integrate their machine learning and modeling workflow into Repligen filtration systems. As part of the partnership, we also made an investment in Novasign to help scale and expand their operations. This furthered our digitization efforts and highlights that minority investments are another good investment avenue within our broader capital allocation strategy. In 2026, M&A remains our top priority for capital allocation and our acquisition criteria are unchanged. First, we are looking for differentiated technologies that address key customer pain points across the bioprocessing workflow and their pipeline of modalities. And second, it must make financial sense from a return and accretion perspective. We have an active pipeline and a healthy balance sheet. As a result, we aspire to add new capabilities to our portfolio in 2026. We remain focused on integrating 908, leveraging our high-performing analytics team. Finally, in 2025, we made considerable progress on our efforts to become more fit for growth and ensure we have the right foundation in place as we look to scale the business in coming years. We made critical leadership hires across the organization. In addition, we made significant investment in our business systems to ensure we have the right tools and processes to scale the business. This included initial AI investments across our legal and supply chain functions. Looking ahead, we will continue to deepen our bench and make system investments in IT modernization, financial planning and life cycle product management. Before I turn the call over to Jason, I'll provide some more detail on our franchise level performance. Starting with Filtration. As a reminder, this is our largest and most diverse franchise. Filtration revenue grew high single digits in the quarter, driven by Fluid Management and ATF consumables. For the year, Filtration revenues grew 8% or 11% non-COVID. This was a bit below our expectations due to the timing of Fluid Management revenue and the muted demand environment for downstream systems. We continue to work to optimize fluid management manufacturing and the margin of this product line. Fluid Management was still a strong contributor to growth in 2025, while ACA was also accretive to filtration growth after a remarkable year in 2024 when it was up more than 50%. Looking ahead, we see filtration returning to low double-digit growth in 2026 with strength across our broad portfolio, offset by the headwind from a gene therapy platform. Chromatography capped off a strong year with greater than 25% growth in the fourth quarter and 25% growth for the full year. OPUS large-scale columns was the main driver of growth for both the quarter and year as we won several new pharma customers. Given this momentum and recent new customer wins, we see double-digit growth in column revenue in 2026, offset by lower procured resin mix. This results in Chromatography revenues growing low double digit in 2026. Proteins were again the highlight of the quarter with greater than 30% growth and 31% growth for the year, coming in well ahead of our prior expectation for 15% to 20% growth. The growth in 2025 was broad-based across ligands, growth factors and custom resins. This was a very strong rebound as we have nearly recovered all of the 2024 revenue decline from the demand of 2 of our OEM businesses having reached de minimis levels. This is a testimony to the strategy we are implementing, leveraging both partnerships and prior acquisitions to create innovative solutions for customers. During the quarter, we launched 3 new AVIPure resins for the new modality market. With our DuloCore technology and Avitide expertise, we can quickly develop new products, helping address customer-specific pain points. In 2026, we see Proteins strength continuing with low double-digit growth as we expect to see the benefit from the seeds we've planted in recent years. Analytics closed a record year with 30% plus growth in the fourth quarter and 37% growth for the full year or 21% excluding the impact from the 908 bioprocessing acquisition. We had traction with our SoloVPE PLUS in 2025, and we believe this upgrade cycle will continue to play out over the next several years. Looking ahead, we see analytics growing greater than 20% in 2026 as we continue to see robust growth from our downstream analytics portfolio, including SoloVPE PLUS and growing contribution from our recently acquired upstream analytics portfolio. That concludes my commentary on our franchises. As we transition to 2026, our strategic priorities remain: number one, outpacing bioprocessing industry growth; number two, driving operating leverage on top of gross margin expansion; number three, continuing to innovate and launching new products; number four, integrating recent acquisitions and pursuing additional M&A; and finally, number five, becoming more fit for growth with a focus on IT modernization and strategic transformation initiatives. In closing, our fourth quarter capped off a great year where we delivered above-market growth and expanded margin while investing in our business and executed on all strategic priorities. In 2026 and beyond, our goal is to do the same. Now I'll turn the call over to Jason for the financial highlights. Jason Garland: Thank you, Olivier, and good morning, everyone. Today, we are reporting our financial results for the fourth quarter and full year 2025 and providing initial guidance for the full year 2026. Unless otherwise noted, all financial measures discussed reflect adjusted non-GAAP measures. As shared in the press release this morning, we exceeded guidance and delivered fourth quarter revenues of $198 million, a reported year-over-year increase of 18%. This is 14% organic growth, excluding the impact of acquisitions and foreign exchange. Acquisitions contributed approximately 1 point of the reported growth and foreign exchange contributed 2 points. For the full year, revenue grew 16% on both a reported and organic non-COVID basis and 14% organic. As Olivier offered details on our product franchise performance, I'll provide more color on our regional performance. Starting with quarterly revenue, North America represented approximately 47% of our total. EMEA represented 34% and Asia Pacific and the rest of the world represented approximately 19%. North America grew mid-teens driven by Proteins, ATF and Fluid Management. EMEA grew more than 20%, driven by Proteins, Chromatography and Analytics. Asia Pacific grew high teens, driven by Chromatography and Analytics. China grew for the second straight quarter, albeit off a low base. After declining in 2025, we are optimistic China will return to growth in 2026, supported by strong orders in the fourth quarter. For the year, North America and Europe both grew approximately 16% and Asia Pacific grew 19%. Transitioning to profit and margins. Fourth quarter adjusted gross profit was $104 million and adjusted gross margin was 52.4%. This was margin expansion of 170 basis points versus last year. The year-over-year increase was driven primarily by volume leverage and price, both offsetting inflation and slight headwinds from mix and tariffs. For the full year, gross margin was 52.6% with approximately 220 basis points of year-over-year increase. The year had similar drivers as the quarter's margin expansion with volume and price overcoming inflation and some tariff and mix headwinds. Continuing through the P&L, our adjusted income from operations was $30 million in the fourth quarter, up 19% year-over-year on a reported basis and up about 25%, excluding the impact from foreign currency and M&A. Further, OpEx was sequentially flat to the third quarter. This translated to an adjusted operating margin of 15% in the fourth quarter, which was an increase of 10 basis points year-over-year on a reported basis, but 140 basis points of margin expansion, excluding M&A and the impact of foreign currency. For the full year, our adjusted operating income from operations was $102 million, a strong 24% year-over-year reported increase or up 35% excluding the impact of M&A and foreign exchange. The growth was driven by a $68 million increase in gross profit, reduced by $49 million of increased OpEx. $19 million of this increase was related to M&A expenses and foreign exchange. Excluding these items, OpEx grew roughly 13% year-over-year with investments in our Fit for Growth journey. I'll also note that about 5 percentage points of the increase came from our annual merit and compensation inflation. 2025 adjusted operating margins were 13.8%, about 30 basis points better than our prior guidance and 90 basis points higher than last year, driven primarily by volume leverage and price, mostly offset by the dilution of our recent M&A investments. Excluding the impact from M&A and foreign exchange, we are very pleased with our operating margins expanding 240 basis points year-over-year. Our full year adjusted EBITDA margin was 19%, a year-over-year increase of 50 basis points on a reported basis, but up approximately 230 basis points, excluding the impact of M&A and foreign exchange. Continuing through the P&L, adjusted net income was $28 million, a $3 million year-over-year increase. Higher adjusted operating income was offset by $2 million of lower interest income on declining interest rates. Our fourth quarter adjusted effective tax rate was 20%, which was slightly better than our prior expectations due to tax planning actions in the quarter. Adjusted fully diluted earnings per share for the fourth quarter was $0.49 compared to $0.44 in the same period in 2024. And for the full year, we delivered $1.71 of adjusted fully diluted earnings per share, up 9% over last year and $0.03 better than the high end of our October guidance. Finally, our cash and marketable securities position at the end of the fourth quarter was $768 million, up $90 million sequentially from the third quarter. This was driven by $26 million of cash flow from operations, offset by $8 million of CapEx. For the full year, we generated $117 million of cash flow from operations. We remain focused on optimizing our working capital to drive improved cash flow conversion. To echo Olivier, we are very pleased with our execution in 2025 and the momentum we are seeing across the business, which allowed us to outperform the high end of our original organic growth expectations and to drive year-over-year margin expansion. Looking ahead to 2026, we will remain focused on executing on all strategic priorities, driving above-market revenue growth and balancing margin expansion with investments in the business. I'll now speak to adjusted financial guidance. This includes our current view on foreign currency outlook for which we are assuming euro to dollar foreign exchange in 2026 to be very similar to the latter half of 2025. As you may expect, we are continuing to evaluate the implications of the recent Supreme Court ruling on tariffs. That said, included in our guidance is the expectation that tariff surcharges and related costs will have a slightly higher impact on revenue and margin than we saw in 2025 as we incur a full year effect. We are guiding $810 million to $840 million of revenue or 10% to 14% reported growth and 9% to 13% on an organic basis. The difference of these growth rates is driven by just under 1 point of revenue growth from foreign exchange and de minimis impact from M&A. Regarding revenue growth by franchise, our overall reported growth guidance of 10% to 14% assumes the following: Filtration growth in the low double digits. And as a reminder, certain gene therapy platform creates a 3-point headwind for this franchise, both Chromatography and Proteins growth in the low double digits; and finally, Analytics growth greater than 20%. We expect adjusted gross margins to expand to 53.6% to 54.1% for the full year and up approximately 125 basis points year-over-year at the midpoint. This will be driven by volume leverage, pricing and productivity, and we expect a relatively neutral mix impact in 2026. Our guidance assumes several million dollars of tariff surcharges, which represents approximately 50 basis points of headwind, which, as I mentioned, we will continue to evaluate. We expect adjusted income from operations to be between $122 million to $130 million. This implies another year of 20% plus growth and delivers margin expansion of 150 basis points at the midpoint. As we have highlighted, we will continue to prioritize investments to support our Fit for Growth journey. These include IT modernization and capabilities, product Life Cycle Management, further commercial investments, including Asia and continued build-out of our leadership bench. Still, we expect operating leverage to accompany our gross margin expansion. Continuing through the P&L, we are assuming $18 million of adjusted other income, slightly lower than 2025 due to lower interest rates and a 22% to 23% adjusted effective tax rate. The increase over 2025 is driven by jurisdictional mix assumptions and the benefits we achieved in 2025 that will not repeat. That said, we will continue to execute our tax planning strategy and look for opportunities for improvement. Putting this all together, we expect adjusted fully diluted earnings per share to be between $1.93 and $2.01. This is up $0.22 to $0.30 versus 2025 or up 15% at the midpoint. To help you with your modeling, we expect normal seasonality with roughly 48% of revenue in the first half. This implies organic growth is slightly above the midpoint in the second half of the year and slightly below the midpoint in the first half due to more pronounced gene therapy headwind in that period. We expect Q1 revenue to only decline low single digits sequentially from the fourth quarter. This positions us well to deliver on our 2026 guidance. We expect modest sequential gross margin expansion in the first quarter. And as a reminder, the first quarter of 2025 represented our highest gross margin quarter last year. We expect gross margin expansion for the remainder of the year. We expect OpEx to step up sequentially in the first quarter due to annual compensation increases and Fit for Growth investments. We assume OpEx is flat to modestly higher sequentially through the year. Our balance sheet remains strong as we ended the fourth quarter with $768 million of cash and marketable securities, as mentioned earlier. We will remain prudent in our spending while maintaining flexible dry powder for potential acquisitions. We expect CapEx spend to be approximately 3% to 4% of our 2026 revenue. As we wrap, Olivier and I would like to thank our Repligen teammates for helping us deliver above-market growth in 2025. We continue to be excited about the opportunities in front of us, and we are focused on executing our strategic objectives yet again in 2026, most notably delivering above-market revenue growth and expanding margins. With that, I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] Our first question comes from Matt Larew from William Blair. Matthew Larew: Jason, on the guide, you walked through some of the cadence dynamics in terms of the gene therapy headwind. But just in terms of framing the higher and lower end, I think Olivier had called out the policy environment in terms of maybe a low-end swing factor. So I would be curious what you're hearing from customers in terms of confidence there, maybe especially in light of recent tariff updates. And then the higher end of guidance, I think you called out some larger funnel opportunities. So would just be curious if those are similar to some of the larger land grab opportunities you've had in the past couple of years and sort of what the visibility as to timing for those might be. So just helping us think about the higher and lower end given the midpoint centers on that 11%, 12% that you had already framed. Jason Garland: Yes. And I'll start and Olivier will certainly jump in as well. I mean for some of those pieces, right, you brought up tariffs. Look, for us right now, tariffs is still a big open question. I think the good news for us is that when you look at where the administration is talking about alternatives to the current regime that it's going to be pretty much a push for us, maybe even slightly better. But again, for big context, keep in mind, tariff surcharges is far less than 1% of our total sales. So we don't feel like that creates a lot of noise. I think some of the other opportunities, again, for us on the onshoring, those tend to still be pushed out until 2027. And so we don't really see them as a big driver for this year. But I'll let Olivier talk to some more of the customer feedback. Olivier Loeillot: Yes. No, absolutely, Matt. I mean we have a very strong funnel of opportunity. And as you know, we're tracking that very specifically, particularly the funnel with high probability above 50%. This is at the highest level ever and significantly higher than a year ago. So we are very excited about it. Indeed, it's all about how do we manage to translate that high probability funnel into orders and sales this year. But overall, we are in very good shape here. Operator: Our next question comes from Dan Arias from Stifel. Daniel Arias: Jason, Olivier, you mentioned the commitment to op margin expansion this year. I'm curious just how as a priority that ranks relative to M&A you were 100 to 200 basis points above the range, excluding M&A in 2025, you were below, including M&A. It sounds like you're interested in what might be out there deal-wise. So I know it's never black and white, I do appreciate that. But if I were to just sort of ask it plainly, is delivering on 150 basis points of op margin expansion something that you intend to hit barring the unforeseen because you want to march back towards 20%? Or is it more like we intend to hit it unless we buy something that has us not hitting it because that's what's good for the business? Jason Garland: Look, I think to your point, it's never black and white, right? Every deal is going to have its strategic merits as well as the implications, both short term, right, and medium and long term on the financials. I mean we've acknowledged, right, the headwind that we've seen this year or rather '25 last year, but still stand by the firm's strategic benefit and the integration that we're having with both the 908 assets as well as Tantti. As we look into to go forward, we'll still look at other ways of capturing technology partnerships like the Novasign, right, minority interest. So that, again, eliminates that impact on margin. And then as we look for other deals, again, we will certainly be prioritizing those that have more immediate accretion to the financials. But again, I can't say that for a long-term strategic benefit that it might not still be worth a short-term dilution. So we're going to keep a well-balanced look in that. I'll end though that, that aside, margin expansion remains a top priority for us along with our above-market growth strategic imperative. And so those will be first in line. And you can see, I think we expanded margin. I think, again, you made the point, excluding M&A, 240 basis points year-over-year in '25 and teed up another good step-up of 150 basis points at midpoint. So we're delivering what we've set out to do. Operator: Our next question comes from Doug Schenkel from Wolfe Research. Douglas Schenkel: A follow-up to an earlier question on pacing. So the Sarepta headwind, as you know, annualizes midyear. ATF consumables ostensibly pick up steam as the year progresses. And there was a lot in the Q4 update and in your prepared remarks that demonstrates coming out of what has been a stronger-than-market period that momentum continues to build. With all that in mind, in spite of that, your comments on pacing suggests that you're assuming a normal first half versus second half revenue split. Why is that? Is this just prudence given continued market uncertainty? And by extension, are you assuming the market is not completely normalized this year? So meaning market normalization would actually be a source of upside to the guidance range? Olivier Loeillot: Olivier here. Yes, I think the last part, you summarized the situation very well. I mean that's why we have issued the guidance we have issued from 9% to 13% organic in 2026. There are stuff we control. There are stuff we don't control fully. And stuff we control the funnel. I mean we've got, as I just mentioned earlier, the highest funnel we've ever had. We've got great opportunities across our entire portfolio of products. Look at what happened in 2025, I mean, the 3 franchises that grew by far the highest are the one outside of filtration, which is a testimony we really have a fantastic broad portfolio of products. So this is we control. What we control less indeed is what can happen from a macro point of view. And if I start maybe with MFN, I mean, I think it's fair to assume some of these big pharma companies are digesting all of the deals that happened in quarter 4, and this might mean a little bit of delay on some specific CapEx spending decision that everybody is hoping to see coming earlier than later in the year. And then the second piece I would pick up as well is the FDA approval. I mean last year was okay. I mean there were 25 Monoclonal Antibody/Biosimilar approved similar to 2024. There were only 5 new modality approved versus 7 in 2024. So far this year, after almost 2 months, there have been very little FDA approval for biologics. So these are stuff we are watching. And depending how they play out one side or the other, this is where the guidance could move one direction or the other indeed. Jason Garland: The only thing I'd add, Doug, is just the guide or the -- I'll say, the direction that we shared on 1Q, but we still start off the year strong with it being down only, as we said, a couple of single-digit points sequentially from fourth quarter. So again, we still believe that we're starting off 1Q on the right foot. Operator: Our next question comes from Casey Woodring from JPMorgan. Casey Woodring: I have a couple of quick clarifications. So can you just clarify what 1Q organic growth is netting out to? I think I'm getting to somewhere around 10%. And then also, can you walk through the guidance range for the year? You guided to low double-digit growth in Chromatography, Proteins and Filtration, but the low end of the guide calls for 9%. So maybe just walk us through how to reconcile those numbers. And then just as a quick follow-up, kind of curious what is embedded for ATS within the low double-digit Filtration guide. You called out ATF consumables as strong in 4Q and the blockbuster has been in focus here. So just curious what's assumed there. Olivier Loeillot: Okay, Casey. So a few questions. So I'll start answering probably your first and your last question, and then I'll hand over to Jason for the middle one. So in terms of Q1, and Jason just mentioned it, we were really in good shape to deliver a very strong Q1. In fact, we expect Q1 to be sequentially only down by a couple of portion versus quarter 4 of 2025, which is a really great performance. I mean we've always talked about seasonality and typically quarter 1 is supposedly one of the weakest quarter in the year. We won't see a lot of it. So we're really in great shape to start the year. And then before again, I hand over to Jason on the middle question, in terms of ATS, I mean, you know like we had incredible growth in 2024. I mean ATF grew more than 50%. Last year, ATF was still accretive to filtration growth, which is absolutely a great performance. We are very excited about that business. As you know, we are getting design in multiple late-phase commercial drugs lately, and we still have very big hopes about the runway we have on that specific product line for the next several years here. Jason, do you want to add anything? Jason Garland: Yes. Just a quick clarification. So Casey, as we ran through the -- as I did in the prepared remarks to go through the franchises, I was discussing reported results, so not organic, not FX adjusted. Of course, the 9% to 13% is the organic view. On the reported basis, it's 10% to 14%. So that's just a quick answer. We don't have a great way to roll through all those pieces into the franchise. And so that's the difference. Operator: Our next question comes from Puneet Souda from Leerink Partners. Unknown Analyst: This is Philip on for Puneet. This is similar to several questions from earlier, but just you've previously directionally hinted at 11% to 12% growth for 2026. And I just want to make sure if there's anything you're seeing since then that may have changed that's softening your view. You referenced MFN and large pharma may delay CapEx decisions after digesting deals in 4Q. So is there anything there? Or alternatively, is the delta there with the 9% to 13% mostly prudent and you're more confident? And maybe if you could just walk us through any of the other puts and takes on organic growth for this year -- just like any levers on what may get you to the higher end versus the lower end? Olivier Loeillot: Philip, I'll just start by saying we had a really great year 2025. I mean we delivered above our initial organic growth guidance. So at this point, I mean, call it, mid of February, we think the 9% to 13% guidance is appropriate starting point for 2026. And as we mentioned a couple of times already, Q1 will really position us very well to deliver on that guidance. And then I just would like to say this is also very well aligned with the framework we shared with all of you previously. We always said we want to outpace market by at least 5%, but we do have this 200 basis points of headwind in 2026. So we think we are really well aligned with that framework we talked about earlier. We have a number of opportunities across our customer base, our product portfolio, and that is not all contemplated into this guidance for sure. But as I mentioned earlier, there are stuff we control, how do we translate that opportunity funnel into orders. There are stuff we control less, which is the macro environment. And yes, we just want to see how people are going to move forward with this MFN agreement and when are they going to pull the trigger on spending CapEx because we all see still slow CapEx spending at this stage, but also getting potentially more FDA approval as well to accelerate growth. So that is really the framework we are working on right now. Operator: Our next question comes from Justin Bowers from DB. Justin Bowers: I really appreciate you breaking out the organic versus inorganic margin performance for 2025. And just wanted to also clarify and understand some of the moving parts. It sounds like the 50 basis point headwind you called out, that's related to margins. That's sort of the clarification. And then 2 would be what are some of the other moving parts that we should consider as it relates to the organic margin expansion? Jason Garland: Yes sir. I think you're referencing the -- sorry, sorry. Justin Bowers: No, go ahead. I was just saying in 2026. Jason Garland: Yes, of course. Yes. So I think you're referencing the 50 basis points of headwind we called out for tariffs. So again, that's just the impact of a small amount of surcharges and then really passing those through as cost or, say, 0 margin. In addition to that, again, when you look at the year, again, we've talked about good gross margin expansion, driving volume leverage, price, productivity, of course, absorbing inflation and other pressures that we have. Mix is pretty nominal from an impact for the year. And then it's all about our OpEx management. And again, we've incorporated a continued investment in our Fit for Growth journey. And when you look at sort of the guide, we've talked about a step-up in OpEx in the first quarter, which really comes down to walking in at the beginning of the year and having some annual compensation increases as well as some investments that we had prioritized to push into the beginning of the year. And then that OpEx basically stays flattish to slightly increasing through the course of the quarters, and therefore, we're able to get more operating leverage. So again, we delivered 240 basis points of organic margin expansion in 2025 and believe we've got a good objective here for 2026 to again expand margin. Operator: Our next question comes from Dan Leonard from UBS. Daniel Leonard: I'd like to talk about the Analytics portfolio a little bit. I'm surprised by the 20% growth forecast for 2026 on a 37% comp. I understand that SoloVPE is a multiyear product cycle, but when do tough comps become a challenge? And how far along are you through that upgrade cycle? Olivier Loeillot: Dan, really good question. You're right, like delivering above 20% growth on a business that has been growing so much in '25, sounds like, wow, that's really impressive. I mean we're very confident about it for multiple reasons. And you mentioned one of them, which is the SoloVPE PLUS upgrade, where we are just at the beginning of the upgrade cycle. I mean we literally upgraded less than 100 units in the last 2 quarters of 2025. We've got 1,500 to 2,000 units installed base right now where we see potential to get upgraded. So it's going to be probably a 2- to 3-year upgrade cycle in front of us and until we launch the new version of Solo. So that's one of the big tailwind. Beyond that, as you know, we acquired 908 last year and beginning of March of 2025, and we merged the 2 sales organizations. And I have to say, I mean, the funnel improvement we've seen over the last 2 to 3 quarters has been absolutely phenomenal. And now for our sales team to have -- instead of having only 1 product to sell to have 5 and very soon 6 products because we're developing another one, we intend to launch towards the end of this year as well is also a great motivation factor, and we're getting a bigger seat at the table with this much broader portfolio of products we had. And then finally, I would just mention also the FlowVPX part of the offering, where, as you know, we had a lot of traction both at line, but in line as well, where about 25% of every system we've been selling for the last 1 year now does include the FlowVPX technology. So we've got really multiple angles. That's why we're so positive about it and considered about that potential growth in 2026. Operator: Our next question comes from Matt Hewitt from Craig-Hallum. Matthew Hewitt: Congratulations on a strong finish to the year. You talked about it a little bit. Obviously, new products have been a key driver for Repligen. And as you look at fiscal '26, do you have a pretty robust pipeline? And is that across the portfolio? Or are there specific segments in particular, where you look at opportunities to launch the new products, gain share, maybe expand the markets a little bit? Olivier Loeillot: Yes, great questions. I mean, as you know, innovation is really in our DNA. And is the first word I always mention about [ Repligen 3 ] innovation. So yes, you're right. I mean, we've been successful in the past. We've been successful in 2025. We will be successful in 2026 and beyond by the launch of innovative products. And we're working on several of them right now. I mean I start for once with Protein because as you've seen, we had incredible traction on Protein in 2025. And this is just the beginning of the journey. I mean we have now launched 4 catalog resins. We're intending to launch at least 3 or 4 extra catalog resins this year in 2026, meaning we're going to start to have a really sizable catalog of resin for our customers. We're mostly focusing on new modalities right now, but we're starting to look at other opportunities as well in more established drugs that might have been on the market for a long period of time because we see a lot of opportunities on that side as well. One thing I would add on Protein as well, we are working on multiple custom projects for specific big pharma customers as well, which we don't talk about because this one are exclusive, but this is another reason why this franchise has been doing so well in the last 12 months here. Beyond that, obviously, we've got multiple opportunities of innovation on the rest as well. On filtration, I would probably just mention one main one, which is, as you know, the potential combination of ATF with the Raman technology, the MAVERICK technology we acquired by 908 at the point where we've seen that technique is working very well. Now it's in the hands of our Product Management Team that will decide how and when to potentially launch that combination. We think that could be a big differentiator to add even more hurdle for potential competitors to ATS, but also to accelerate the growth of our PAT portfolio, the 908 portfolio. And then really, probably the last piece I would mention as well is we are looking at broadening that PAT portfolio significantly. And beyond 908, beyond the FlowVPX we have acquired the right from a company called Deli for Mid-IR technology several years ago. And thanks to the great technology team we have from 908, we are now at the point where we are already working on the beta version of this Mid-IR technology that could be a total game changer in the industry for both the last step USDF, but also for measuring Protein aggregation as a [indiscernible]. Customers who are testing it love it. And this launch, we expect to have towards the end of this year, beginning of 2027 will be another big game changer for the industry. So very excited across the board, plenty of stuff coming our way in 2026 here. Operator: Our next question comes from Brandon Couillard from Wells Fargo. Brandon Couillard: Olivier, I understand China is a pretty small region, but you've been more constructive on orders the last 2 quarters there. Any update on the incremental investment that's still needed to get the commercial organization where you'd like it to be? And if you can put some bars around the expected growth rate you see coming out of China in '26 and how that might compare to the broader bioprocess market in that region? Olivier Loeillot: Yes. So thanks for the question. Brandon, I mean, you're right. I mean, China has become pretty small for us. I mean last year was about 2% to 3% of our total revenue. We used -- it used to be about high single digit of our total business during COVID. So we are aiming to definitely grow that region faster than the rest. And the first signs are pretty positive. I mean you're right. I mean we now had 2 quarters in a row of top line growth in China. In fact, order in quarter 4 were really very strong. So we are very excited about that. And we are hopefully seeing China really going back to significant growth from this year onwards. I don't have a specific number to give you. I think I mentioned several times, I know that region very well, which is why we are very focused on adding the right amount of people. We opened a new office in quarter 3 here. We are ambitious down there. We are working on several partnerships with local companies across our entire portfolio, and we're definitely aiming to overpace our entire total growth in China and then really making sure this region become much bigger for us over the next 3 years than it is today. Operator: Our next question comes from Matt Stanton from Jefferies. Matthew Stanton: Olivier, maybe one for you. I think in the prepared remarks, you talked a bit about service. It was accretive to growth in '25, sound pretty good about it here again in '26. Obviously, strong on the analytics side, but maybe just talk about the service opportunity more broadly. Is that on new products? Can you go back to the installed base you have out there? And then maybe talk about -- is there any tweaks you've made to comp or how the commercial organization is incentivized to go out and capture that runway on the service side in front of you? Olivier Loeillot: Really interesting good question as well. I mean services represented approximately 6% of our total sales in 2025. If you just benchmark us versus the industry, we are about 4, 5 points below where others are. So we know we have a really great opportunity to grow on that side. And I'll give you just a very, very interesting checkpoint here. I mean our attachment rate for the analytical part of our portfolio is pretty high. I mean it's above 50%. You would say it's almost at benchmark our attachment rate for the larger scale equipment, those Rx downstream system, even our ATF system that's only significantly lower. So that's the area where we have specific area of focus right now. And you're absolutely right. It all starts with commercial team where you need to make sure those commercial teams are being incentivized to get more service contracts signed at the earlier point of contact. But we are also, at the same time, starting to look at our service business as a more independent P&L, and we're adding commercial resources that are specifically reporting to our service leader to make sure we can grow that business faster than it has in the past. So multiple stuff we are looking at. Our real ambition in a few years from now is that services would indeed be at benchmark, meaning about 10% of our total sales. Operator: Our next question comes from Brendan Smith from TD Cowen. Brendan Smith: I actually wanted to ask just a follow-up on your commentary, Olivier, on the MAVERICK integration with ATF and just if you guys see an opportunity to launch that this year. Kind of just curious how we should think about that in the context of the '26 guide? And maybe also if you expect that to kind of replace the legacy product altogether or if you plan to kind of offer it with and without the MAVERICK add-in moving forward? Olivier Loeillot: Yes, I'm not sure yet to be very open with you, Brendan. We are looking at different options here. Again, it's in the hand of our Product Management Team to assess when and how the launch could potentially make sense. I think in any case, that would be an option. I mean we are not going to force people to buy Raman technology on top of our ATF system and so on. That would be an option for our customers. Depending again on the traction we get and so on, we might make it more and more of, I would call it a fourth option, but maybe more, "Hey, you should really go for it versus, hey, are you aware about the fact that there is an option to track what's happening in your bioreactor via the ATF loop". I'll tell you more about that for sure in the next couple of quarters once we've made a further decision on how and when we would potentially launch that combined technology here. Operator: Our next question comes from Subbu Nambi from Guggenheim. Subhalaxmi Nambi: In your prepared remarks, you spoke about the muted downstream demand in second half. What drove that? And how is that shaping your 2026 guidance? And also, what are you assuming for capital equipment in 2026? Olivier Loeillot: I didn't get the first part of your question. What was about downstream? I didn't get it, Subu, sorry. Jason Garland: Were you asking about the demand for downstream systems? Subhalaxmi Nambi: Exactly. Yes, the muted demand for downstream systems. Olivier Loeillot: Yes. No, absolutely, Subu. So I mean, I think our direct competitors have mentioned several times that CapEx spending was pretty muted in 2025. We had an interesting year, as you know, where Q1 was really very weak on very high comp. But then Q2, Q3 were very strong. In Q4, even though sales were incrementally higher by 10% versus Q3, I mean, versus Q4 of 2024, the overall demand was kind of muted because we had pretty high comp. So if you look at the overall year, I mean, CapEx sales for us were more or less flat between 2025 and 2024. I think it's fair to say the market was down significantly. I mean, we've heard people saying maybe as much as high teens down between '24 and '25. We were flat, so which is better than others. But yes, it's absolutely fair to say if there is one area where we would like to see some real improvement and where we would like to start to see customers pulling the trigger on spending more money is definitely on CapEx equipment. So that's what we're expecting hopefully to see very soon and partly via some of these onshoring projects hopefully accelerating towards midyear with hopefully some grant coming towards the end of this year. Subhalaxmi Nambi: Perfect. And just to confirm, you're not assuming any massive growth in capital equipment. I know the answer, but just confirming. Jason Garland: Just to repeat, she is asking what is our expectation for capital equipment in 2026. Olivier Loeillot: So for 2026, we are still aiming for low double-digit growth Subu. So obviously, we're getting a lot of traction from our Analytics business, as you know, which is then fair to assume this is going to drive the majority of that low double-digit growth we expect in 2026. For the rest, which is more the downstream system, we were expecting probably somewhat flat sales in 2026. This could be a really nice upside again if we start to see a better macro on that side. Operator: That concludes the question-and-answer session. I would now like to return the call back over to Olivier Loeillot, CEO, for closing remarks. Thank you. Olivier Loeillot: Yes. Well, first of all, many thanks for joining our call today. I mean, as you heard us, we were really thrilled with our 2025 execution, and this has allowed us to deliver fantastic 2025 results. In 2026, we remain focused on executing on our strategy and as usual, delivering above-market growth. So thanks for your time, and talk to you very soon. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Whitecap Resources Q4 and 2025 Results and Reserves Conference Call. [Operator Instructions]. And I would like to turn it over to Whitecap's President and CEO, Mr. Grant Fagerheim. Please go ahead. Grant Fagerheim: Thanks, Sylvie, and good morning, everyone, and thank you for joining us here today. There are 5 members of our management team here with me today, our Senior Vice President and CFO, Thanh Kang; our Senior Vice President, Production and Operations, Joel Armstrong; our Senior Vice President, Business Development and Information Technology, Dave Mombourquette; our Vice President of Unconventional Division, Joey Wong; and our Vice President of the Conventional Division, Chris Bullin. Before we get started today, I would like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory that we set forth in our news release issued yesterday afternoon. 2025 was another transformational year for Whitecap as we follow up to our 2022 transaction with XTO Canada. The combination with Veren was deliberate. We pursued it to increase scale, strengthen our asset base, add to our enviable inventory position and to structurally improve profitability. The strategy is already delivering measurable results. We exited the year with strong operational momentum. Fourth quarter production averaged over 379,000 BOE per day, exceeding expectations as a result of accelerated timing and asset level outperformance. Importantly, Q4 production per share was the highest quarterly result in our history, a clear reflection of our quality of the combined asset base and the strength of our technical teams and processes. For the year, we generated funds flow of $2.95 per share, one of the strongest on annual results in our history, despite operating in a lower commodity price environment. That speaks directly to the structural improvements achieved through scale synergy capture and disciplined execution. With capital expenditures in line with our $2 billion guidance, we generated approximately $900 million of free cash flow and returned $736 million to shareholders through dividend and $193 million through share repurchases. This balanced approach growing per share production while returning meaningful capital defines our total shareholder return framework. In 2025, we delivered a 15% total shareholder return at the high end of our 10% to 15% target range. The return was comprised of 6% production per share growth, a 7% dividend yield and 2% of share repurchases. Our objective is to consistently deliver superior long-term returns through measured capital deployment, operational discipline and structural margin improvement. From a reserves perspective, we now have 2.2 billion BOE of 2P reserves under management equating to a reserve life index of over 16 years with approximately 10,500 high-quality drilling locations in inventory that include optionality in light oil, liquids-rich and lean natural gas opportunities. With this, we have decades of development runway to continue driving increasing returns for our shareholders. I'll now pass it on to Thanh to further discuss our financial results. Thank you. Thanh Kang: Thanks, Grant. From a financial standpoint, 2025 clearly demonstrates the resilience and structural strength of our business. On a year-over-year basis, the commodity backdrop was weaker. WTI averaged just under USD 65 per barrel, down approximately 15% and AECO natural gas averaged under $1.70 per GJ. Despite that environment, we generated funds flow of $2.95 per share, the second highest annual result in our history. More importantly, our cash flow netback increased year-over-year expanding margins in a lower price environment reflects structural improvements rather than commodity tailwinds. There were 3 primary drivers: First, operating efficiencies. We accelerated the capture of synergies following the Veren combination. Field level optimization and economies of scale drove structural cost improvements with fourth quarter operating costs declining to $12.24 per BOE an 11% decrease from 2024. Second, corporate and financing efficiencies, while G&A on a per BOE basis remained relatively consistent, we reduced absolute G&A through the elimination... [Technical Difficulty] Joey Wong: New wells averaged roughly 10% above initial expectations in the area are supported by base optimization initiatives, including artificial lift refinements and operating parameter adjustments. Across our Montney assets, execution remains consistent, predictable and scalable. At Musreau, we recently brought a 6-well pad online, bringing production to approximately 17,000 to 18,000 BOEs per day at 70% liquids. The facility is currently constrained due to stronger-than-expected condensate performance. Planned gas lift enhancements in Q3 of this year are expected to increase capacity to the 20,000 BOE per day nameplate. Importantly, condensate performance at Musreau has translated into approximately 20% higher EORs than originally anticipated. And this is the result of our development design and production decisions made with this improvement in mind. In 2025, the asset generated over $100 million of operating free cash flow and is a good example of our repeatable development model, develop the resource, build infrastructure, optimize operations and transition the asset into a strong free cash flow generator. At Lator, we drilled a 3-well pad in the fourth quarter and have recently spud a 5-well pad. A total of 11 wells will be spud this year ahead of the Phase 1 facility start-up. Construction of the 35,000 to 40,000 BOE per day facility remains on schedule and on budget with commissioning targeted for the fourth quarter. At Kaybob in the Duvernay, we continue to drive efficiency gains as the asset progresses towards stabilized at capacity operations. Our wine rack development configuration is demonstrating improved reservoir access and reduced well interference. We have now brought 7 pads online using this configuration totaling 33 wells. Early pilot pads, some with approximately 18 months of production history, continue to affirm 10% to 20% improvements in well performance. We are applying this configuration to approximately half of our 2026 development program and believe it is applicable across roughly half of our undeveloped inventory. Additional upside may come from further expansion of this approach and selective down-spacing where conditions are favorable. With these improvements and continued base optimization, we now expect to reach debottleneck productive capacity of 115,000 to 120,000 BOEs per day in Kaybob by year-end of this year, well ahead of our prior expectation of the second half of 2027. This acceleration advances Kaybob into a stabilized free cash flow generating mode sooner than anticipated. At $60 to $70 WTI, we expect asset-level free cash flow of $650 million to $850 million at capacity, while requiring only 50% to 55% reinvestment to maintain these levels of production. Similar to Musreau, this transition from growth to stabilized mode reflects our broader development progression strategy, scale, optimize and harvest sustainable free cash flow. With that, I'll now turn it over to Chris to discuss our Conventional assets. Chris Bullin: Thanks, Joey. Our Conventional division delivered another strong year, averaging approximately 140,000 BOE per day in 2025. We invested $500 million and drilled 199 wells. The combination of stronger well performance and improved efficiencies drove approximately 3,000 BOE per day of production outperformance in the fourth quarter. We continue to view the Conventional division as a stabilizing and sustainable core cash flow engine. The division is approximately 80% liquids weighted, primarily light oil and underpinned by a sub-20% decline rate. That decline profile is supported by roughly 52,000 barrels per day of dedicated waterflood and EOR production. This platform provides durable free cash flow and meaningful torque to stronger oil prices. Saskatchewan was the primary driver of year-over-year growth as we solidified our position as the largest and most active oil producer in the province following the integration of the complementary Veren assets. In the Frobisher, 2025 results were exceptional. Average IP 180 production exceeded expectations by 41%. These results reflect longer laterals, enhanced reservoir contact and continued operational efficiencies that improve capital productivity. Since entering the play in 2021, we have organically added nearly 200 premium locations, extending our runway by approximately 4 years. Compared to our initial type curve assumptions at acquisition, capital efficiency has improved by 26% based on IP 365 performance. On a per well basis, that translates into materially higher net present value on approximately $1.6 million of capital per well. In the Bakken, we continue to enhance inventory through optimized lateral lengths and increased reservoir contact. Our first 3-mile 8 leg open-hole multilateral well achieved an IP(90) rate 38% above expectations, with a record 34,600 meters drilled. Based on these results, we are confidently incorporating extending extended reach open-hole multilateral drilling into our development program. With over 1,500 Bakken locations in inventory, we see substantial opportunity to further enhance well economics across this asset. In Alberta, we drilled 39 wells primarily focused on the Glauconite and Cardium. The Glauconite continues to demonstrate strong repeatable performance and has evolved into a scaled, liquid weighted cash flow driver. Since acquiring the asset in 2021, we have doubled production from approximately 13,000 BOE per day to roughly 27,000 BOE per day through improved well designs, longer laterals, infrastructure, debottlenecking and base optimization. With scale achieved, the Glauconite has transitioned into a stabilized development phase generating consistent and capital-efficient returns. In the Cardium, leveraging learnings from the Unconventional workflow, specifically on frac design, enhanced our performance in both West Pembina and Wapiti realizing improved capital efficiency by approximately 15% in 2025. As we move into 2026, our focus remains on incremental technical enhancements to continue to improve capital efficiency. Finally, our EOR portfolio remains a cornerstone of sustainability within the Conventional division with approximately 52,000 barrels per day of dedicated secondary and tertiary production, including our flagship waiver and CO2 flood, we generate strong, stable cash flow from long life, low decline assets. We continue to evaluate additional EOR opportunities across the portfolio, assessing both brownfield and greenfield projects to further enhance long-term recovery and capital efficiency. With that, I'll turn it back over to Grant for his closing remarks. Thanh Kang: It's Thanh here. So I'll just redo the financial section here due to the technical difficulties before passing it back to Grant. From a financial standpoint, 2025 clearly demonstrates the resilience and structural strength of our business. On a year-over-year basis, the commodity backdrop was weaker. WTI averaged just under USD 65 per barrel, down approximately 15% and AECO natural gas averaged under $1.70 per GJ. Despite that environment, we generated funds flow of $2.95 per share, the second highest annual result in our history. More importantly, our cash flow netback increased year-over-year, expanding margins in a lower price environment reflects structural improvements rather than commodity tailwinds. There were 3 primary drivers: First, operating efficiencies. We accelerated the capture of synergies following the Veren combination. Field level optimization and economies of scale drove structural cost improvements with fourth quarter operating costs declining to $12.24 per BOE, an 11% decrease from 2024. Second, corporate and financing efficiencies. While G&A on a per BOE basis remained relatively consistent, we reduced absolute G&A through the elimination of duplicative costs following the transaction. Our increased scale contributed to a credit rating upgrade to BBB flat, lowering our overall cost of debt and improving financial flexibility. In addition, the utilization of acquired noncapital losses materially reduced cash taxes and enhanced free cash flow. Third, product mix and realized pricing resilience. Over 60% of our production is liquids, predominantly light oil and condensate, narrow differentials and foreign exchange tailwinds helped to offset benchmark weakness. Turning to financial strength. Year-end net debt was $3.4 billion representing less than 1x annualized fourth quarter funds flow. We have $1.5 billion of available liquidity and remain well positioned to manage volatility. Approximately 25% of 2026 oil production is hedged a floor of just under CAD 85 per barrel and 29% of 2026 natural gas production is hedged at approximately $3.75 per GJ. On natural gas diversification, we are executing a deliberate strategy to reduce long-term AECO exposure. We announced a 10-year agreement with Centrica for 50,000 MMBtu per day indexed to European TTF pricing and a second 10-year agreement to deliver 35,000 MMBtu per day into Chicago at Henry Hub pricing. These agreements enhance price stability and increase exposure to global and U.S. markets. I'll now pass it off to Grant for his closing remarks. Grant Fagerheim: Thanks, Thanh, Chris and Joey for your comments. In closing, we believe we are still in the early stages of demonstrating the full capability of our asset base and the people we have within the organization. Operational momentum has carried into the first quarter of 2026, and our teams are executing at a high level across our portfolio. As a result, we are providing first quarter production guidance of 375,000 to 380,000 BOE per day, which is up from our internal forecast of 370,000 to 375,000 BOE per day at the time we released our budget. Our full year production guidance of 370,000 to 375,000 BOE per day on capital spending of $2 billion to $2.1 billion is unchanged at this time, but stay tuned as we advance through the remainder of the year. With scale achieved, structural profitability improved and a deep inventory of high-quality opportunities, we are confident in the path forward to deliver superior returns for current and future shareholders. Improving market access for Canadian energy remains an important theme for maximizing economic value and strengthening North American energy security. Condensate fundamentals remain supportive and expanding LNG and natural gas demand continue to provide long-term tailwinds. In closing, I want to reemphasize that our team remains focused on disciplined execution, efficiencies in capital spending and deliberate in creating superior long-term returns for our shareholders. With that, I will now turn the call back over to our operator, Sylvie, for any questions. Thank you. Operator: [Operator Instructions]. First will be Sam Burwell at Jefferies. George Burwell: Grant, I caught your stay tuned on the 2026 plan. So I guess with WTI strip up near USD 65 for the balance of '26, any appetite to possibly hedge more and/or deploy more CapEx maybe in Conventional oil or should we think about any benefit to cash flow really being banked for possible buybacks going forward? Grant Fagerheim: Yes. Thanks, Sam. Just your comments on what we do with the increased pricing at this particular time. You know the strategy that we've undertaken is that until we have it, we'll call it, in the bank, we don't make adjustments to our forecast. We are forecasting for the balance of this year, USD 65 WTI oil with a light oil differential at $4, $2 differential on condensate and CAD 0.74. And what we've done with our natural gas price, we dropped it back to $2 per GJ just with the -- what we consider to be the oversupply. So at this particular time, what we'll look to do as we advance through time here is the potential to increase our forecast with the same amount of capital if we can continue to deliver operationally as we have. Thanh Kang: Yes. And Sam, just on the hedging front there. I mean our strategy hasn't changed. We look to hedge 25% to 35% of our production here and feel very comfortable around our 2026 positions as I've talked about there. What we are doing, though, is we're laying on more positions in 2027, smaller incremental positions to get us to that 25% to 35% there. Since the curve is still a little bit backward dated, our preference today is using costless collars. So that's been a very consistent theme in terms of how we've executed on our hedging strategy. George Burwell: Okay. Understood. And then on the gas marketing side, I guess, any color you can share on the discount to TTF you'd be realizing on the Centrica deal? And then also on that, like how repeatable are the opportunities to achieve LNG linked pricing without necessarily like explicitly sending molecules to a facility, whether it's in Canada or whether it's down to the U.S. Gulf Coast? Thanh Kang: Yes. Thanks for that question, Sam. So the 2 contracts that we entered into are part of our price diversification strategy we're really taking a portfolio approach to mitigate the price volatility that we've seen in the AECO market there. Ultimately, what we're looking to do is move about 50% of our pricing outside of AECO. And with these 2 contracts here, we would be increasing our exposure outside of AECO in that 8% to 9% there. So the Centrica transaction, we basically get the TTF pricing less deductions. We deliver at AECO. And with the other third party there, the 35,000 MMBtu per day there the delivery is at Chicago. So we get NYMEX basically less tolls there. But we don't disclose any specific details to our contracts. Operator: Next question will be from Phillips Johnston at Capital One Securities. Phillips Johnston: I wanted to ask you about the current tax rate guidance for '26. Nice to see that you reduced it to 3% to 5% of funds flows from I guess, 5% to 8% previously. I realize Veren had some tax loss pools that might be playing a factor. But can you talk about what's driving that? And as we look out over the next 4 years or so, I assume that percentage will drift higher. But can you maybe talk about sort of the glide path there? Thanh Kang: Yes. It's Thanh here. So in terms of the tax pools at the end of the year, we had $9.3 billion of tax pools, of which approximately $500 million of that was noncapital losses. And so we were able to use -- when we did the Veren transaction, it came with about $1 billion of noncapital losses. So we used about half of that in 2025. And then the remaining $500 million, we expect to use that in 2026. So that's really what drove the lower tax rate there in that 3% to 5%. So pretty consistent, I would say, in 2026 compared to 2025. As we think about it going forward here, we'd expect it to be still pretty reasonable in that 5% to 8% on a go-forward basis past 2026. Phillips Johnston: Okay. Great. That sounds good. And then your proved developed producing F&D costs ticked up a little bit from around $15 a barrel back in '23 to around $17 a barrel in '25. That's obviously a low figure still. But can you maybe talk about the driver of the increase there? Is it perhaps related to sort of a mix shift within the portfolio rather than any sort of increase in D&C costs or decrease in underlying EORs? Or are there other factors at play? And then just maybe as a follow-up, how would you expect those costs to trend going forward? Joey Wong: Phillips, Joey Wong here. So yes, you're right that the $17 and change there is a reflection of the asset mix when you combine Veren and Whitecap. And the -- it actually does reflect on PDP as well as across the other 2 categories on the 1P and the 2P. A portion of the efficiency gains we've started to see in the operations whether that's on the reduction of cost, taking a portion of those on the book or on a portion of the increased performance on a per well basis where we did see some good technical revisions. To your question of what would the trajectory of that be? I guess it's embedded in the last response there is that we've taken a portion of it, and we would expect that with continued performance and outperformance that we can build upon that. Operator: [Operator Instructions]. Next, we will hear from Michael Spiker at HTM Research. Michael Spyker: I'm not sure if the cut out there was intentional, give everybody a few minutes to reflect on the pure unbridled execution that we're witnessing. But in my few minutes looking through the deck, I see you guys have 90,000 BOEs a day of asset potential in the near-term, productive capacity bucket. And you don't consume that until the early 2030Shelf Drillin. So you've got all these efficiencies that you're realizing and you can kind of move some of that infrastructure CapEx over to PGI potentially. Is there a possibility to -- when you have that money in the bank, you said to maybe keep growth capital flat and add more volume kind of thing if you keep delivering sequential capital efficiency improvements? Just kind of wondering, could we see a filling of this 90,000 BOEs a day of near-term capacity from the debottlenecking efforts, et cetera, pulled forward a little bit on the same capital budget kind of thing? Is that kind of a potential upside we can think about? Grant Fagerheim: Yes. Thanks, Michael. I mean, so the way we're thinking about this is, obviously, yes, we do have the capacity runway through to an incremental 90,000 BOE per day. A lot of this reflects back on what the commodity price environment is of the day. So from our perspective, we think that we can continue to focus on our efficiencies of our capital program. But growing into this, the opportunity base that we do have is truly going to be what's the reflection of commodity prices and the cash generation that's being delivered off of the assets we do have. So I appreciate you realizing that we do have a lot of runway in front of us at this particular time, but it is going to be dependent upon commodity prices as we advance forward. We think we've got a very sound base plan in place and then being able to continue to grow into the excess capacity that we do have available to us. Operator: Thank you. And at this time, gentlemen, we have no other questions registered. Please proceed. Grant Fagerheim: Okay. Thank you, Sylvie, and thanks to each of you on the line today for your patience and with the technology glitch we experienced earlier. I do want to once again thank our entire Whitecap office and field staff for your dedication and efforts in 2025 and continuing into 2026. We look forward to updating you as shareholders on our progress through 2026 and into the future. All the best to each of you signing off for now. Cheers. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect.
Operator: Good day, and thank you for standing by. Welcome to NRG Energy, Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Brendan Mulhern, Head of Investor Relations. Please go ahead. Brendan Mulhern: Thank you. Good morning, and welcome to NRG Energy's Fourth Quarter and Full Year 2025 Earnings Call. This morning's call is being broadcast live over the phone and via webcast. The webcast presentation and earnings release can be located in the Investors section of our website at www.nrg.com under Presentations and Webcasts. Please note that today's discussion may contain forward-looking statements, which are based upon assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the safe harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation and earnings release. With that, I will now turn the call over to Larry Coben, NRG's Chair and Chief Executive Officer. Lawrence Coben: Thank you, Brendan, and good morning, everyone. I'm joined today by Bruce Chung, our CFO; and Rob Gaudette, our President. Other members of our management team are also on the line and available to answer questions. Let's begin with the key messages on Slide 4. We exceeded the midpoint of our raised 2025 guidance, marking the third consecutive year we increased our outlook and delivered above it. We introduced stand-alone 2026 guidance in November, updated it in February to reflect 11 months of LS Power ownership. And today, we are reaffirming those ranges. We successfully closed LS Power at the end of January. Integration is well underway and performance is already exceeding our underwriting assumptions. With LS Power now closed, we are rolling forward our long-term outlook. We continue to target at least 14% annual growth in adjusted earnings per share and free cash flow before growth per share, now measured from 2026 through 2030 rather than the previous through 2029. We are maintaining this more than 14% trajectory despite a much higher share price than assumed at the original announcement. This is achieved through higher earnings from both the LS Power portfolio and our legacy businesses. Finally, as demand accelerates across our markets, affordability and reliability will define long-term success. New large loads must bring their own power and contract for the generation that supports them. Flexible demand response must scale alongside that. Otherwise, prices will rise and volatility will increase. NRG is well positioned to do both and thus meet rising demand across our markets. Let's turn to Slide 5, our 2025 financial and business results. 2025 was a record year of performance at NRG. Full year adjusted EPS was $8.24 per share and adjusted EBITDA was $4.087 billion, both above the high end of our raised guidance. Free cash flow before growth totaled $2.210 billion or $11.63 per share, above the midpoint of our revised outlook. Turning to our 2025 scoreboard. We delivered against the priorities we outlined at the start of that year. We achieved top decile safety performance for the 10th consecutive year and delivered our 2025 target under our $750 million organic growth plan. We signed 445 megawatts of long-term data center PPAs at attractive margins. We secured Texas Energy Fund loans for 1.5 gigawatts of new capacity with all construction on budget and on schedule. We launched our Texas residential VPP and finished the year at nearly 10x our original objective. We also announced the LS Power transaction, which we'll cover in more detail on the next slide. In 2025, we returned $1.6 billion to shareholders through repurchases and dividends, while increasing the dividend by 8% for the sixth consecutive year. Our momentum has carried forward into 2026. During Winter Storm Fern, our Texas fleet achieved 97% in the money availability. Our assets were ready when the grid needed them. That performance reflects investments we have made in the plants in recent years and great work by our amazing people. Turning to Slide 6. Beyond 2025 performance, we strengthened our competitive position with the close of the LS Power portfolio. Our generation fleet has doubled to 25 gigawatts. We added 18 natural gas assets, primarily in PJM with additional positions in ERCOT, NYISO and ISO New England. The combined fleet is now more than 75% natural gas. Together with our existing generation and projects under development, we are naturally long against our residential load in our core markets. In PJM, several of the newly acquired peaking units provide a potential 1 gigawatt of upgrades through conversion to combined cycle configuration. That adds flexibility to support future large load demand. CPower, a preeminent company in the demand response space, strengthens our capabilities and expands our position in this sector with both commercial and industrial customers. This transaction was immediately accretive, supports our long-term leverage targets and strengthens our credit profile. Performance is already exceeding our underwriting assumptions, driven by stronger capacity and energy prices. In addition, 100% bonus depreciation enhances after-tax returns relative to our original modeling. We have expanded our earnings base and strengthened our competitive position as markets tighten. Turning to Slide 7. Let's discuss our near- and long-term outlook. Beginning with 2026, we are reaffirming the guidance ranges introduced in early February following the close of LS Power. Recall that the LS contribution reflects 11 months of ownership, not a full year. In 2026, we will deliver these results embedded in our outlook and integrate the LS Power portfolio. We are also targeting at least 1 gigawatt plus signed long-term data center power contract under our Bring Your Own Power approach. Turning to the longer-term framework. We are rolling forward our outlook and continue to target at least 14% annual growth in adjusted EPS through 2030. This extends the prior 5-year framework, which ended in 2029 and reflects our expanded earnings base. Consistent with our prior methodology, the outlook assumes flat power and capacity prices across the planning horizon. Detailed assumptions and Texas and PJM price sensitivities are included in the appendix. The plan also now incorporates all 3 Texas Energy Fund projects rather than one. The first remains on track for June 2026 completion and the additional 2 are expected online by mid-2028, and these represent incremental value relative to the prior outlook. The plan also reflects the portion of the 445 megawatts of previously announced signed data center contracts that are expected to be online during this period. I must emphasize that the outlook does not assume any additional data center contracts or higher power or capacity prices. Let me repeat that. The outlook does not assume any additional data center contracts or higher power or capacity prices. So beyond what is embedded in this plan, of course, we see significant opportunities to contract new large load natural gas generation under long-term agreements with high-quality counterparties. We have the ability today to support more than 6 gigs of long-term power agreements to serve large data center demand. At that level, it represents the potential to add more than $2.5 billion of recurring annual adjusted EBITDA on contracts of up to 20 years. These projects would provide stable contract-backed cash flows. Discussions are ongoing, so stay tuned. Turning to Slide 8. I want to discuss our approach to affordability, which has 2 primary components. First, bring your own power. New large loads should contract directly for the generation that supports them. Data centers must pay for their required capacity additions. Cost and volatility should not be shifted to existing customers. Second, demand response. Flexible demand is an essential complement to our approach. Demand response, including virtual power plants, provides dispatchable capacity when the system is tight. It lowers peak costs and strengthens reliability without adding structural cost to the system. We are executing on this model today. We have more than 6 gigs of natural gas generation capacity reserved for customer-backed large load projects, including 5.4 gigs through our GEV and Kiewit venture and 1 gig of upgrade potential within the recently acquired LS portfolio. We are also developing new generation through the Texas Energy Fund to support grid reliability. On the residential side, we are building a 1 gig virtual power plant in Texas and preparing to extend that model into PJM. On the commercial and industrial side, CPower now anchors one of the leading demand response platforms in the country. We built all of these platforms early in anticipation of where markets were heading and what politicians and customers are now saying. It is operating today. As demand expands, this model supports significant growth without compromising affordability or reliability. With that, let me turn it over to Bruce for the financial review. Bruce Chung: Thank you, Larry. Starting with Slide 10, I am pleased to share that NRG delivered exceptional full year financial results in 2025. We achieved earnings at or above the high end of our raised financial guidance ranges, including record level performance across several key metrics. Our 2025 adjusted EPS was $8.24 and adjusted EBITDA was $4.087 billion, representing an increase of 21% and 8%, respectively, over the prior year. We delivered $1.606 billion of adjusted net income and $2.21 billion of free cash flow before growth. Our robust financial performance in 2025 marks the third year in a row where excellent execution across our businesses continues to demonstrate the durability of our integrated platform. Moving on for a brief discussion of segment results. Our Texas segment delivered full year adjusted EBITDA of $1.877 billion, driven by margin expansion and excellent commercial optimization throughout the year as well as favorable weather that benefited our home energy volumes. The East segment contributed full year adjusted EBITDA of $981 million, reflecting a slight decline from the prior year, primarily driven by higher regional retail power supply and planned maintenance costs and the retirement of the Indian River facility. These impacts were partially offset by strong capacity revenues at our plants, winter weather driving natural gas margin expansion and continued commercial optimization in both power and gas. Our West and Other segment provided full year adjusted EBITDA of $137 million, a modest decline from the prior year, driven by the absence of earnings from the sale of our Airtron business in September 2024 and the lease expiration at the Cottonwood facility in May 2025. These were partially offset by higher retail power margins in the West. The Smart Home business generated full year adjusted EBITDA of $1.092 billion, driven by record new customer adds and impressive retention rates in addition to expanded net service margins. Free cash flow before growth for 2025 was $2.21 billion, exceeding 2024 results by $148 million or 7% year-over-year growth. This year-over-year increase is primarily driven by the strong adjusted EBITDA results, lower interest payments due to the Vivint ring-fence removal and receipt of the remaining insurance proceeds from our WA Parish Unit 8 claims. Turning to Slide 11. We are reaffirming the 2026 financial guidance announced earlier this month, which includes 11 months of earnings from our recently acquired generation assets and CPower. Midpoints for our reaffirmed guidance ranges are as follows: adjusted EBITDA is $5.575 billion, adjusted net income is $1.9 billion, adjusted EPS is $8.90 per share and free cash flow before growth is $3.05 billion. As you can see on the waterfall charts at the bottom portion of the slide, we have made moderate adjustments to the pro forma guidance previously shared on the third quarter call. The updated adjusted EBITDA and free cash flow before growth disclosures now capture improved pricing and capacity values in addition to a pre-closing adjustment for January 2026 financial performance for the LS Power assets. You can find more details on the energy and capacity price assumptions we use in the appendix of this presentation. Moving to Slide 12 for updates to our capital allocation for 2026. Starting at the left of the waterfall and moving right, our total cash for allocation has increased to $3.05 billion. This includes $2.1 billion from the legacy company free cash flow before growth midpoint, together with $950 million representing free cash flow before growth to be contributed by the recently acquired assets from LS Power prorated to 11 months. As part of our ongoing commitment to a strong balance sheet, we expect to execute approximately $1 billion toward debt payments throughout the year. As part of the integration for the acquired assets, we expect to spend $123 million of onetime costs to ensure that the assets are appropriately incorporated into our operating and commercial portfolio. We remain committed to our robust return of capital program and plan to return at least $1.4 billion of capital to shareholders in the form of share repurchases and common dividends. Finally, we are allocating the remaining capital to continued investments in our core portfolio with $310 million allocated toward growth initiatives. This primarily consists of spend for our new generation build in Texas, including Texas Energy fund proceeds and continued investment in our consumer platform. Turning to Slide 13. We are reaffirming our long-term adjusted EPS and FCFbG per share CAGR of 14% plus while also rolling forward the long-term outlook from 2029 to 2030. As described when we first disclosed the acquisition of assets from LS Power, we have a highly visible path to achieving more than 14% growth in our adjusted EPS and free cash flow before growth per share metrics over the next 5 years, underpinned by solid business expansion and disciplined capital allocation. Starting on the left side of the page with adjusted EPS. We moved from the original 2025 midpoint of $7.25 to our 2026 updated midpoint of $8.90. This step-up reflected strong underlying business performance, contributions from the LS Power portfolio and the ongoing benefit of our share repurchase program. Looking ahead, we are forecasting adjusted EPS of greater than $14 per share by 2030, underpinned by existing growth programs in our core business operations and our robust return of capital program. Shifting to the chart on the right, our free cash flow before growth is similarly increasing on a per share basis. Starting with the original 2025 guidance midpoint of $11.20, we have increased the midpoint to $14.50 for 2026. By 2030, we expect a further increase to greater than $22 per share, again, delivering compounded annual growth of more than 14%. The core drivers for this per share increase are similar to those for our EPS growth and reflect the strong cash generation capabilities of our platform and a disciplined capital allocation framework. It is worth highlighting that our long-term outlook holds energy and capacity prices flat through the period. Our energy price assumptions reflect market prices at the end of December 2025, and our PGM capacity price assumptions reflect pricing at the $325 per megawatt day cap for the next 2 capacity auctions to be held in June and December 2026. Most importantly, this long-term outlook does not include any upside from rising power prices, new data center deals or the 1 gigawatt CT to CCGT conversion opportunities we have with the acquired LS portfolio. We have provided more details on the assumptions in our long-term outlook in the appendix of the presentation. We have also provided updated power price sensitivity slides so that you can appropriately model the meaningful gearing our portfolio has to rising power prices. Wrapping up this slide, we believe our long-term outlook represents a derisked and outsized opportunity to enjoy above-market earnings and free cash flow per share growth while with meaningful upside levers. I look forward to updating you on our progress in achieving this long-term outlook on future earnings calls. Finally, on Slide 14, we are refreshing our view of long-term capital allocation. On the left side -- left-hand side of the slide, we have updated our 2026 to 2029 view of capital allocation so that you can have an apples-to-apples comparison. Our current forecast represents an impressive 55% increase in capital available for allocation and a 32% increase in share repurchases from our original guidance in 3Q '24. Furthermore, the current plan allocates 85% of cash available after debt reduction to return of capital compared to 80% in the original plan. Moving to the right side of the slide, we have rolled forward our plan to include 2030 cash available for allocation, bringing the total to $18.3 billion of total capital available through 2030. Including the additional year's earnings for 2030, we are increasing our return of capital program to a total of $13.2 billion, comprised of $11 billion in share repurchases and $2.2 billion of common dividends. This represents an increase of $5.3 billion and $800 million for share repurchases and dividends, respectively, relative to the original plan shown in the far left bar of the chart. Forecasted amounts for growth/unallocated capital for the period increased modestly by $400 million, with most of that increase in the unallocated bucket. The combination of an improved earnings profile and planned debt reduction of $2.9 billion over this 5-year period will ensure that we achieve our targeted credit metric of 3x net debt to EBITDA. Our long-term capital allocation strategy is consistent with our long-stated principles, which prioritize a strong balance sheet and robust return of capital. The significant free cash flow we generate over this period affords a meaningful amount of flexibility to put capital to work accretively. Share repurchases will always remain a strategic component of our annual capital allocation plan. While we've shown much of the capital over the period devoted to share repurchases, we recognize that there may be other very accretive uses of that capital beyond share purchases, particularly the development of power plants supporting data center contracts under contracts -- sorry, data centers under contracts of up to 20 years, and we will evaluate those opportunities with discipline. But rest assured that any and all of those situations will be measured against our stated hurdle rates of 12% to 15% pretax unlevered IRR and the implied return of buying back our stock. In closing, NRG delivered record financial and operational execution through 2025, reflecting the resilience of our platform and the continued momentum across our core businesses. As we look ahead, the 2026 outlook and capital allocation priorities I have outlined highlight the durability of our strategy and our commitment to disciplined growth, prudent liability management and long-term value creation. With the successful close of the assets acquired from LS Power, we have strengthened and expanded our portfolio. Integration is well underway and the addition of these assets into our combined portfolio positions us well for continued growth and execution of our strategic and capital allocation priorities. With that, I'll turn it back to you, Larry. Lawrence Coben: Thank you, Bruce. Let me close with our priorities for 2026. Demand is accelerating, led by data centers. Our priority is to serve that growth under a Bring Your Own Power framework, securing long-term power agreements that support the new generation required to meet it. We will complete T.H. Wharton. We will integrate LS Power. We will continue building our Virtual Power Plant platform. Execution and capital discipline remain our lodestar. We will deliver the financial results embedded in our guidance, return at least $1.4 billion to shareholders, grow the dividend consistent with our framework and maintain balance sheet strength. As I approach the conclusion of my time as CEO, I want to thank all of our 18,000 employees for their incredible work and commitment, our customers for their trust and our shareholders for their support. Over the past 27 months, the NRG team has reshaped the portfolio, strengthened the balance sheet and positioned NRG to compete and keep winning in a changing power market. We entered 2026 strong, disciplined and well prepared for this next phase of growth. I look forward to continuing as an adviser and long-term shareholder and to watching this incredible team build on the foundation in the years ahead. This is only the beginning and the best is yet to come. Thank you all for everything you have done. Operator, we're now ready to open the line for questions. Operator: [Operator Instructions] First question comes from the line of Shar Pourreza with Wells Fargo Securities. Shahriar Pourreza: All right. Larry, big congrats to you and Rob. So terrific transition and best of luck to both of you on your Phase 2. Maybe just starting off on the expectation -- I totally forgot Bruce. Is Bruce still there? The CEOs are doing such a good job. We forget the CFO sometimes. But Bruce, we still love you, I apologize. And congrats on that Phase 1. Maybe just starting off on the expectations now that the LS deal is closed. Larry, can you just expand on commercially contracting the combined portfolio comments you made? I mean, $2.5 billion in EBITDA is sizable. I just want to get a sense on timing and structure, including how we should think about which party would be taking on the gas risk in these deals or risk shared passed on to the counterparties? Just a little bit of a sense on the structures. Lawrence Coben: Yes. Look, so I think a little bit -- obviously, depending on the hyperscalers, but I think we're looking at blocks in excess of 1 gig. I think we're looking at contracts of minimum 10 and frequently 20 years with investment-rated entities that can actually support the kind of credit required to make this happen. We're looking at a significant fixed price component in that. And so I think you can start seeing these things come on. You can do the math. We've given you the margin. We've given you the capacity numbers, so you can kind of figure out when it comes. I think the first tower, assuming we get to the place we need to get, could be on by the end of late '29 and then ratably probably 1 gig a year, maybe more for each year after that. Shahriar Pourreza: Got it. Okay. And then just the fuel risk, Larry, this is a question we get from a lot of investors is who actually takes on the gas risk? Robert Gaudette: So it's Rob. The contract that we're working with and the structure that we're -- the hyperscalers seem to be okay with is a very heavy capacity payment like Larry talked about and then a variable component where it turns into basically a heat rate for the hyperscaler. They take the gas risk. If they want to offload the gas risk, I have a gas platform where I can help them do that. Shahriar Pourreza: Got it. Okay. Perfect. And then just in terms of PJM and the regulatory process, do you guys see FERC PJM directive opening opportunities for energy to bring new generation to that market? Would you focus on the 1 gigawatt of uprates that you noted in the slides? Or is there opportunity beyond that similar to what you're doing in Texas under the TEF? I guess how attractive is that reserve auction? Lawrence Coben: I mean, look, I think it's attractive, Shar, but I think our focus in PJM, at least initially will be the 1 gig of uprates. It's just faster and quicker to market and the demand is there for Texas. If somebody were to come to us and say that they wanted it in PJM, obviously, we have the flexibility to do that. But I think that we would focus in PJM on the 1 gig of uprates and probably the other 5.4 outside of PJM. Shahriar Pourreza: Got it. This is perfect. I appreciate it, guys. And Larry, big congrats. And Rob, just do me a favor as you take the spot, just make sure you continue to work Bruce really hard like Larry did. Operator: The next question comes from the line of Julien Dumoulin-Smith with Jefferies LLC. Julien Dumoulin-Smith: Larry, Rob, congratulations. And Bruce, I swear we will never forget you. But with that said, let me come back to a couple of things, right? So first off, on the capital allocation, the 14% here. Just to break that down a little bit further here, how much latitude do you have in that in as much as you're not reflecting, I don't believe, the CapEx for the data center. I mean, presumably, you could be forgoing buybacks in the near and medium-term sense to invest in a longer-term sense in presumably 2030 and beyond if you start to pivot into the data center. So maybe just talk about the latitude that exists within that commitment through 2030 against the buyback numbers and how you could see that shift as you allocate capital? Again, if I understand it right, the first data center here under your targets with GEV and Kiewit, it would be a 2029 in service anyway. So conceivably, you'd get some of those cash flows on a run rate basis in 2030. But again, obviously, as you continue to scale the strategy, you need to roll forward that target. So Rob, when are you doing an Analyst Day pro forma with all these data centers is really the other way to ask that. But I'll pass it to you guys. Bruce Chung: Julien, just on the buyback question. I mean, I think -- as we think about the variability in that buyback number, it's probably more on the back end as opposed to the front end. The $1 billion that we're sort of thinking about over the next couple of years is probably pretty set in stone, frankly, from our perspective. And we see ample opportunity to be able to fund these projects while still keeping at least $1 billion buyback program in place. So I don't think there's really any risk on that. And then it's really more about how do we think about the cash flows in the out years, particularly after we've delevered and how that can be redeployed in some of these very potentially lucrative projects. Julien Dumoulin-Smith: Any sense on returns, though? Maybe that's the other back-ended way to ask this is like how are you thinking about what the operate and/or new data center counterparty in Texas would look like here? Bruce Chung: Yes. Look, I mean, we've always been very consistent about and transparent about what our hurdle rate is. It's 12% to 15% pretax unlevered. And every project and every dollar devoted to a project is going to be held against that standard. Julien Dumoulin-Smith: Got it. Excellent. I appreciate it. And then just if I can keep going slightly further here. As you think about this rollout of VPP, I mean, just any -- when would you expand that? I mean it seems like you're doing very well against it. I mean I'm curious on how you would think about the economics contributing to the story here. Just in brief, I saw the targets in the longer term. Brad Bentley: Yes. This is Brad speaking. I've been really pleased with our results in Texas. So we continue to scale in Texas. And then we are looking to launch a VPP-like program in the East here early second quarter. That, coupled with our relationships with GoodLeap and Sunrun, we continue to scale batteries up. So we feel really good about what we've learned so far and well ahead of our targets, as Larry had mentioned, and pacing well against the 300-megawatt number we gave you for 2027. Julien Dumoulin-Smith: All right. Fair enough. Still, I'm asking when do we get a robust Analyst Day, but you don't necessarily need to commit today. All right. Lawrence Coben: More to come. Every day with us, Julien, is a robust day. Operator: The next question comes from the line of Nicholas Campanella with Barclays. Nicholas Campanella: Congrats to Larry and Rob here. Lawrence Coben: Before you ask your question, would you also congratulate Bruce, please? Bruce Chung: I'm feeling really hurt these days. Nicholas Campanella: And congrats to Bruce. Look, good questions so far. I just wanted to follow up on Shar's comments and just what's kind of underpinning the $2.5 billion. I think in prior decks, you had this target price for signings above 180 -- above $80 per megawatt hour. Just what are your updated thoughts on where that figure is now and what's really kind of underpinning the $2.5 billion here? Robert Gaudette: It's Rob. So the $80 -- we adjusted our targets from -- to an $80-plus kind of range. And as we've talked about and we've mentioned that if you're going to build 1.2 gigawatts of GEV turbines, that number is going to be on the high end. So as you're thinking about how you get in there, think north of the $90 to $95 range where we were back in our original guidance. It's on the top end. It's got to pay for the equipment. It's got to pay for our return, and we're not going to do a deal unless it does. Nicholas Campanella: That's helpful. And then maybe just understand the share repurchases, if they are going to be affected at all from new build. It sounds like it's more in the back end of the plan. But I guess you have a strategic advantage on cost and securing these turbines early. I assume they're going to be project financed. So just what would your kind of targeted equity contribution be? Would it be in the 20% to 30% range? And maybe that's just one way to understand how that could pressure the buybacks. Bruce Chung: Yes. Nick, from our perspective, project financing comes -- sometimes it can be great. Other times, it can be not so great. And I think in this particular instance, we really see value in simplicity. We see value in transparency. And so I don't think you should assume that project financing is the way that we would go. I think we would probably err on the side of corporate style balance sheet financing. And on that basis, that means you should be thinking about the capitalization for these projects consistent with what our corporate capitalization would be, which is like that 3x leverage level. Operator: The next question comes from the line of Michael Sullivan with Wolfe. Michael Sullivan: I was just hoping maybe we could refresh a little on what the key components of the organic growth beyond 2026. I know you've kind of laid that out in bits and pieces over the last year or so. But can you maybe just frame that up between like the test, the VPP, some of the other things? What are kind of the core drivers? And then how much of it is the buyback? I know that's become smaller as your stock has done well. Bruce Chung: So in terms of the components that are driving the underlying earnings growth for the business, Mike, it's -- first, it's the $750 million growth program that we had announced back in 2023. We are well on the path towards achieving that. We feel very confident that we're going to be able to get there. And if you recall, about half of that was from just regular way organic growth in the Smart Home business, underpinned by like 6% net subscriber growth. And as you saw, we delivered 9% this past year. So the team is executing very well in that regard. And the other half is really from related growth investments in both the C&I business and the retail energy business. So again, we feel very confident about that $750 million. The other levers that are embedded in the plan right now are all 3 test plants. Remember, in the past, we did not have all 3 test plants in the plan, but we now have those, the last of which comes online in 2028. And then finally, we have the 400 change of megawatts of the smaller data center deals that we had previously announced also embedded in the plan. If you think about what that means in terms of how that shapes our growth in that 14% plus, we talked about when we announced the LS transaction that it was about an 80-20 split of organic growth versus share repurchases driving that growth rate, and it's pretty much the same as we sit here today. Michael Sullivan: Okay. That's very helpful. I appreciate you laying that out, Bruce. And then just in terms of the upgrade opportunities at the LS assets in PJM, any sense of timing there just in terms of what you're going to do, particularly with the RBA going on in the background, but also the value of kind of speed and what you could do there? Just a sense of timing would be great. Robert Gaudette: Thanks, Sully, it's Rob. So we already have engineers at every plant running around and assessing not just the 1,000 megawatts of uprates that we mentioned when we did the transaction. We're obviously looking at that, but we're also running around, given the RBA and the need for additionality or bringing more power to the markets, we're running around to see if there's 25 or 50-megawatt clips that we can add on to the back of other assets. So we're out there looking. I expect to hear from us later when we actually have some math. But given the timing of the RBA and kind of how that plays out, we're working very hard to know what we can bring to serve that market and serve our customers. And data centers want to get built up there, too. So we'll be looking for opportunities to monetize that through hyperscalers. Operator: Next question comes from the line of Nick Amicucci with Evercore ISI. Nicholas Amicucci: Larry, Rob, you guys [indiscernible]. So I'll just keep it with Bruce. Bruce, congratulations on... Lawrence Coben: Thanks, Nick. You're now his new favorite. Nicholas Amicucci: Absolutely. I got all the time in the world for you. All right. Perfect. That's what I was going for. I got 3 quarters worth of questions I got to asked. So just kind of considering -- I mean, it's another kind of strong French strong guidance. You've now kind of beaten and raised 3 straight times. Just anything that we could kind of pinpoint like really what's gone well? What kind of exceeded the expectations just over the past -- the recent past? Bruce Chung: I mean with a slight amount of humility, Nick, I'll say it's just we have a great team, and we have great employees, and we just execute really well. I mean that's really what it boils down to is just execution, execution, execution. We took our lumps in years past. We learned a lot from those. We made a lot of significant operational changes. And that is really what's bearing fruit for us. I mean bear in mind, too, that when we budget and we put out guidance, we plan for weather normalized. And depending on what happens with weather, that can also influence the results. And for us, we've had situations where the weather has been favorable for us, and we've been able to take advantage of that. Lawrence Coben: Nick, I would only add to that, we've created a culture where our employees are always looking to improve, bringing improvements to the table and sharing them in ways probably we've never done before. We are really 1 NRG across all of our businesses and that kind of collaboration, just we keep finding new ways to do everything we do better and more profitably. Nicholas Amicucci: Great. That makes a ton of sense. And then I just wanted to kind of triangulate a little bit, too. So just with the VPP opportunity and now having kind of the RTC+B initiative in ERCOT in Texas kind of up and running now for about 2 to 3 months. I mean, is there incremental kind of upside for you guys in particularly just given the amount of data points, whether it be through Vivint or just incremental kind of touch points and able to arbitrage that. Is there kind of -- should we be viewing that as kind of an incremental type of opportunity for you guys? Lawrence Coben: Yes. I mean it's early days, but we look at this as an enormous opportunity and one that nobody is as well positioned to capture as we are. And when I said at the end of my remarks that the best is yet to come. That's one of the things I think is yet to come. But I think it's an extraordinary opportunity that we're just really beginning to quantify and understand. Operator: The next question comes from Bill Appicelli with UBS. William Appicelli: Congrats to everybody in the room. Just a question around how you guys are evaluating the creditworthiness of the counterparties on some of these data center deals. Are you guys exclusively targeting Tier 1 hyperscalers? Or how are you thinking about evaluating that risk? Robert Gaudette: Yes. We are -- in fact, I would say that we're targeting even inside of the universe of hyperscalers. We watch all the same credit reports you do. William Appicelli: Okay. And then I guess on the retail channel, you guys -- you've rolled in the 400 change of megawatts. I think you talked about maybe potentially an incremental 500 megawatts within that channel. Is that still an opportunity for you? Lawrence Coben: Yes. Look, I think we will still see some of those -- I hate to think of 445 megawatts as smaller transactions, but they're smaller than the other ones we've been discussing. And those are ones that won't be targeted to the folks we were just discussing. So yes, we still think that's a great channel that we'll continue to pursue, and you'll hear more about those going forward. But that's -- those are -- we're trying to distinguish for these purposes between the large gig plus hyperscaler deals and the smaller ones of the type that we've already -- we announced during the year. William Appicelli: Okay. And then just one last one. On the $2.2 billion of growth in unallocated through 2030, can you maybe just unpack a little bit of how much of that is actually unallocated? And so we could just maybe understand a little bit of -- on the back end of this plan, when you start to announce some of these contracts, how much of that is available to be allocated towards servicing the data center projects versus maybe having to pull in from some of the share repurchase bucket? Bruce Chung: I wouldn't necessarily -- I'd say if you think about the $2.2 billion, a good chunk of that is devoted to the growth plans that we have, the organic growth plans over the years. I wouldn't necessarily look at that bucket as a significant lever towards being able to contribute to the funding of these data center projects. At the end of the day, it's not like massive dollars that would be able to be redeployed anyway. So I don't think you should be thinking about it that way. Operator: The question comes from the line of Angie Storozynski with Seaport. Agnieszka Storozynski: So my main question is about your upcoming gas-fired new build. I think I'm still recovering from the PTSD associated with gas-fired new build from the early 2000s and the assumptions that were made back then. I mean, I understand that your contracts will be mainly driven by capacity payments, but I still have only about a 10- to 15-year contract for an asset that has a 40-year useful life. And I'm sure you run the same math that I did. It's not actually so obvious to see that double-digit return over the life of the assets, again, given the short duration of the contract. So how do you address this risk as you embark on the gas-fired new build? Lawrence Coben: I think there's a few things, Angie. One is length of contract. I think we're looking probably past 10. But if you're looking at the pricing that we're getting and the costs that we're paying, we are not going to do anything that doesn't meet our unlevered hurdle rate that we've announced full stop. I promise you that. And Rob promises to you that and Bruce promises you that. I'm going to promise for everybody else in the room. But I mean, Angie, I live through that same period that you did. We have 0 interest in being in the speculative new capacity build business, 0 interest. And so the math -- we work on the math all the time and people who want power at cost less than that, maybe they'll get it from somebody else, but they won't be getting it from us. Agnieszka Storozynski: Okay. And those prices that you guys quote for those future contracts, do they incorporate payments for the site? So for example, that $90 -- whatever, $95-plus number that Rob is referring to, does it incorporate a site lease? Or is there an incremental payment, for example, for the land itself on top of that? So is $95 just energy or capacity -- energy and capacity? Robert Gaudette: $95 is -- so Angie, it's Rob. $95 is a representation of the bottom end of what the total value looks like from a capacity and variable component. Remember, this is going to be very, very, very heavy capacity. So it doesn't really translate into a dollar per megawatt hour basis. For each of these transactions that we've looked at, the ones that are on our sites also involve a land transaction, which is not incorporated in the number, right? So the way to think about these is that we are going to get our return and our capital back inside of that 20-year contract as we -- that's how we structure it. That's how we think about it, and that's what we're requiring because we're one of the few people who've got 9 turbines that people can go put on the ground and put next their data center, provide affordability and stay out of regulatory hot water. Agnieszka Storozynski: Okay. Understood. And then just the last one, the $2.5 billion of an EBITDA upside that you're showing me, does that directly correspond with that 5.4 gigs in gas-fired new build plus the 1 gigawatt of uprates? Or is there something else included in that $2.5 billion of EBITDA? Lawrence Coben: No, it's exactly what you said, Angie. It's roughly 6 gigs. Operator: The next question comes from the line of Carly Davenport with Goldman Sachs. Carly Davenport: You highlighted in the slides several hundred megawatts of bridge power available beginning in 2028. Can you just talk a little bit about that opportunity in terms of maybe key suppliers, what technologies you're looking at and just how you view the duration of that opportunity? Robert Gaudette: Sure. So you know as well as I do that Bridge Power that works is a limited resource out there today. I'm not going to go through names, but I can tell you the technology that we look at as most successful is overengineered reciprocating engines. There's a lot of need for spinning steel on systems. And what Bridge Power does is gives an opportunity for a hyperscaler to scale up their capacity as the CCGT is being built so that they could get on the ground earlier. And I've mentioned before, but when you think of the hyperscalers that we speak to, their desire for Bridge Power ranges. Some people want it, some people don't. And it's all a matter of where they fit kind of in their data center build plan and how fast they need generation on the ground. So we have agreements with Bridge Power providers. So we have that limited resource that we can offer as part of a package to hyperscalers. And like I said, Carly, some of them -- some of our hyperscaler clients want it. Some of them are going down a path where their portfolio will just absorb the CCGTs when they come on. So it ranges, but it's a good piece of equipment to have to solve the solution for our customers. Carly Davenport: Got it. Okay. That's really helpful. And then I think you also noted a new battery storage contract in ERCOT. Just 1 gigawatt, I think, expected to be online at the end of this year. Can you maybe just talk a bit about that opportunity and how you could see the battery portion sort of scaling over time? Robert Gaudette: Sure. So it's a series of contracts that make up over 1 gig batteries in Texas, they're PPAs, right? So it's -- or tolls, sorry, so that we have them in our portfolio, we can use them in the portfolio and use it as part of how we serve our retail customers here in Texas. As we use those and as we operate them, that will help define what our strategy is over the long haul. Batteries provide short-term burst of power if you need it. It also provides ways for us to shift renewable power between hours. And so as the customer demand changes or it goes up, we'll look to scale that portfolio if it makes sense. Operator: The next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: I think I'll take a different approach. I'm going to say congrats to Brendan and the IR team. Congrats to everybody. Just a couple of follow-ups. You covered a lot of ground today, but one is you talked pretty positively about the outlook for ERCOT and opportunities for your gigawatts finding homes there. How are you thinking about the batching proposal? Do you worry that might slow things down? Or I think you've had some pretty positive comments there, but how do you see that impacting the pace of signing contracts in ERCOT? Robert Gaudette: I think the batching work that ERCOT is doing is perfect for the market. It is a great step forward to accelerate the process for people to get data centers and large loads interconnected to the grid. It's actually a very thoughtful approach, and we're very happy that the PUC and ERCOT are making it happen in that way. It makes a lot more sense than a serial process that just stacks up forever. This is a very good thing for us and all of our customers as well as those who want to serve them. Andrew Weisel: Accelerate, did you say? Robert Gaudette: I'm sorry? Andrew Weisel: Did you say... Robert Gaudette: Versus serial processes of do loops and like reevaluating every time somebody puts something in, yes, this will accelerate it versus that. Andrew Weisel: Okay. Great. And then one more. Just to be really explicit, the guidance, you talked about you're targeting 1 gigawatt of an announcement for 2026. Is your goal to announce the gigawatt, but the financial impact would be upside? Or does the guidance include that gigawatt but not incremental projects? I just want to specify that. Lawrence Coben: First of all, it's at least or a minimum of 1 gigawatt. I want to make that really clear. And that gigawatt or more than gigawatt is not included in the guidance or in the roll-forward outlook. Operator: The final question will come from the line of David Arcaro with Morgan Stanley. David Arcaro: Congratulations, Larry, Rob and Bruce. Let me see. Just one question for me. I was just wondering, in the PJM market, how has activity in PJM been impacted by the whole backstop auction process and the general policy uncertainty that we've had over the last several months. Has that changed the pace of conversations with data centers and contracting opportunities just given the policy that's in flux there? Lawrence Coben: There's a lot of conversations. I mean we've -- it's always -- as we've been talking about for a while, was going to be slower than Texas. It's still going to be slower than Texas. They're making progress going forward. But when you're looking at a 20-year investment, there's a lot to put in place anyway. So I think while we'd all like it to be somewhat faster, it's still progress is being made. It's just faster outside of PJM at this moment. Operator: This concludes the question-and-answer session. I would now like to turn it back to Larry Coben for closing remarks. Lawrence Coben: I want to thank you all again for all of your support. When I arrived, you came on these calls with an open mind and we're willing to kind of look at NRG freshly. We made you a lot of promises that we kept, and we really appreciate the challenges that you gave us, the feedback that you gave us and the support that you've given us over this last time. And I do mean it when I say the best is yet to come. So thank you all very, very much. Operator: Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program.
Operator: Good day, and welcome to the Addus HomeCare's Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead. Dru Anderson: Thank you. Good morning, and welcome to the Addus HomeCare Corporation Fourth Quarter and 2025 Earnings Conference Call. Today's call is being recorded. To the extent of any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP by going to the company's website and reviewing yesterday's news release. This conference call may also contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and including statements, among others, regarding Addus' expected quarterly and annual financial performance for 2026 or beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing discussions of forecasts, estimates, targets, plans, beliefs, expectations and the like are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by important factors, among others, set forth in Addus' filings with the Securities and Exchange Commission and in its fourth quarter 2025 news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. I would now like to turn the call over to the company's Chairman and Chief Executive Officer, Mr. Dirk Allison. Please go ahead, sir. R. Allison: Thank you, Dru. Good morning, and welcome to our 2025 fourth quarter earnings call. With me today are Brian Poff, our Chief Financial Officer; and Heather Dixon, our President and Chief Operating Officer. As we do on each of our quarterly earnings call, I'll begin with a few overall comments, and then Brian will discuss the fourth quarter results in more detail. Following our comments, the 3 of us would be happy to respond to any questions. As we announced yesterday afternoon, our total revenue for the fourth quarter of 2025 was $373.1 million an increase of 25.6% as compared to $297.1 million for the fourth quarter of 2024. This revenue growth resulted in adjusted earnings per share of $1.77 as compared to adjusted earnings per share for the fourth quarter of 2024 of $1.38 and an increase of 28.3%. Our adjusted EBITDA was $50.3 million compared to $37.8 million for the fourth quarter of 2024, an increase of 33.3%. For 2025, our total revenue was approximately $1.4 billion, which is an increase of 23.2% as compared to approximately $1.1 billion for 2024. This revenue growth resulted in adjusted earnings per share of $6.23 as compared to adjusted earnings per share for 2024 of $5.26, an increase of 18.4%. Our adjusted EBITDA for 2025 was $180 million as compared to $140.3 million for 2024 an increase of 28.3%. For the fourth quarter of 2025, cash flow from operations was $18.8 million as of December 31, 2025, and we had cash on hand of approximately $81.6 million. We ended the fourth quarter with bank debt of $124.3 million, leaving us with a net leverage of under 1x adjusted EBITDA, allowing us flexibility, we continue to evaluate and pursue acquisition opportunities that meet our ongoing strategy of creating geographic density and scale while focusing on the full continuum of home care. As we mentioned on our last earnings call, both the states of Texas and Illinois have recently increased our rates in personal care services. The Texas rate increase was effective on September 1, 2025. The Illinois rate increase went into effect on January 1, 2026, and will be reflected in our 2026 first quarter results. While there are potential future changes to Medicaid due to OB3, we believe that our value proposition for personal care services is recognized by the states where we operate. We believe that we can be a cost-effective partner to both our states and managed Medicaid payers as they look for potential savings as home-based care is substantially less costly than facility-based care. We will continue our legislative efforts in states where we operate to emphasize the benefits generated by their continuing support of these services. As we've stated before, we continue to believe that the 80/20 provision of the Medicaid access rule will be eliminated in the near future. While implementation is still several years away and has no current impact on our business or financial performance, we believe this outcome would be a significant and encouraging development for the industry and our company. During the fourth quarter of 2025, we continue to experience positive current trends in our Personal Care segment. While the holiday is typically slow our hiring, we are still able to achieve 101 hires per business day during the fourth quarter. As we began 2026, our hiring numbers for the first 2 weeks of January increased to 107 hires per business day. However, we saw a slight slowdown in hiring due to severe weather in certain of our markets over the last couple of weeks of January. We have seen hiring rebound in February as the winter storms have dissipated. As we have mentioned in the last few quarters, our clinical hiring remains consistent and has been mostly stable outside of a few more challenging urban markets. Now let me discuss our same-store revenue growth for the fourth quarter of 2025. As a reminder, these calculations exclude our Gentiva acquisition as they were not part of our business for the entire fourth quarter in 2024. For our Personal Care segment, our same-store revenue growth was 6.3% compared to the fourth quarter of 2024. During the fourth quarter of 2025, we saw personal care same-store hours increase by 2.4% compared to the same period in 2024, while our percentage of authorized hours served in the fourth quarter remained consistent with what we experienced in the third quarter of 2025. On a sequential basis, personal care same-store billable census was down slightly, although we continue to see census growth in the majority of our key states. This should positively impact our billable census during 2026. During the fourth quarter, our personal care same-store growth was more evenly divided between volume and rate as we have been expecting. Turning to our clinical operations. Our hospice same-store revenue increased 16% compared to the fourth quarter of 2024. Our average daily census increased to 3,885 for the fourth quarter, up from 3,472 for the same period last year, an increase of 11.9%. For the fourth quarter of 2025, our hospice median length of stay, inclusive of our Illinois JourneyCare operation was 25 days as compared to 22 days for the third quarter, again, including JourneyCare. We are very pleased by the continued growth in our Hospice segment over the past several quarters as a result of operational improvements. While our home health same-store revenue decreased 7.4% when compared to the same quarter of 2024, it is important to point out that over 25% of our hospice admissions in New Mexico and Tennessee are currently coming from our Addus HomeCare operations, which overlap in these 2 markets. We are pleased to see more patients receiving the benefit of the full continuum of post-acute care and anticipate seeing similar clinical collaboration and support develop in Illinois, where we also have both home health and hospice operations. Our development team continues to focus on both clinical and non-clinical acquisition opportunities, which would increase both density and geographic coverage. We will continue our disciplined approach to identify strategic personal care service transactions as well as to evaluate smaller clinical transactions. That said, while there is more optimism around home health care due to the final health rule for 2026 being more favorable than was originally proposed, questions remain about potential future rate increases and the uncertainty of the retrospective payment adjustments. Before I turn the call over to Brian, I want to thank the Addus team for the care they are providing our elderly and disabled consumers and patients. We all have come to understand that the overwhelming majority of this population refers to receive care at home, which remains one of the safest and most cost-effective places to receive this care. We believe the heightened awareness of the value of home-based care is favorable for our industry and will continue to be a growth opportunity for our company. We understand and appreciate that our operations and growth are dependent on both our dedicated caregivers and other employees who work so incredibly hard providing outstanding care and support to our clients, patients and their families. With that, let me turn the call over to Brian. Brian Poff: Thank you, Dirk, and good morning to everyone. The fourth quarter of 2025 marked a strong finish to another year of growth and progress for Addus. Our results for the year reflect the continuing execution of our strategy, which allows us to both deliver consistent organic growth and realize the benefit of our recent acquisitions. Our results were highlighted by 25.6% top line revenue growth and a 33.3% increase in adjusted EBITDA compared with the fourth quarter last year. Our Personal Care Services segment was the primary driver of our business with a solid 6.3% organic revenue growth rate over the same period last year, above our normal expected range of 3% to 5%. Our results were supported by stable hiring trends and favorable rate support for personal care services in some of our larger markets, including a 9.9% rate increase in Texas that was effective September 1, 2025. The State of Illinois, which represents our largest personal care market, had previously approved a 3.9% increase that became effective January 1, 2026, and is expected to add approximately $17.5 million in annualized revenue for Addus with margins consistent in the low 20% range. Our Personal Care results include the Gentiva Personal Care operations, our largest acquisition to date, which we completed on December 2, 2024. The results also include Great Lakes Home Care acquired on March 1, 2025, Helping Hands Home Care Services acquired on August 1, 2025, and the personal care operations of Del Cielo Home Care acquired on October 1, 2025. Additionally, during the fourth quarter, we had a benefit of approximately $1.9 million related to accounts receivable settlements from our previously divested New York operations. This was reflected as a positive revenue adjustment and has been excluded from our adjusted results and same-store metrics. We continue to see solid performance in our hospice business, which accounted for 18.9% of our revenue for the fourth quarter. The operational improvements we have made over the past year resulted in solid 16% year-over-year organic revenue growth, supported by increases in admissions, average daily census and revenue per patient day. We also benefited from an approximate 3.1% increase in the 2026 Medicare hospice reimbursement rate that became effective October 1, 2025. Our Home Health services represent our smallest segment, accounting for 4.6% of fourth quarter revenue. We continue to look for ways to support and expand this service line, including via acquisitions as we believe there are synergy opportunities associated with offering all 3 levels of home-based care in the markets we serve. In addition to the consistent organic growth achieved in 2025, we have also benefited from our recent acquisitions. Last year was the first full year to include the acquired personal care operations of Gentiva, which we completed in December 2024, adding approximately $280 million in annualized revenues and significantly expanding our market coverage. In 2025, we completed 3 other acquisitions, the operations of Great Lakes Home Care in Michigan on March 1, Helping Hands Home Care Service in Pennsylvania on August 1 and the personal care operations of Del Cielo Home Care Services in Texas on October 1. We will continue to source and evaluate additional similar acquisitions that are strategic for Addus. Our primary focus will be on markets where we can leverage our strong personal care network as we believe having geographic coverage and density provides us with a competitive advantage. We will also look for opportunities to add clinical services in pursuit of our goal of offering the full continuum of home-based care in the markets we serve. With our size and expanding scale and the support of a strong balance sheet, we are well positioned to execute our acquisition strategy. As Dirk noted, total net service revenues for the fourth quarter were $373.1 million or $371.2 million, excluding the impact of the New York accounts receivable settlements. The revenue breakdown, excluding the New York impact is as follows: Personal Care revenues were $284.1 million or 76.5% of revenue. Hospice care revenues were $70 million or 18.9% of revenue and home health revenues were $17.1 million or 4.6% of revenue. Sequentially from the fourth quarter of 2025 revenue of $371.2 million, excluding the New York impact, we expect the first quarter of 2026 to benefit from the Illinois rate increase, offset by 2 fewer business days in personal care and some seasonal impact from the winter storms we experienced in certain markets. Other financial results for the fourth quarter of 2025 include the following: excluding the impact of the New York accounts receivable settlements, our gross margin percentage was 32.8% compared with 33.4% for the fourth quarter of 2024, primarily driven by a higher mix of personal care services from the Gentiva acquisition. As expected, we saw a positive impact sequentially from the third quarter of 2025 from the Medicare hospice rate increase and lower unemployment taxes. Looking ahead to the first quarter of 2026, we expect normal seasonality in our gross margin percentage with a negative impact from our annual merit increases and the normal annual reset of payroll taxes. Cumulatively, we expect these items to contribute a decline sequentially in gross margin percentage of approximately 120 basis points compared to the fourth quarter of 2025. G&A expense was 20.7% of revenue compared with 24% of revenue for the fourth quarter a year ago, primarily due to lower acquisition expenses as well as incremental leverage from our higher revenue base. Adjusted G&A expense for the fourth quarter was 19.1%, a decrease from 20.5% in the comparable prior year quarter and lower sequentially from 19.8% in the third quarter of 2025. The company's adjusted EBITDA increased 33.3% to $50.3 million compared with $37.8 million a year ago. Adjusted EBITDA margin was 13.6% compared with 12.9% for the fourth quarter of 2024 and higher sequentially from 12.5% in the third quarter of 2025. Adjusted net income per diluted share was $1.77 compared with $1.38 for the fourth quarter of 2024. The adjusted per share results for the fourth quarter of 2025 exclude the following: the impact of New York accounts receivable settlements of $0.07, acquisition expenses of $0.05 and non-cash stock-based compensation expense of $0.18. The adjusted per share results for the fourth quarter of 2024 exclude the following: gain on sale of assets related to the New York divestiture of $0.15, impact of lease impairment of $0.20, impact of the retroactive New York rate increase of $0.14, acquisition expenses of $0.29 and non-cash stock-based compensation expense of $0.11. Our tax rate for the fourth quarter of 2025 was 25.8%, within our expected range. For calendar 2026, we expect our tax rate to remain in the mid-20% range. DSO was 38.2 days at the end of the fourth quarter of 2025 compared with 35 days at the end of the third quarter of 2025. We have continued to experience consistent cash collections from the majority of our payers. Our DSO for the Illinois Department of Aging for the fourth quarter increased to 54.7 days compared with 32.5 days at the end of the third quarter of 2025 as we saw some expected timing differences in payment cycles. In the first quarter of 2026, we have seen our DSO in Illinois return to a level more consistent with what we experienced for the majority of 2025. Our net cash flow from operations was $18.8 million for the fourth quarter of 2025 and $111.5 million for 2025, with some negative working capital impact in the fourth quarter, primarily from the increase in Illinois DSO. During the fourth quarter of 2025, we did receive approximately $7.2 million in Phase 3 ARPA funding from New Mexico, with an additional $5.8 million received from the state in the first quarter of 2026 for a total of $13 million. We anticipate these to be the last scheduled disbursements from New Mexico, which will leave us with approximately $17.5 million in funds remaining to be utilized. As of December 31, 2025, the company had cash of $81.6 million with capacity and availability under our revolving credit facility of $650 million and $517.7 million, respectively. Total bank debt was $124.3 million at the end of the quarter, a reduction of $30 million from the end of the third quarter. During 2025, we were able to reduce our revolver balance by $98.7 million as we continue to experience consistent cash flow. We have a capital structure that supports our ability to continue to invest in our business and pursue our strategic growth initiatives, including acquisitions. Looking ahead, we will selectively pursue acquisitions in 2026 that complement our organic growth and align with our strategy. At the same time, we will maintain our disciplined capital allocation strategy and continue to diligently manage our net leverage ratio through ongoing debt reduction. This concludes our prepared comments this morning, and thank you for being with us. I'll now ask the operator to please open the line for your questions. Operator: [Operator Instructions] The first question today comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Just a quick question on the rate backdrop. I appreciate all your commentary about state receptivity to the PC setting amid the OBBBA headwinds. But outside of Texas and Illinois, can you give a little bit of context of how your rate conversations are going? I'm thinking particularly in states like New Mexico and Tennessee. Brian Poff: Ben, this is Brian. Yes, I think it's still a little early in the year, but some of the legislative sessions that have already started for states that have mid-year fiscals, we've gotten some information. I think probably the key one there being New Mexico, our understanding is there is what we estimate to be probably between a 4% and 5% rate increase has been passed through the legislature, was waiting for the governor's signature. We don't have any reason to believe that it won't be signed, but that we would anticipate that to benefit us in the back half of this year. So I think we had mentioned last year, New Mexico was a state that had considered one, kind of held PAT with OB3 and kind of some of the noise there, but we were hopeful that they would readdress that this year. So nice to see that it looks like that may actually come through. Outside of that, I think nothing else really to report on a lot of other states. I know in Illinois, Governor Pritzker has kind of put out his initial view on the budget, currently does not have a rate increase in there for us for next year, but would point out that's consistent with where he started last year, and we did get something toward the end, not to say that we will necessarily this year, but something that we'll continue to watch as the legislative session goes through their process. But that's probably the 2 that I would flag out for the moment. Operator: The next question comes from Brian Tanquilut with Jefferies. Brian Tanquilut: Congrats on the quarter and the year. Maybe, Brian, just to follow up on Ben's question on New Mexico. How do we think about the pass-through there in terms of margin flow-through? I know New Mexico, I think, if I'm not mistaken, is -- doesn't have a mandatory pass-through rule. So just curious how you're thinking about that. Brian Poff: Yes. There is a mandatory pass-through rule. It's not similar to like an Illinois or Texas where it's formulaic. So I think we're probably still in the early stages of making some decisions on what and where we'll pass through some of that to caregivers in the form of salaries and additional wages. So probably still early that our team is continuing to assess, but fair to say there will be some portion of that definitely will be passed through to caregivers. Brian Tanquilut: Okay. That makes sense. And then maybe as we talk about caregivers, just curious what you're seeing on the labor market. Obviously, things are different today versus a year ago. So just curious what recruiting looks like and retention for your caregivers. Heather Dixon: Brian, it's Heather. I'll take that question. Dirk mentioned that our hires per day for Q4 were right at 101. And that's typically what we would expect to see from Q3 to Q4 as we move and see the effects of seasonality because November, December, the holidays impact some of our hiring activities. Dirk mentioned also that in January, we had a strong start to the month as we would expect after we come back from that holiday period, but then some slower volumes for hiring towards the back half of the month when we saw some geographies that were impacted by the weather that passed through the country. But then so far in February, we are seeing strong hiring trends, and we would expect to finish the month in a really good position for hiring overall. We're not -- to your question about are we seeing any impacts or difficulties hiring, we are not seeing anything to point out. We continue to see stability. The numbers point to that, but also just in our hiring efforts in the markets. We always have small pockets here and there, usually in more densely populated urban areas, not all of them, but a couple of them. And those are usually related to specific jobs on the clinical side, but nothing really to call out. We're seeing consistency. We're seeing good progress on the hiring front there. Operator: The next question comes from A.J. Rice with UBS. Albert Rice: Just first of all, part of the long-term growth algorithm for Addus has been tuck-in deals. And we had a little bit of a slowdown in the back half of last year. I wonder if you could comment a little further on what you're seeing in the pipeline, prospects for transactions, tuck-ins or even bigger transactions, where you're seeing opportunities? Brian Poff: A.J., I think where we sit today kind of early this year, we've heard from a lot of folks that I think are optimistic there's going to be more opportunities this year. I think we've said before, we've heard that before as well. But I think where we sit today is probably looking at more things in our pipeline that are comparable to the deals that we closed last year. So probably more -- mostly in markets that we're in today, maybe some adjacencies to create density. I think our understanding is, and we've alluded to this, I think, on some prior calls, there are some potential larger personal care assets that we think will be coming to market and would be available. Right now, I think our estimate is those are probably midyear or towards the back half of the year based on the timing that we're hearing. So obviously, we'll be looking at those. But I think in the interim, we'll still continue to be focused on the type of deals that we did in 2025. We'd love to have a little more of a cadence on those. Our guys are out working really hard to try to find deals that make sense for us in the right spaces. But hopefully, we're able to be successful in that. Albert Rice: Okay. And then I just wanted to ask you about the adult home care business. Obviously, the industry was geared up that it might have to absorb a 6.5% hit. It ended up getting phased or rolled back significantly to 1.5%. I wonder -- that may be immaterial to you guys, but I wondered if that was a little bit of a tailwind you could look forward to in '26 that you geared up for a much more significant cut that didn't materialize. And then the other thing I wanted to ask you about with that was it does seem like some of the players in the space are seeing whatever CMS is trying to say in that final rule as incremental clarity that allows them to go out and start to look at acquisitions in that area. Obviously, we saw the Enhabit go-private transaction announced yesterday. I just wanted to put a finer point on it. Are you guys now open to being a little more actively there? It sounds like in your prepared remarks, you're still somewhat cautious. R. Allison: A.J., I appreciate the question. This is Dirk. Listen, we've always been a little bit cautious as we look at acquisitions out there. We want to make sure that they meet our strategy and that we do so thoughtfully as far as the valuation of what we're able to pay. That being said, look, we're encouraged by the final rule that came out. That's kind of interesting to say when it was still a rate reduction, but it was positive movement, and I think it was due to a lot of very strong work by both companies in the industry as they worked with the federal government to try to prove that there is real value to home health care services. And so we agree with that. We support that theory. We will continue to look at opportunities in home health. And if the larger transaction comes up that we think can make sense for us as far as valuation strategy where it fits geographically, we will certainly look at that. But again, there's still a couple of things out there we would like to see them finalize. And hopefully, maybe they'll give a little more clarity this coming year on some potential clawback. Operator: The next question comes from Andrew Mok with Barclays. Andrew Mok: Same-store billable census was down 1.1% year-over-year, and you mentioned that it was down slightly sequentially. But I think you also said that you're seeing growth in a majority of your key states. So can you help us understand that dynamic and provide more detail on the geographies and items that are weighing on the portfolio? Heather Dixon: Andrew, I'll take that question. Yes, I'll give some color on what we're seeing in terms of volume and census. We've mentioned that same-store hours increased 2.4% and were roughly in line with Q3 as well. And during 2025, we've mentioned before that we had a focus on serving to authorized hours as well as census. And we've seen some positive movement in terms of the service percentage year-over-year. Again, it was essentially flat on a sequential basis just as a result of normal seasonality that we would expect. But then as we think about census growth, we have seen some trajectory that we like that we're seeing. We've seen sequential census growth. We've been focused on that for 2025, and we have seen that each quarter during 2025 until a slight tick down in Q4, again, from the holidays as we would have expected. We're closing that census gap on a same-store basis. And as we move into the second half of 2026, I would expect that we would start to see positive year-over-year growth, particularly as we continue to consistently see admissions and starts of care outpacing discharges. Andrew Mok: Great. And just as a follow-up, there's been heightened attention recently on fraud, waste and abuse in the personal care space. Can you talk about how states are approaching this issue and what steps you're taking to ensure that you're aligned with the evolving policy and guidelines? R. Allison: Yes, Andrew, one of the things that we, as a management team, tried to do 10 years ago now, almost 11 years ago, when we came into Addus at that time, we wanted to really have a very strong compliance program. And so we spent a lot of dollars building this program up. We have a leader there who's very familiar with the various aspects that goes on in both the clinical side and the non-clinical side as it relates to various audits by the state and the federal government. So for us, when people talk about fraud and abuse, we understand that, that does occur in all levels of care in which we operate. I think the important thing for you to understand is we are -- we like the fact that there is a focus on fraud and abuse because we believe we spend extra dollars and extra time and make sure we're trying to comply with what is out there and not -- some of the smaller players may not have that ability to make those investments. So for us, as people look as states look at fraud and abuse, it may give us the opportunity to grow our business as maybe some of the smaller mom-and-pops realize that there are things they need to do that maybe they can't afford to do and they look and get out of the business. So for us, we're pleased with the focus on fraud and abuse, and we will continue internally to always focus on making sure that we're as compliant as we can be. Operator: The next question comes from Matthew Gillmor with KeyBanc. Matthew Gillmor: You all have done a good job driving penetration of authorized hours, particularly in Illinois you've rolled out the caregiver app. I was curious how the rollout has gone in New Mexico, just where that stands? And can you help us think through the sort of future opportunity in terms of driving greater penetration of authorized hours as you roll out to New Mexico and other states? Heather Dixon: Sure. Matthew, it's nice to hear from you. I'll address that. So you are correct that we are seeing some very nice momentum in terms of service percentage that I just talked about. We are seeing that momentum in Illinois specifically, where we've had the caregiver app rolled out for the entire year of 2025. We have seen that service percentage rate up in the upper 80th percentile consistently. And we believe that is in large amount due to the app that we rolled out. We've also seen utilization by the caregivers in that market of flex hours on a pretty steady basis, which is also very encouraging. As you mentioned, we did begin to roll that out in 2025 to New Mexico, and we're making steady progress there. We are also beginning to deploy in Texas here imminently in Q1, and we are aiming to have that complete in Texas by the end of Q2 or early into Q3. And we believe that our greater opportunity to capture some momentum will be in that Texas market just due to some of the market dynamics and how some of the EVV is submitted in Texas versus in others -- in New Mexico or in Illinois. So we are pleased with what we're seeing, and we are still carrying that momentum forward to continue to roll it out. Matthew Gillmor: That's great. And then as a follow-up, I was curious, this may be a Brian question. But as we think about Gentiva rolling into the same-store base, will that be sort of additive to the same-store growth? You [ reported ] Gentiva growing sort of in line to below sort of the corporate average? Just wanted to get a sense for how -- when Gentiva rolls into the same-store base that influence your same-store growth metric. Brian Poff: Yes, Matt, I think it's fair to say Gentiva probably is following a fairly similar path to the remainder of our business. So not probably expecting material uptick or downtick from putting Gentiva in that number. It should be fairly consistent in our view. Operator: The next question comes from Jared Haase with William Blair. Jared Haase: Maybe just to unpack the comments on the personal care labor side a little bit more. I'm curious how much of the strong hiring trends that you've experienced over the last couple of months would you attribute to, I guess, things Addus can control. So thinking, obviously, just having a good caregiver experience, maybe some improvement around the onboarding process to get caregivers matched up with patients efficiently as opposed to maybe just broader macro trends that might be bringing incremental caregivers into the market? Heather Dixon: Sure, I'll take that. It's definitely a mix of both. I think maybe starting in reverse order from a macro perspective, we're certainly seeing some trends that are working in our favor that are helping with our results from a hiring perspective. But from our perspective, we are absolutely focused on what we can control, and that includes sort of from beginning to end of the process with how we source and recruit caregivers all the way through to how we can ensure that they are getting a schedule and are ready to go very quickly after they have been through the hiring and training process to make sure that we capture that momentum. So all of the things in between as well. But I would say it's a mix of both of those things. Jared Haase: Okay. Great. That's really helpful. And then this is maybe for Brian, but I'm just curious, are there any guardrails or sort of puts and takes we should be thinking about relative to your opportunity to expand margins year-over-year in 2026 EBITDA margins, I'm thinking? Brian Poff: Yes. I mean I think our thesis has always been, as we continue to see consistent top line growth, we should get leverage, particularly on G&A. So with everything being said, looking at the landscape right now in '26, we would expect to see something similar occur this year. So we've finished last year in a pretty good spot. I think a couple of years ago where we had maybe some higher wage pressures coming out of COVID with some of the nursing shortages and the like. We haven't seen that in the last couple of years. Don't expect to see that this year. So I think that's reasonable to think just from an EBITDA perspective, top line growth should continue to drive some bottom line additional leverage for sure. Operator: The next question comes from Sean Dodge with BMO Capital Markets. Unknown Analyst: This is Thomas Keller on for Sean. I wanted to follow up on the caregiver app, and I might have just missed it, but are you able to more specifically quantify the volume lift that you've seen that you think is directly attributable to the app? Heather Dixon: So I'll point to sort of how we measure it internally. And it's -- I'll start by saying we can't directly attribute specific pieces of growth to the app. That's not something that's possible to track. But what we can see are a couple of different metrics, which are encouraging. The first is the number of caregivers that are utilizing the app. We see that has grown throughout the year in Illinois and has stabilized at a rate that, frankly, I think means most caregivers we've captured and they are using the app. The second metric would be the frequency of utilization of the app. So we can see if someone is using the app regularly versus if they just downloaded it once and haven't really been interacting with it, we're actually seeing increasing utilization as well. And then the final thing that I'll mention -- I mentioned briefly before is the utilization of flex hours. And effectively, that is where a caregiver can go into the app and they can see incremental hours that they can serve and capture those so that they can make sure they're serving their clients to the authorized level. And also for them, it's an opportunity to earn some more hours for the period. So we're tracking that as well, and we're seeing some nice movement and continued utilization at pretty strong rates there. And you see that coming through in the service percentage that we've been talking about. So hopefully, that helps you think or understand how we think about the benefits from that app. But again, it's not possible for us to give you a direct number because of the different moving pieces. Unknown Analyst: Yes. That's helpful. And then on the Homecare Homebase CMR transition in PCS, is there any update on the time line there? And how soon after the integration should that start to drive more clinical referrals and value-based opportunities? Brian Poff: Yes. I think where we are with Homecare Homebase, we've been obviously working with them for quite some time. We've got probably 30-plus of our locations are on the system today over a few different states as we move through just developing the software. I think we've got a schedule for a more enterprise-wide rollout. But as we've always talked in the past, we're going to take a very measured approach to that. So we'll be working on that over '26 and probably into the better part of '27 before we get all of our personal care business over onto that platform. So again, we'll be looking to market-to-market one at a time to make sure that goes very smoothly. But that's kind of the existing expectation on time line today. Operator: The next question comes from Ryan Langston with TD Cowen. Ryan Langston: Dirk, you mentioned you believe the 80/20 will ultimately be repealed. And I think you actually said specifically in the near future. Are you hearing anything specific from CMS or your lobbyists that give you the confidence they're going to ultimately repeal that rule? R. Allison: Well, Ryan, first understand that anything we hear is always subject to change, as you know. But yes, we've been hearing good things. Our team has been working with our lobbyists, working with CMS. We believe that they're in the process of looking at these rules and making some changes. We've had some indication that the timing will be sooner rather than later. But again, I want to caution, this is a rule that doesn't take effect for a number of years. So there's not that immediacy to it. However, from what we're hearing, it should be -- that rule should change, and we're hoping will change in the near future, which we believe will just send a signal to the industry and to various investors in the industry that, that is not an issue anybody has to worry about anymore. Operator: The next question comes from Clarke Murphy with Truist. Clarke Murphy: Just had a question on your payer mix in the quarter, specifically in personal care, shifting a little bit towards managed care. Just kind of wanted to get a sense for was that by design? Or is that kind of just happenstance? And anything that we should be thinking about as it relates to personal care payer mix would be helpful. Brian Poff: Clarke, that was just a direct result of the Del Cielo acquisition we did in Texas. Texas is a heavy managed Medicaid state. So that is what impacted the mix in the fourth quarter with that acquisition. Clarke Murphy: Okay. Great. And then just as my follow-up, can you give us an update on the home health and hospice bridging program that you guys have in place, kind of how much more wood there is to chop on that front? And if we could start to see a potential return to growth in 2026 on the restart side? Heather Dixon: Sure. Sure. Let me take those in a couple of pieces. So first, on the bridging program, we continue to have a heavy focus on that program because we do see the benefits. First, it's providing the right levels of care to our clients and our patients in sort of the setting and the utilization that they need, but also because it's a really good source for us to be able to serve patients when they are ready for hospice as opposed to home health. We have seen, as we've mentioned, some nice transitions and referrals coming from home health into hospice in the markets where we have density and where we have been really focused on this program for a bit of time. New Mexico specifically, we have density. We're co-located in most of our locations there between home health, hospice and PCS. And so we have really good opportunities, and we are -- it's just part of the program. And so we continue to see nice results, and we would expect for that to continue as we focus on it with our operations team and sales teams. Tennessee, we rolled that out in 2025 and began to do the same work there from a bridging perspective. That is a little bit of a newer program, but we're seeing nice returns on what we have been focused on and what we're implementing with the bridge program in Tennessee. So in order for us to continue to see that program flourish, we'll continue to drive it in the markets where we have density. And then as we have opportunities for growth in specific markets for home health and for hospice, I think that's going to become very useful for us to grow the programs. And then secondly, if I turn to the second part of your question about home health and how we are thinking about that, we're driving home health. We're making some changes to really focus on some of the basics. And a couple of things I would point out. The first is admissions growth. We did see admissions growth during the fourth quarter. It ticked up slightly from Q2 to Q3 to Q4 with a little bit of a higher tick up in Q4. So we are seeing admissions going in the right direction. And we have seen some positive momentum in some of our key markets where we have confidence that we will return to growth. And just maybe a couple of things to point out in terms of home health. We have -- just to show the focus that we have here. First, we've just hired a new market president to lead the home health business, which is something that we've not had before, but we're focused on the business, and we've hired someone with very specific industry experience to come in and really take the lead on that business so that we can focus on it. And then second, similarly, we are focused on bringing in the right sales leaders and sales team there from a home health perspective, and that will work in tandem with this new market president to lead from an operations side. So those 2 changes are things that we are very intentionally doing to focus on the home health business and capture the growth opportunities there for 2026 and beyond. And our goal and what we would expect is that we'll start to see some growth there towards the second half of 2026. Operator: The next question comes from John Ransom with Raymond James. John Ransom: Hard to just come up with a clever question, 54 minutes into a call. I just want to explain that. So my question is, a lot of companies are getting asked about technology, AI, et cetera. It wouldn't appear from the outside that there's a ton of opportunity there. I know you rolled out the caregiver app, but I'm thinking in terms of back office automation and AI. Is there a technology lever longer term that we're not thinking about that the company is working on? Brian Poff: Yes, John. I think in a couple of places, we see there's some opportunity, and we're working with our vendors to see if there are ways to see some AI implementation. But I think the 2 we would flag out, obviously, you referenced this back office rev cycle. There should be some opportunities there that we're looking at. I think the other large one for us is just, we think about scheduling and the logistics of our personal care business. Can we use some AI there to help automate some of those processes on the front end rather than having to have as many manual interventions. So I think those are probably the 2 big areas. But I would say we've got a an AI committee internally formed across multiple of our disciplines led by our CIO, that is looking at ways to implement AI in a way that would benefit and work well for the company, but all things that we're looking at. John Ransom: Okay. And then just kind of speaking of your rate negotiations, is it different when you're talking to a Medicaid payer versus directly to the state? Do the payers seem more rational? Or is it kind of the same conversation regardless of where it comes from? Brian Poff: It depends on the state. I think, as you know, most states, even if they have managed Medicaid, the payers really have no voice in that because it's a rate set by the state. They're acted more as a TPA. So there's not really a lot of opportunity to talk rates with them. I think the one difference we have is in New Mexico, we actually have the ability there to negotiate directly with the 3 large MCOs. I referenced earlier that the state increase will be kind of across the board to the MCOs and then we have the ability to go have conversations with the MCOs and get some leverage. But I think we've been very successful in New Mexico. I think we've done well. We're obviously the largest in the state, so have a pretty good leverage. And I think with all 3 lines of care, I think that's also a benefit for us, but really kind of isolated to that state and those conversations with payers on the personal care side today. Operator: The next question comes from Joanna Gajuk with Bank of America. Joanna Gajuk: And actually, I want to follow up on this last commentary around payers because we actually do hear so managed Medicaid plans calling out higher LTSS and that includes home care spending. It sounds like you have a good relationship in New Mexico, but any incremental changes you're seeing there from any of your payers at the state level? I'm thinking anything about denials or just delaying payments or anything else that maybe you're watching? Brian Poff: Not that we've seen, Joanna. I think in all the other states where they kind of are acting in that kind of TPA role, we haven't seen any changes in behavior, haven't seen any shifts in utilization or authorized hours. Those are all processes that the state usually has somebody independently go in and assess what the needs are in the patient's homes. So I haven't seen any change or pressure there. That would be something that the state would control, but not today. No changes that we've noticed. Joanna Gajuk: And as it relates also to payers, in the past, we talked about some opportunity there in managing the dual population because that's more underserved and high cost. So maybe give us an update where you stand there? Are you engaging any specific contracting that targets the dual population? And could this be an opportunity for you guys? Brian Poff: Yes. We've been doing some things what we call on the value-based side, where we are working with managed Medicaid, where they have some high-risk populations that they're responsible for. I think we've shown some fairly compelling results if you're leading with personal care and mitigation of some of the costs for those high-risk patients. So I think New Mexico, obviously, the market where we've been doing that the longest and have some pretty mature data. We've been implementing those as well in Illinois and have started in Tennessee, probably still a little earlier there, but I think early on seeing similar results. So probably isn't going to be something just from a contractor perspective that's going to turn into like a sizable revenue opportunity. But I think the information that we're gathering the data and the savings that we're showing when you lead with personal care, we think is fairly compelling and it should be helpful in conversations in the future. Joanna Gajuk: And last one, different topic. I don't know if I missed it, but did you guys talk about the winter storms in late January? Have you seen much of an impact on how I guess the rescheduling or catching up on that occurred in February. Brian Poff: Yes. With the storms in late January kind of coming through the Midwest, we probably saw a little bit of pressure. I think -- you think personal care, we tried to schedule as many visits as we could in advance. We all knew the storm was coming and tried to make up as many as we could on the other side, but a variable, you're probably going to miss a few visits just as a result. So again, nothing we think is material, but definitely did see a little bit of impact from those storms coming through in late January. Joanna Gajuk: And any observation in February after the storms? Brian Poff: Not that we've noticed. If you think about where most of that is hitting, we really don't have a lot of operations up in that part of the country. So nothing that we're seeing at the moment, no. Operator: The next question comes from Raj Kumar with Stephens. Raj Kumar: Maybe just kind of focusing on hospice length of stay. 4Q tends to be a seasonal high point, but it was a nice sequential bump. So I'm just kind of curious on what were kind of the underlying drivers, maybe kind of referral normalization or further play out of that? And then I guess maybe just any commentary around comfortability around kind of cap space on the hospice payment front as well. Heather Dixon: Sure. I'll take that, Raj. So we've mentioned before, and I'll just go into a little bit more detail that we are -- we've had a focus for 2025 on really diversifying and ensuring that we have the right mix of referral sources in each market. Each market is a little bit different. As you point out, we have differing lengths of stay depending on the patients that we have been caring for. And so we are very intentionally focusing on a market-by-market basis on the correct referral sources there. I think that's driving what we can see as some nice trends in the length of stay. It's driving nice trends in terms of the mix of patients and also admissions of new patients has grown very nicely throughout 2025 and that will also contribute to the mix that we're seeing. In terms of cap, we did see improvements in Q4 in the overall cap position. We actually had a little bit of a benefit, nothing material overall, but it was a material positive movement in terms of its relation to the total cap position that we had seen. And I think that's in large part to the efforts and the refocused efforts of the sales team in terms of diversifying that referral mix. Raj Kumar: Got it. And then maybe just one more kind of broader question around kind of labor environment and then potential tailwinds from Medicaid work requirements. And I guess just thinking about the Arkansas book and how that state has had Medicaid work requirements. Any way to kind of contextualize that kind of labor market in Arkansas in terms of, if there has been kind of any benefit -- significant benefit on the hiring and labor front from an statement of Medicaid work requirements as you think about other states start to implement that towards the back half of '26 and the implications around that? Heather Dixon: Sure. There's nothing I would point to specifically in relation to Arkansas. I know they've had those in place before, and that's been part of how they operate, but we haven't seen really anything to point out in terms of what our hiring prospects have looked like as a result of that. We actually see the opportunity, I think, as you were alluding to here for us in terms of the work requirements as being something that could benefit us as people are looking for work, they're looking for incremental work or even flexible or part-time work, we can help with that. And so we don't see it as something that we need to be cautious of. We see it as potentially an opportunity. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dirk Allison for any closing remarks. R. Allison: Thank you, operator. I want to thank each of you today for taking the time to join us on our call, and I hope you have a great week. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Ms. Regina, and I will be your conference greeter today. At this time, I would like to welcome everyone to the Armstrong World Industries, Inc. Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Theresa Womble, Vice President, Investor Relations and Corporate Communications. Please go ahead. Theresa Womble: Thank you, Regina, and welcome, everyone, to our call this morning. Today, we have Vic Grizzle, our CEO; Chris Calzaretta, our CFO; along with Mark Hershey, our Chief Operating Officer, who will discuss Armstrong World Industries fourth quarter 2020 (sic) [ 2025 ] results and our outlook for 2026. We have provided a presentation to accompany these comments that is available on the Investor Relations section of the Armstrong World Industries website. Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the earnings press release and in the appendix of the presentation issued this morning, both available on our Investor Relations website. During this call, we will be making forward-looking statements that represent the view we have of our financial and operational performance as of today's date, February 24, 2026. These statements involve risks and uncertainties, that may differ materially from those expected or implied. We provide a detailed discussion of the risks and uncertainties in our SEC filings, including our 10-K filed earlier this morning. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law. With that, I will now turn the call to Vic. Victor Grizzle: Thank you, Theresa. And, good morning, and thank you for joining our call today. As many of you know, this will be my last Armstrong's earnings call as CEO, as I'll be moving into the Executive Chairman position on April 1. And as previously announced, Mark Hershey, currently our Chief Operating Officer, will be taking the helm as President and CEO effective at that time. It has been both a privilege and an honor to have led this great company for the past 10 years. Throughout my 15 years here at Armstrong, Mark has served alongside me in various key leadership roles. His extensive experience and track record of delivering results, combined with his strong dedication to our values and our culture of operational excellence, make him both well-equipped, and ready to lead this organization. We will hear from Mark later in the call today to discuss our recent acquisition of Eventscape and some advancements in our new product innovations. So let me begin with our record-setting 2025 results. 2025 represented another year of strong execution and a full demonstration of our resilient business model that delivered profitable growth despite persistently challenging market conditions. It was our team's continued execution at the highest level across the enterprise that enabled us to deliver another record-setting double-digit growth year across all key metrics, again, even as market conditions remained unfavorable. At the total company level for the full year, our net sales increased 12% from the prior year, and our adjusted EBITDA grew 14% with our adjusted EBITDA margin expanding 70 basis points. As noted in our press release that we issued earlier, 2025 was our second consecutive year of double-digit growth, where the core values of Armstrong were on full display, such as strong Mineral Fiber average unit value growth, robust productivity across our operations and double-digit top line growth in our Architectural Specialties segment. Our 2025 results also marked the fifth consecutive year of net sales and earnings growth. And also notable, this is the third consecutive year we have reported year-over-year adjusted EBITDA margin expansion. These strong and consistent results reflect our team's ability to steadily execute across the enterprise in all parts of the cycle. So before getting to our quarterly results, I want to take a moment and recognize and express my gratitude to our team of nearly 4,000 employees. Their commitment and their passion for what we do, and dedication to serving our customers are not only impressive, but they're unique and a key driver of our continued success. So thank you to the entire Armstrong team. Now turning to our fourth quarter results. In the quarter, we finished with softer results than expected, even though we had solid AUV growth in Mineral Fiber with favorable like-for-like pricing, strong productivity, more than offsetting inflation and continued double-digit top line growth in Architectural Specialties. Softer results on the top line in Mineral Fiber mainly came from the impact of the extended government shutdown that disrupted maintenance and repair activity for government buildings across the U.S. In addition, we did not see the normal bounce back after reopening, which impacted Mineral Fiber volumes in notable areas like our Washington, D.C. territory, and with our MRO customers serving the repair and maintenance activity in government buildings. Softer-than-expected results in the quarter also occurred in the Architectural Specialties segment, primarily driven by key project delays. This created a cost imbalance in the quarter, temporarily compressing margins in the AS segment. Together, these drivers formed an air pocket of sorts for the total company results that we expect to work through in the coming quarters. As I mentioned in the quarter, average unit value, or AUV, in our Mineral Fiber segment increased 6% on strong like-for-like price performance and positive impact, positive product mix driven by our innovative products. Despite short-term pressures created by these temporary market events, Mineral Fiber EBITDA increased 15% to a record fourth quarter result and a record fourth quarter EBITDA margin of 42.1%. Architectural Specialties delivered 11% top line growth with solid inorganic and organic contributions despite the project delays. And importantly, order intake growth continued to be strong at double-digit levels year-over-year in the fourth quarter, sustaining our momentum heading into 2026. We continue to see strength in the transportation vertical for a broad portfolio of AS products, and we continue to win large airport projects with recent wins at LAX and Salt Lake City International Airport. We continue to expect the transportation vertical to provide a tailwind for several years to come. Both the Mineral Fiber and Architectural Specialties segments contributed to our record results in 2025, with our strong focus on operation -- operational execution being a key contributor to our sustained leadership position, and our growth initiatives providing above-market growth rates. Operational excellence enabled now by technology is critical both in terms of profitability as well as from the eyes of our customer in terms of quality and service. And this was an outstanding year in both areas, with our teams delivering a record high result for our perfect order measure. This measure I've described before, tracks our performance across multiple metrics that are critical for maintaining our best-in-class customer service levels, things like on-time delivery, product defects, billing accuracy. Executing at high levels across these areas not only drives customer satisfaction, but it also supports our pricing performance in competitive markets and reinforces the strength of our market position. After a few years of foundational investment in our growth initiatives, they continue to scale and are contributing to our business model and are creating value as a competitive differentiator for the company. On the digital front, the use of PROJECTWORKS, our automated design platform continues to grow and generate higher win rates on projects when the service was used, reinforcing its value again as a competitive differentiator. Kanopi also continued to perform well and contribute nicely to our growth in 2025, providing an easy way for otherwise underserved customers to access a broad range of products through a simple online selling platform. We are pleased to see record revenue and EBITDA results for Kanopi in 2025, with each quarter providing a positive EBITDA contribution. Now, in addition to these successful digital growth initiatives, with growing opportunities in data centers and energy-saving ceilings, total contributions from our growth initiatives are positioned to further accelerate in 2026 and beyond. And Mark is going to cover these two key growth opportunities here in a moment. All in all, these results together with our growth initiatives, were another demonstration of how our business model, and our strategy can deliver growth above the market and do so profitably through our pricing discipline, operational excellence and strong operating leverage. Now I'll turn the call over to Chris for more details on our financial results. Chris? Christopher Calzaretta: Thanks, Vic, and good morning to everyone on the call. As a reminder, throughout my remarks, I'll be referring to the slides available on our website. And please note that Slide 3 details our basis of presentation. On Slide 8, we begin with our Mineral Fiber segment results for the fourth quarter. Mineral Fiber sales grew 3% in the quarter, driven by AUV growth of 6%, partially offset by lower sales volumes. The increase in AUV was primarily driven by favorable like-for-like pricing, along with a positive contribution from mix. Volumes in the quarter were softer than we expected, primarily due to short-term headwinds from the indirect impacts of the federal government shutdown as well as softer home center demand. Mineral Fiber segment adjusted EBITDA grew by 15% in the quarter with adjusted EBITDA margin expanding 460 basis points to 42.1%, despite lower volumes. As Vic mentioned, Mineral Fiber's adjusted EBITDA margin of 42.1% in the quarter marked the best Q4 margin performance in the segment since 2016. Adjusted EBITDA margin expansion was primarily driven by the fall-through of AUV, which benefited from strong like-for-like price benefit and a favorable claims adjustment in the quarter, higher equity earnings from our WAVE joint venture, favorable SG&A expenses and lower input costs. From a full year perspective, Mineral Fiber adjusted EBITDA margin finished at a record-setting 43.5%, surpassing the high watermark of 2019. This level of financial performance underscores our Mineral Fiber value creation drivers including consistent AUV growth, annual productivity gains and positive contributions from our WAVE joint venture, along with our disciplined focus on cost control. On Slide 9, we discuss our Architectural Specialties or AS segment results. Double-digit sales growth of 11% in the quarter was driven primarily by contributions from our 2024 acquisitions of 3form and Zahner as well as organic growth. As a reminder, the fourth quarter compares to a very strong prior year period that delivered 15% sales growth, largely driven by several large transportation projects in the fourth quarter of 2024. Importantly, full year organic AS sales grew 9%, which was consistent with our expectations of high single-digit growth. AS segment adjusted EBITDA decreased 3% in the quarter with adjusted EBITDA margin negatively impacted by softer organic top line performance, resulting in less favorable operating leverage due to the timing of custom projects. Higher manufacturing costs were driven primarily by the recent acquisitions, and our organic business, which increased in part due to capacity investments in support of future growth, while higher SG&A expenses were primarily due to recent acquisitions. Partially offsetting these increases in costs was a benefit from higher sales volumes. For the full year 2025, adjusted EBITDA margin for the AS segment was approximately 18%, representing 50 basis points of margin expansion, but below our 19% margin guidance due to fourth quarter headwinds from project timing. Overall, we are pleased that on an organic basis, AS adjusted EBITDA margin was approximately 19%, and that in 2025, we delivered 2 quarters of AS organic adjusted EBITDA margin of 20% or greater. This performance demonstrates that the underlying AS business fundamentals are strong, and that we have the right building blocks in place to deliver at or above our 20% target level as project timing normalizes. We expect continued progress in profitability and margin improvement as we integrate our recent acquisitions, drive operational efficiencies and scale these businesses on the Armstrong platform. And we remain committed to delivering our targeted 20% adjusted EBITDA margin for the AS segment. On Slide 10, we highlight our fourth quarter consolidated company metrics. We delivered solid sales growth with double-digit adjusted EBITDA growth and total company adjusted EBITDA margin expanded 160 basis points. Excluding recent acquisitions, total company adjusted EBITDA margin expanded 230 basis points. Adjusted EBITDA growth in the quarter was primarily driven by the fall-through impact of strong AUV, positive WAVE equity earnings, lower input costs and benefits from manufacturing productivity. These impacts were partially offset by increased manufacturing costs within the AS segment. Turning to Page 11. Full year sales increased 12%, and full year adjusted EBITDA increased 14%, resulting in 70 basis points of margin expansion. We also saw double-digit growth in adjusted diluted net earnings per share, up 17%; and adjusted free cash flow up 16%. These robust results reflect the power of our financial performance drivers, incremental growth from AS acquisitions, market penetration in the AS segment and the benefits from our growth initiatives, consistent strong AUV performance, manufacturing productivity gains across our plant network and healthy WAVE equity earnings. These benefits more than offset increases in SG&A and manufacturing costs driven by our recent acquisitions as well as a modest increase in manufacturing costs in our organic AS business. Slide 12 shows our full year adjusted free cash flow performance versus the prior year. The 16% increase was primarily driven by higher cash earnings and an increase in dividends from our WAVE joint venture, partially offset by higher capital expenditures. The $26 million step-up in capital expenditures reflects our continued strategic priority of reinvesting back into the business. During the year, we deployed capital to further enhance manufacturing productivity across our plant network, expanded capabilities at one of our Mineral Fiber facilities to support the growth of our TEMPLOK energy saving ceiling offering and advanced several key IT and digital initiatives. Targeted investments like these reinforce our commitment to advancing our growth strategy while maintaining a disciplined capital allocation approach. The strong adjusted free cash flow profile of our business allows us to execute on all of our capital allocation priorities. And as a reminder, our first priority is to reinvest back into the business where we see the highest returns, such as the investments I just outlined. Our second capital allocation priority is to execute strategic acquisitions and partnerships to create shareholder value. In the fourth quarter of 2025, we acquired the issued and outstanding shares of Parallel Architectural Products, and just last week, we announced the acquisition of Eventscape. In 2025, Eventscape generated approximately $30 million in revenue, and we expect that this acquisition will be a positive contributor in 2026. Mark will be covering this in more detail in a moment. Our third capital allocation priority is returning cash to shareholders through dividends and share repurchases. In the fourth quarter, we paid $15 million of dividends to our shareholders, and we repurchased $50 million of shares, representing a meaningful step up from the pace of repurchases in the prior 3 quarters. As of December 31, 2025, we have $533 million remaining under the existing share repurchase authorization, which runs through the end of 2026. We entered 2026 with a strong balance sheet and ample available liquidity, and we remain committed to delivering on all of our capital allocation priorities. Slide 13 presents our guidance for 2026. With slightly improving market conditions, we expect Mineral Fiber volume flat to up 1% for the full year, including contributions from our growth initiatives. We also expect Mineral Fiber AUV growth above our historical average at approximately 6%. Additionally, we expect high single-digit AS organic growth reflecting continued traction as we penetrate a highly fragmented market. Inorganic contributions from Geometric will be incremental through the first 8 months of the year and results from both Parallel and Eventscape acquisitions will be incremental throughout the full year. We expect these acquisitions together to drive approximately half of the total AS segment sales growth. This results in total company net sales growth of 8% to 10%. Moving to adjusted EBITDA. We expect adjusted EBITDA growth of 8% to 12%, with adjusted EBITDA margin expansion in both segments for the full year. We expect Mineral Fiber AUV growth to be more than offset -- to more than offset input cost inflation. In addition, growth in the AS segment, the benefits from WAVE, and our continued focus on execution throughout the organization will contribute to earnings growth. While we expect SG&A to increase modestly as we continue to strategically invest in the business, we also expect SG&A as a percentage of net sales to improve as compared to 2025. For the full year, we expect adjusted diluted net earnings per share and adjusted free cash flow to grow at rates largely similar to adjusted EBITDA. Please note that additional assumptions are available in the appendix of this presentation. It's also worth noting that our first quarter is typically a seasonally impacted quarter with Q2 and Q3, representing our stronger sales quarters in Mineral Fiber due to favorable weather conditions and the typical timing of renovation and new construction activity. While we don't guide to individual quarters, we expect a more muted start to 2026, reflecting both seasonality and the choppiness we've seen in the broader market, coupled with significant weather -- winter weather events across multiple regions in the U.S. Accordingly, we anticipate Mineral Fiber volume in the first half of the year to be slightly softer than the back half as a result of these dynamics. In closing, despite challenging market conditions, we delivered record Mineral Fiber profitability, strong AS growth with continued progress on margins and robust adjusted free cash flow growth that enables us to continue to execute on all of our capital allocation priorities. As we enter 2026, our disciplined strategy for growth and proven value creation model position us well to deliver another year of profitable growth. And now I'll turn it over to Mark for further commentary. Mark? Mark Hershey: Thank you, Chris, and good morning, everyone. First, I'd like to start by expressing how honored and proud I am to have the opportunity to serve as the next CEO of Armstrong World Industries, particularly at this exciting time in our history. Armstrong has a rich legacy of innovation in ceilings and specialty walls, and that legacy remains fully intact today, and it provides an exceptional platform for continued success. I look forward with confidence to working alongside our executive leadership team, our dedicated employees, and our trusted partners as we together write the company's next chapter. Vic, you are leaving the business stronger and more resilient than it's ever been and perhaps most importantly, well positioned for continued growth. On behalf of the entire organization, thank you for your dedicated and outstanding service to our company and the strong foundation you will leave behind. As Vic and Chris have noted, 2025 represented another record year in a multiyear period of profitable growth. Those results were driven by our resilient business model, and our consistent focus on AUV growth, productivity, innovation and expansion of our Architectural Specialties business. Over the last decade through innovation and acquisitions, we've successfully expanded the company's reach beyond traditional Mineral Fiber ceilings to a broader set of solutions, including specialty ceilings and walls with a growing platform for design-centric solutions for more and more spaces within the built environment. And now we are expanding our solutions for energy-efficient buildings and for data centers, 2 of the most durable and accelerating growth markets in construction today. Throughout 2025, we continue to pursue and prioritize innovation aligned with both of those powerful macro trends. First, the increasing need to reduce energy consumption as power demand accelerates and power costs rise. And second, the rapid global build-out of data centers driven by cloud computing and AI. These are long-term structural shifts, and they are reshaping how buildings are designed and operated. And the fourth quarter of 2025 marked an important step in our commercialization of innovation in these 2 key areas. On the energy efficiency front, we introduced an upgraded TEMPLOK energy-saving ceiling solution within our Sustain portfolio. This new solution enhances passive heating and cooling performance, improves fire rating and thermal comfort and gives architects more design flexibility. As customers from owners to contractors to architects, better understand TEMPLOK's multiple value propositions and economic benefits supported by tax credit incentives and real-world validation through case studies, we are seeing interest and adoption grow. For example, we are currently shipping TEMPLOK for office renovation projects with 2 major financial services firms in New York City. And we were recently awarded TEMPLOK specifications for higher education projects on both the East and West Coast. We expect much more to come on this exciting opportunity as we develop the market for this multidimensional new ceiling solution. In data centers, the fastest-growing vertical in commercial construction, our opportunity extends beyond ceilings to engineered infrastructure. In Q4, we launched DATAZONE panels and DYNAMAX LT Structural Grid Solutions designed for mission-critical environments that require higher load capacity, better airflow management and faster installation. We also expanded into other high-performance environments with the launch of SKYLO, our integrated walkable ceiling system for clean rooms, advanced manufacturing and cold storage. Taken together, these innovations supported by our digital growth initiatives will enable us to drive volume growth ahead of the market and support our ability to continue to deliver AUV growth. In 2025, our growth initiatives contributed roughly 1 point of growth in a down market. In 2026, with contributions from data centers and energy savings, we expect our growth initiatives to contribute up to an additional 0.5 point of growth. In addition to innovation, our strategy also involves the expansion of our AS business through greater portfolio breadth and capabilities, where we have demonstrated success over the last decade through acquisitions that offer innovative capabilities and materials expertise. By adding these differentiated businesses to our sales and service platforms, we are driving accelerated growth and improving margin performance over time. Eventscape is another exciting example of this strategy and of how we are boosting our ability to partner with architects, designers and even building owners at the earliest stages of projects, when design intent and technical feasibility remain uncertain and still under development. Eventscape is unique within our Architectural Specialties acquisition because of their remarkable ability to design and fabricate with any material substrate, which is what we mean by material agnostic. And while their focus includes ceilings, walls and facades, it also includes distinctive and often iconic architectural features that differentiate the occupant experience in or around the space. Some great examples of this include special features in the new JPMorgan Chase Headquarters and in the recently completed Pittsburgh International Airport. Notably, these are projects where both Armstrong and Eventscape participated on different and complementary aspects of the overall work. In summary, we are extremely excited about the potential of our recent innovation activity, and our recent acquisitions to strengthen our company for consistent growth. Armstrong is now more uniquely positioned than ever to offer solutions for a wider array of applications in commercial buildings. I look forward to sharing more of our progress in these areas in the future. And with that, I'll turn the call back to Vic. Victor Grizzle: Thank you, Mark. And as you can hear from Mark's comments, we have a lot to be excited about here at Armstrong in 2026 and beyond. The recent acquisitions like Parallel and Eventscape expand our sales opportunities within commercial buildings and further strengthen our relationships with architects and designers. The innovation we've highlighted enables our competitiveness in 2 new growth areas of the market, data centers and energy savings, both of which contribute to consistent Mineral Fiber AUV growth, incremental volume growth ahead of the market. These are key building blocks for continued consistent profitable growth. Now looking ahead to our market outlook, we are encouraged with some improvement in visibility. However, high levels of uncertainty around policy around interest rates, potential geopolitical events still exist. In 2026, we expect underlying market conditions to be steady and slightly improved versus what we experienced in 2025. Within this outlook, we expect transportation to remain an area of growth, along with data centers and the gradual healing of the office vertical. As we experienced in 2025, we also expect to have near-term opportunities from new construction starts in the healthcare and education verticals from projects that were initiated in the past 24 to 30 months. Now while the office vertical does appear to have bottomed, and we see green shoots of opportunity emerging, we haven't yet seen a significant return of broad tenant improvement work at this point. It is worth noting that even as a full recovery in office has yet to materialize, we are seeing in the bid data, that project bids are at meaningfully higher values, meaning that building owners who are doing tenant improvements are investing more into office spaces to enhance their aesthetics, their functionality and their amenities. Now this is encouraging and represent a prime opportunity for Armstrong to leverage our broad portfolio of products, playing to our strength at the high end of the market. In closing, I want to thank our employees again for their dedication and solid execution that enabled us to deliver another year of record results in 2025 and really set us up for continued success in 2026. We have executed well on our strategy and enhanced our value-creating building blocks. With our growth initiatives that we've invested in through the pandemic, we are now delivering above market performance. And we have made several strategic acquisitions that have expanded our capabilities and our addressable market. Over the 10-year journey we've had at Armstrong, we have purposely built a highly focused Americas ceilings and Architectural Specialty company that delivers consistent, profitable growth. By separating from the flooring business, and divesting of our international operations, we have reduced complexity and focused our investments in North American market, which have strengthened our market position, made our business more resilient and improved our returns to shareholders. Our cash generation has nearly tripled. We have returned over $1.5 billion to shareholders. And through the execution of our strategy, we have significantly increased the value of the company. And today, I am more confident than ever that we are poised to continue on this path in years to come. And with that, we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Tomohiko Sano with JPMorgan. Tomohiko Sano: Vic, thank you for your leadership and congrats on your transition to Chairman. We look forward to continued execution under Mark's leadership. So my question is for the 6% AUV growth in 2026, what is the price and mix split? And how sustainable is the pricing power in the current competitive environment? And what the customer is saying about the price versus value delivered, please? Victor Grizzle: Yes. Our AUV performance was above historical levels, as you've noted at 6%, and normally, and if you look at this over a long period of time like the past 10 years, it ranges about 50-50 or averages about 50-50. In '25, we had a little bit more price than we did mix contribution based on inflationary pressures and that we were pricing into. So the mix was a little bit more biased toward like-for-like pricing than mix. Going forward, as Chris can outline, we're seeing -- we're anticipating some additional inflation in '26, and our expectation is with our normal cadence on pricing, we're going to continue to price ahead of that inflation and likely to end up with a more positive bias toward like-for-like pricing and mix in the year. That's kind of how we're thinking about it sitting here today. Tomohiko Sano: And my follow-up is that under Mark's leadership, how should we think about the strategic continuity and top priority over the next 12 months, and any key KPIs, please? Victor Grizzle: I'll let Mark take that. Mark Hershey: Yes, happy to take that. Thank you for the question. Obviously, Vic and I, and the leadership team have worked very closely together over the last 7 years or more in my different roles on strategy. So you should not expect a pivot in our strategic direction. I'll be focused on and continue to be focused on innovation, for sure, will be a priority. Our growth initiatives, the initiatives we've had in digital, initiatives I talked about today, so energy savings and data centers and some of the hallmarks of the business, productivity as well as inorganic growth, whether M&A or partnerships as well. So the same consistent areas of emphasis, the same consistent overall strategic objective, consistent profitable growth. Operator: Our next question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: And let me add my congratulations to both Mark and Vic. Looking forward to working with Mark and Vic. Enjoy your new time. So my question is talking a bit about the operating environment. You did mention in your remarks, if you are seeing bids for office that are at least meaningfully higher in value, can you talk about how these products and the platforms that you've launched in the last couple of years are gaining momentum and how they're perhaps coming through even with some of the headwinds that it sounds like you're facing? Victor Grizzle: Yes. Let me start just with the actual starts of work in the marketplace is fairly flattish, and it kind of, I think, represents what we're feeling in the market overall. And when you look at the office vertical, in particular, yes, the value stands out, and it's well above inflationary numbers, right? You might look at value bidding numbers and say, yes, well, there's a lot of inflation in there. And there are inflation in these numbers, but they're well above inflationary levels. And of course, this also is consistent with what we're seeing in the marketplace and the specifications that we're working on, where they're using a lot more architectural specialty-type products in certain areas of the building to create these different fields and amenities to entice employees back to work and to keep them in the office. So we were anticipating this coming as more and more constraints are on availability of Class A office space and Class B spaces had to be upgraded to compete. We were anticipating this, but I'm calling this out because it's really notable in the bid data to see how the values are meaningfully higher than you would normally expect from inflationary pressures there. And of course, the answer -- just to add to that, I would just add that this is where having the breadth of product portfolio that we have, that includes Mineral Fiber where they need to use that, but now a whole host of a pallet of materials that we can allow architects to design with. It's really a one-stop shop advantage that we can bring for all different types of designs and all different types of spaces within these buildings. Now it happens to be more prevalent in office spaces, which is, again, a really good opportunity for us. Susan Maklari: Yes. Okay. And that kind of leads to my follow-up question, Vic, which is, can you talk about the integration of the deals that you have done in the last couple of years, where we are in that process? And in your remarks, you also mentioned investments in capacity to support future growth. And so how should we think of the integration and these investments that you're making and the potential for upside over time? Victor Grizzle: Yes. I think the way I think about the integration of these businesses is it's a continuum of work, and we take them step by step. And the objective here is to get them to take advantage of the large platform, Armstrong has to offer them. So mostly on the revenue-generating side, right, some of the biggest synergies we have with these acquisitions as we scale them in their first couple of years on the platform. They're in hundreds of more architects' offices and through our distribution network. So we try to do some of those steps initially as then we bring on more and more productivity and more and more of the operational sides of the business and eventually footprint optimization work. So we kind of think about this as a continuing ongoing work. Again, when you look at -- and I would just point you to the revenue generation in the Architectural Specialty business, with these companies that we're buying, they're certainly not growing at high single-digit levels. And it really comes down to -- we're scaling these through our integration work on the Armstrong platform very successfully. So I'm really pleased with those early stages of integration. And I would just say, as we go, we're going to continue to integrate these businesses on the operational side to drive more operating leverage from the revenue growth, but also more productivity in the plants. And that's how we get to the 20% goal that we put out there and how we're going to sustain that over time. Operator: Our next question comes from the line of Keith Hughes with Truist. Keith Hughes: Just a couple of detailed questions on '26. What kind of inflation expectation -- input inflation expectation do you have for Mineral Fiber for the year? Christopher Calzaretta: Yes. Keith, it's Chris. So for '26 overall inputs at the mid-single-digit inflation range versus prior year on a percentage basis. And just a reminder, our detail of that is about 35% of our COGS is raws, about 10% is freight, 10% energy and 10% labor. So if I break that mid-single-digit inflation down, freight is about flat year-over-year, and we're seeing low single-digit percent inflation in raws. That's really on some of our fiberglass paper and perlite inputs. And then energy inflation in that, call it, low double-digit 10% to 12% range, and that's really a split between electricity and nat gas, but a little bit of nat gas pressure here for 2026. So all up all-in mid-single inputs for '26. Keith Hughes: Okay. And the -- as you pointed out in the prepared comments, the AUV expectation is a little bit higher than you get, although you could actually, if we look at it over the last several years, it's been close to 6% in many years -- last couple of years. Can you just talk about what's going on in the business that you're just getting a higher number than we have historically? Christopher Calzaretta: Yes, I'd say in -- as Vic mentioned earlier about the like-for-like pricing and positive contributions for mix in that AUV, it really goes back to our innovation, and our service and our quality dimensions of the business. We continue to get and can see that more price than mix dynamic here, certainly with that inflationary backdrop that I mentioned, but also coupled with our investments back into the business to really drive that innovation part of the equation. So again, we feel good about that 6% for 2026. And if I look at it on a first half, back half kind of split dynamic, it's relatively even first half to be about the same as the back half. But again, as we think about the investments back into the business, that's a really big core value creation driver for us and one that we're very excited about in 2026 and beyond. Keith Hughes: Okay. And finally, my congratulations to you as well, Vic. It's been a tremendous run since you took over the company. So a job well done. Operator: Our next question will come from the line of Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: Just starting on the Mineral Fiber EBITDA guide for '26. I know, it's fairly open-ended, above 35.5% or 43.5%, I should say, but that's despite 6% to 7% revenue growth. So is there anything offsetting that from a cost perspective? I know, you talked about AUV covering inflation, maybe getting some SG&A leverage. Is it just conservatism, just because it's a pretty solid top line, and it seems like price cost will be favorable? Christopher Calzaretta: Yes. No, Adam, it is a good question. No. I mean, I'd say, I'd point really back to the value creation drivers that we've been talking about solid AUV growth. What we haven't talked about is the manufacturing productivity that we get year in and year out. I mentioned in my prepared remarks kind of the overall investments back into the business on CapEx and a lot of what we see manifest themselves in that productivity is really investing back into that pipeline to continue to get those productivity gains. So no, I mean, overall, you hit on SG&A, and I talked about SG&A in terms of how we're thinking about getting that leverage, but we will be investing in SG&A for our growth initiatives in 2026, but are pleased with the fact that we're outlooking another year of overall EBITDA margin expansion given those solid value creation drivers that I mentioned. Adam Baumgarten: Okay. Got it. And then just on the government channel that was weak given the shutdown, and it seems a bit slower to come back. Are you seeing any positive signs there? And is any kind of recovery from that weakness late last year built into the outlook in '26? Victor Grizzle: Yes, this is Vic. Yes, we did see a bounce back in January. We certainly would have expected this in November and December, but with the holidays around that, it was -- it did not bounce back as robustly as we thought it would be. But we did see it in January, and we would expect a lot of this to be filtering back in over the next several months. The second part of your question is that we've already kind of factored this into our outlook for the year. Operator: Our next question will come from the line of Rafe Jadrosich with Bank of America. Shaun Calnan: This is actually Shaun Calnan on for Rafe. So first, the Architectural Specialties organic growth has slowed over the last two quarters, but you're expecting it to return to high single-digit growth in 2026. What are you seeing in the pipeline that gives you the confidence that, that growth picks up? And did you see any delays in projects in the second half that we are going to benefit 2026? Victor Grizzle: Yes, I'll take that. In the Architectural Specialties segment, we had a really strong back half of '24. So a little bit of that deceleration you're referencing, it's more of a base period comparison versus the actual run rate of the business. We've actually been generating a backflow -- a backlog growth with our order intake in double-digit levels. So it's this kind of where we are currently with our backlog and the way it's been growing throughout 2025. For '26 and actually beyond into '27 already, that gives us really, I think, the confidence that we need for returning to high single-digit levels of growth. And remember, there's some large projects in here, and they can ebb and flow quarter-to-quarter. Certainly, as we saw at the end of the year, they can actually move out of the year and impact on a quarterly basis. But as the year goes, I think we'll benefit from those, and those are factored into, again, factored into our guidance for 2026. I feel really good about where we are with our order rates and how we're winning in the marketplace with our breadth of portfolio in this space. Shaun Calnan: Okay. Great. And then it sounded like you're expecting Mineral Fiber volumes down in the first half, but up in the second half. Can you talk about what gives you the confidence that you'll see growth in the second half and if there's any specific verticals that you expect to outperform versus underperform? Christopher Calzaretta: Yes, I'll take the first part of that question, yes. So we expect growth for the year flat to up 1% with a stronger back half than front half of the year on the weather dynamics and the seasonality that I mentioned in my prepared remarks. So positive for the year, but a little bit stronger in the back half than the front half with, as you can imagine, given the weather -- winter weather impacts we've seen here in the first quarter, a more muted start in Q1. Vic, do you want to talk about the vertical component of that? Victor Grizzle: Vertical of office? Christopher Calzaretta: Yes. Victor Grizzle: Yes. The -- I think as we've talked about with the office vertical, we're not expecting an inflection where it just turns on, and then here we go. I think it's a very gradual, and it's going to be an uneven recovery across the U.S. So I think it's going to build, if we have some of this uncertainty continue to clear up as we go in through the year, it could build into the second half. I think the other thing, as Mark talked about, the excitement around data centers and energy savings, these are two new early-stage growth initiatives. Each quarter as we go, we should be continuing to build contributions from those initiatives that are additive to our base growth initiatives in digital. So a lot of those things kind of adding up that gives us the outlook of a stronger back half. Operator: Our next question comes from the line of John Lovallo with UBS. John Lovallo: The first one on Architectural Specialty organic EBITDA margins 18.7% for the year that was -- you talked about was slightly below that 20% outlook. But I'm curious if you could help us kind of bucket the drivers between the lower organic revenue, some of the project timing and maybe any other factors that played in there? Victor Grizzle: Yes, John, if you're asking about the project delays that impacted that cost imbalance, I can give a little more color there. But let me finish there, but start with, we continue to make good progress on our stated goal of getting this Architectural segment to 20%. Again, this is the fourth year in a row of margin expansion in that business on our way to '27. So I feel like we have the right levers. We know what the right building blocks are for us to deliver that. In fact, we had two quarters in '25, where we were north of 20%. So, again, I think we know what to do. We know how to get there. We really didn't have the operating leverage in the fourth quarter based on these project pushouts. We had the cost in place. There were 5 good-sized projects. And in fact, they were all delayed in December. And so normally, and we experienced project delays all the time in this Architectural Specialties segment, we've talked about this. Normally, they're picked up in the same reporting period. So in this case, they not only fell out of the quarter, they fell out of the year because they were in December. And they were primarily education and health care projects. And so because they were sizable, that just created this imbalance of cost, and therefore, the margin compression. This will work its way out. I think, again, we're back -- we know what the right levers, and the right building blocks are to deliver a 20% EBITDA segment in Architectural Specialties. Did that get to your question, John? John Lovallo: Yes. That's helpful. And then I guess just on the Mineral Fiber growth piece, the 0% to 1% this year. I mean, I know that the longer-term outlook is sort of 2% to 4%. Help us kind of think about the path towards that 2% to 4%, what do we need to see in terms of the market and just internal execution? And what, if any timing guidelines you guys have around that? Victor Grizzle: Yes, good question. I mean we're moving that direction, right? When you look at -- it's been a while since we've outlooked positive Mineral Fiber volume growth, right, in the year. So we're moving in that direction. Remember, the 2% to 4% had 2 components to it. It was a market recovery of 1 to 2 points of growth from the market recovery off of the -- getting us back to 2019 levels. And then there was 1 to 2 points of contribution from our growth initiatives. So as Mark outlined, we're moving in that direction of the 1 to 2 on our growth initiatives, which is what we can control and with a little bit of the healing going on that we're expecting in '26, and we'll see if that continues into '27 and '28. But that's how you get to that 2% to 4% range. I still believe that, that's a good midterm type outlook for Mineral Fiber volume growth. Operator: Our next question will come from the line of Garik Shmois with Loop Capital. Garik Shmois: On the data centers and energy saving projects, I wonder if you could speak to just how large your overall portfolio to these projects represent, just in the context of the 0.5 point of growth, you're expecting them to contribute this year? And then also, maybe can you speak to any mix impact these projects have on margins? Victor Grizzle: Mark, I'll take this and if you want to add any color. The -- let me just start with on the AUV side, these -- both of these initiatives are accretive to our AUV. So we really like selling more of these products in terms of that financial metric of growing our AUV. They're really consistent with the innovation that we're bringing to market is supportive of that continuation of that AUV growth. On the margin side and contribution of that, I think the data center tile in particular, is further down the road in terms of scaling in terms of the -- getting the operating leverage and the margins up. And energy savings is still in the early stages of getting really good operating leverage on the $10 million investment that we made down in one of our plants that we talked about in '25. So we do expect both of these to be consistent with our 60% incremental contribution to EBITDA as they grow over time. So again, I think these are really 2 high-value applications for us to continue to innovate and build out our portfolio on. I'm not sure I got all of your question, but Mark do you want to add anything to that? Mark Hershey: Yes, Vic. I mean, obviously, and I mentioned this in my remarks, the data center category is growing, and we've got an opportunity to penetrate that category further. Energy savings plays across all of our verticals, frankly. And early days, we've seen a high level of interest in office and education that plays really well across all our verticals. And there were both -- both of these initiatives are supported by macro trends. So we are on trend with our value propositions in both of these spaces and a lot of energy behind both of them. Garik Shmois: No. That's helpful. Follow-up question is just on the home center softness you saw in Q4. Was that destocking by chance or just the general sluggishness in that channel? Victor Grizzle: Yes, it's kind of more of the same of what we've seen quarter-to-quarter than moving some of their inventory levels around. So primarily destocking again in the fourth quarter. And again, this is a dynamic they can sell down from their inventories, and then build up back up very unevenly. So fourth quarter was more of the same. To a lesser degree, of course, than some of the other things we mentioned, though. Operator: Our next question comes from the line of Brian Biros with TRG. Brian Biros: Vic and Mark, congratulations on the new roles. On the Mineral Fiber volumes, can you maybe just compare today's level to like pre-COVID? Because while volumes have been down, you've been able to perform very well. So I think it's kind of important to understand what you've been able to do at this lower volume level and kind of how we keep that in mind for when and if volumes do return? Victor Grizzle: Yes, it's a good question. 2019 levels, we're still about 14% -- as we finished '25, we're still 14% below 2019 volume levels. So yes, I mean, getting back to one of the earlier questions on market contribution to that 2% to 4% volume range. We have quite a bit of ways to go to get back to 2019 levels. And we believe that as long as the market verticals heal back to where they were, and there's nothing structurally in their way to doing that, we should be able to get back to 2019 levels. So that really is a flywheel opportunity. When you look at the margins that we're back to now, we're back to 2019 margin levels without 14% of the volume. So yes, very good opportunity for the company in the future. Brian Biros: Yes. That's a good story at the margin level. And then maybe a follow-up on visibility last year kind of always as choppiness around repair and remodel side, maybe like 6 months plus out, and then that kind of seemed to come in slightly better than expected at the beginning of the year last year. So Vic, how do you view visibility now for 2026 in that lens? I think you touched on it a little bit in the prepared remarks, but maybe just compare and contrast the visibility today versus a year ago? Victor Grizzle: Yes. I mean we're pretty good at modeling what's going on. There's not a lot of visibility on the renovation, especially some of the lower-level renovation work that doesn't involve, say, an architect. We've talked about this in the past. We have the least amount of visibility in that part of the Mineral Fiber business kind of just shows up through distribution. So we have to model that based on what drives that by vertical. And what drives it in the office vertical is very different than it drives in the education. So how we do that is we do a lot of modeling and triangulation. And of course, our ear to the ground with our customers in the marketplace. Again, we're pretty good at it. We don't get it perfectly every quarter, but on a year-to-year basis, our models are pretty good. So that's kind of how we do it. I think going into '26 and beyond, we'll continue to use the technology, the AI modeling capabilities that we have now to just get better and better at that. Operator: Our next question will come from the line of Stephen Kim with Evercore ISI. Stephen Kim: Vic, yes, congratulations, really a job well done and Mark, looking forward to working with you. Mark, I wanted to clarify a couple of things you said, there was a lot of talk about with respect to innovation, which is obviously a good thing. PROJECTWORKS, Kanopi, Healthy Spaces, TEMPLOK, DYNAMEX, SKYLO, you talked about the data centers initiative and the energy savings initiative. So what I wanted to first do is just make sure I understood your terms because you said that the some component of these added 1% of growth in 2025 and you expect an additional 0.5 point in figure '26. So what exactly was the 1%? And what exactly is going to be the 0.5 point that you're talking about? And I guess, generally, why would there be a deceleration? I would actually think given the momentum that there would be, maybe an acceleration in the contribution. So if you could just clarify that for me, it would be great. Mark Hershey: Yes, very fair. Happy to clarify. There is an acceleration that is the point I'm trying to make. I was trying to highlight the addition and the emphasis on data centers and energy savings as an accelerant to the other pool of initiatives that you mentioned there. So our initiatives, in general, that we've talked about historically are driving that first point. And with the addition and the ramping of energy savings and data center focus, there's an incremental 0.5 point on that initiative progress. Stephen Kim: Okay. So does that mean that in 2026 relative to '25, that the contribution would be 50 basis points? Or are you saying it's 150 basis points? I'm just trying to make sure I'm understanding what you're trying to communicate. Mark Hershey: Yes, incremental year-on-year 150. Stephen Kim: Got you. okay. That clarifies it. I appreciate that. All right. Great. And then I guess, secondarily, you've talked in the past about PROJECTWORKS and Kanopi as being a real differentiator for your business. And I'm curious if you see AI, the emergence of artificial intelligence as the positive or negative for some of your initiatives, particularly, I guess, with Kanopi. In the sense that I would think that AI might enhance their functionality, but I could also theoretically see it leveling the playing field a bit for your competitors. So wondering if you could talk a little bit about what you see in terms of the impact of AI as a positive or a negative factor for those initiatives? Victor Grizzle: Will you take that? Mark Hershey: Yes, happy to take that. So I think on the whole, it's a positive. And in fact, some of our initiatives, broadly speaking, are embedding AI, and it's one of the most prominent places we've got AI utilization in the organization is to enable -- further enable our existing initiatives. And we feel good about that focus, in particular, with specification excellence. We've talked about in the past as really an amplifier to that initiative. And just as we will across the organization, I could see all of our initiatives benefiting from the use. But early days for some of the initiatives, but in particular, spec excellence is the one that I think really is accelerated by AI. Victor Grizzle: And, Stephen, you know that winning the specification is really, really an important part of our strategy, right? As you -- over the years, you've come to know that's a key part to our pricing model, and of course, our innovation. So the fact that we're using AI there to even strengthen that core strength of ours is pretty exciting. Operator: Our final question will come from the line of Phil Ng with Jefferies. Philip Ng: Vic, congrats, and thanks for the partnership. And Mark, looking forward to working with you. I guess, to kind of kick things off, Vic, you sound a little more upbeat on the outlook for Mineral Fiber, right? I mean you're calling for a flat to up, which is encouraging. But you also -- I think Chris highlighted it's going to be a softer first half. I don't know if you just trying to signal volume is going to be down in the first half. But you sound more upbeat but slower start to the year. Can you kind of help square that up? And perhaps where is that optimism coming from? Are you hearing from your customers that they're seeing a more robust backlog? What's driving some of that? Victor Grizzle: Yes. There's still a lot of cautious, I would say, optimism around that. But when you think about the last several years, and Phil, you've called this out a couple of this, we've been outlooking a potential recession in the back half. And so we've had several years of downturns expected in the back half. I think the improved visibility in '26 is, nobody is talking about that. In fact, I think they're talking about the economy actually strengthening and getting better. And that's always good for renovation work. When the overall economy is doing well, and the uncertainty gets less and less, we see a lot more renovation work. So that's part of the encouragement that we see is that, there is more visibility. Nobody is calling for a recession. Actually, I think people are out looking more positive economic activity, and that gives us against the market out. But I would say, Phil, the biggest driver to a little bit more upbeat here is the traction we're seeing in our growth initiatives. This is what we can control. This is what we have really good visibility on. We have our target list. We know our customer engagement on that. And as Mark highlighted, getting some acceleration in the contribution from our growth initiatives is also really what we're encouraged by, and it's generating a little bit more confidence to get to a positive volume growth, again, as I said earlier, in the first time in a long time. So what Chris is outlining is, I think, very typical in terms of a seasonal impact in the first half, and now we've had some weather events, and we've had time to digest some of that impact and include that in our guide and how we're sequencing at the guide, too. That's really, I think, what both Chris and I have added back and forth to make sure that that's helpful and clear for everybody. Christopher Calzaretta: And maybe just to add a little more context to the volume in the first half, Phil, positive, but a slower start to the year volume-wise in Q1. Philip Ng: Got it. Okay. That's helpful color. And then I guess a follow-up on the WAVE earnings outlook, you're calling for mid-single-digit growth, pretty healthy growth considering you're lapping a pretty tough comp in 2025, and it kind of implies that the earnings leverage in WAVE is perhaps even more robust than the overall Mineral Fiber segment. What are some of the building blocks for that momentum in WAVE? Christopher Calzaretta: Yes. So as you mentioned, WAVE equity earnings growth for the year is in that mid-single-digit range. But if I just take a step back, Phil, one of WAVE's value creation drivers is that price/cost algorithm to continue to drive that growth through innovation, quality, service, and it's really to drive that growth through disciplined pricing, and there's no change there to your question. That rate that we're talking about here in 2026 is reflective of some short-term operating leverage headwinds on some of the initiatives there in that business. So as those kind of scale that will improve kind of in the short term, and we'll get more traction. And I think overall, from a longer term -- mid- to longer-term perspective, we don't see any change in the equity earnings growth trajectory to get back to that high single-digit range in terms of equity earnings for the WAVE venture. Operator: And that concludes our question-and-answer session. I will now hand the call back over to Vic for any closing remarks. Victor Grizzle: Thank you. And I appreciate the comments on the call. I really appreciate that. Really thank you all for the coverage and the support of AWI over the last 10 years. And I really, again, want to thank our 4,000 employees for just an outstanding job in transforming the company over the last 10 years. It really, truly has been an honor for me and a privilege to serve as the CEO of Armstrong. And as I step aside, like I said earlier, I'm more confident than ever that the future is bright here at Armstrong. So again, thank you all, and good luck to Mark. Mark Hershey: Thanks, Vic. Operator: This will conclude our call today. Thank you all for joining. You may now disconnect.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2025 Fourth Quarter and Year-End Results Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the express consent of Ovintiv. I would now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest. Jason Verhaest: Thanks, Joanna, and welcome, everyone, to our Fourth Quarter and Year-End 2025 Conference Call. This call is being webcast, and the slides are available on our website at Ovintiv.com. Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in the disclosed documents filed on EDGAR and SEDAR+. Following prepared remarks, we will be available to take your questions. I will now turn the call over to our President and CEO, Brendan McCracken. Brendan McCracken: Thanks, Jason. Good morning, everybody, and thank you for joining us. We are excited today to update the market on our latest results and the culmination of several years of strategic transformation at Ovintiv. With relentless focus and discipline, our team has remade our portfolio, reset our balance sheet, grown profitability and built one of the deepest inventory positions in our industry. We have done all that, while delivering superior returns on invested capital, both through the drill bit, but also through smart transactions. All along, we've been guided by a very simple formula, superior and durable returns will accrue to the company to build a deep inventory and the best resource creates a competitive execution advantage through its culture and expertise and has the discipline to allocate capital to the highest returns and get those returns on a full cycle basis all the way to the bottom line. Year-to-date, in 2026, we have closed the NuVista acquisition and reached an agreement to sell our Anadarko assets. This means our portfolio transformation is complete, and it leaves us with a very focused and high-quality portfolio in two of the best plays in North America, the Permian and the Montney. Proceeds from the Anadarko sale will go to the balance sheet, marking the achievement of our debt target and rightsizing our capital structure. The enhanced resilience of the business means that we can return more cash to shareholders and the new shareholder return framework that we unveiled today does just that. Several years ago, we made the strategic decision to focus our portfolio and build high-quality inventory depth in the Permian and the Montney. Approximately 80% of the remaining sub-$50 breakeven oil locations in North America are located in those two basins, bolstering our positions in these plays, where we have competitive advantage, means we can continue to deliver durable returns for many years to come. Since 2023, we've increased our Permian and Montney drilling inventory by more than 3,200 locations at an average cost of $1.4 million per net 10,000-foot locations, and we did it without diluting our shareholders or stressing our balance sheet. This inventory life expansion has been unmatched by our peers and leaves us with one of the most valuable inventory positions in the industry. Our sequencing between inventory additions and debt reduction was carefully managed. We recognize the importance of reducing debt and we balanced that objective with timely transactions that our team generated to put our shareholders into premium inventory for the right price. This greatly extended our premium inventory duration. We have now cleared both of these hurdles, and that represents a material derisking event for our shareholders. As North American shale continues to mature, a very clear competitive advantage is emerging for companies like ours, that have already set their inventory position up for success, have a clean balance sheet and can access premium price markets and have a demonstrated track record that translates to leading edge efficiency and returns. That combination of attributes is truly differentiated. Following the close of the Anadarko sale, which we expect will happen early in the second quarter, our net debt will be roughly $3.6 billion. This brings our leverage more in line with our peer group and opens the door for us to allocate a greater portion of our free cash flow to shareholder returns. The chart on the left of Slide 6 details the sources and uses of cash to get us to the $3.6 billion. If you'll recall, we funded the NuVista acquisition with a balanced mix of cash and equity. The cash component was largely funded by a term loan. With the proceeds from the Anadarko sale, we plan to first pay out the term loan and our 2028 notes and then allocate the rest to our credit facility and commercial paper balance. Our remaining long-term debt profile will have no maturities before 2030. We expect to realize $40 million of annualized interest savings from the repayment of the 2028 notes. This is in addition to the $25 million of annual savings we realized from paying out our 2026 notes earlier this year. We remain committed to our investment-grade credit rating, and we expect the Anadarko sale and subsequent deleveraging to be credit positive. With the Anadarko sales set to close in early Q2, we are in a position to increase our shareholder returns. We continue to believe that our equity is significantly undervalued and share buybacks continue to screen as an attractive return on investment. Our new framework will allow us to be more opportunistic in addressing this valuation discount. In 2026, under the revised framework, we will plan to return at least 75% of our free cash flows to shareholders. Longer term, we have set the expected range from 50% to 100%. This wider range has intended to allow flexibility to accommodate commodity price volatility and avoid pro-cyclical buybacks. To be clear, our 2026 buyback target will be based off our full year free cash flow as we plan to make up for the pause that we had initially planned for this first quarter. We plan to commence buybacks immediately. In conjunction with our new framework, our Board of Directors has authorized a share buyback program totaling $3 billion. I'll now turn the call over to Corey to discuss our year-end results and 2026 guidance. Corey Code: Thanks, Brendan. Our 2025 results demonstrate another year of execution excellence and strong financial performance. Our full year cash flow was $3.8 billion. We generated free cash flow of more than $1.6 billion of which over $600 million was returned directly to our shareholders. Our focus on capital efficiency enabled us to produce more with less capital. Our initial guidance for 2025 had us delivering total volumes of 605,000 BOE per day for $2.2 billion of capital. Throughout the course of the year, we lowered our capital by $50 million and produced an additional 10,000 BOE per day of total volumes. Importantly, we also continue to make progress on debt reduction, ending the year with less than $5.2 billion of net debt, a decrease of more than $240 million. Our solid execution in 2025 has set us up for continued success in 2026. Our strong operational performance during the fourth quarter delivered oil and condensate volumes averaging approximately 209,000 barrels per day at the high end of our guidance range and our capital investment of $465 million came in at the midpoint of our guidance. We also match or beat our per unit cost guide on every item, continuing to build on our track record as an industry-leading operator. Our fourth quarter cash flow per share at $3.81 beat consensus estimates by about 10% and our free cash flow totaled $508 million. All in all, we delivered another strong quarter, both operationally and financially, which allowed us to enter 2026 with significant momentum. Maximizing capital efficiency and free cash flow remains a primary focus for our teams this year. We're executing an oil-directed maintenance or stay-flat program with level-loaded activity in both the Permian and the Montney. The resulting oil and condensate run rates for each assets are roughly 120,000 barrels per day and about 85,000 barrels per day, respectively. Our 2026 program, including one quarter of Anadarko operations will deliver 209,000 barrels per day of oil and condensate over 2 Bcf a day of natural gas and total production volumes of 620,000 to 645,000 BOE per day or about $2.3 billion of capital investment. When compared to the preliminary 2026 production outlook of 715,000 BOE per day we provided in November, the sale of the Anadarko reduces volumes by about 70,000 BOEs per day and the timing of the NuVista acquisition closing reduced those volumes by about 10,000 BOEs per day. We expect to see margin improvements in 2026 driven by lower LOE, production and mineral taxes and interest expense. Our T&P costs will increase this year as a result of greater Montney weighting in our portfolio, additional Montney processing capacity and increased market access in both plays, which enhances our netbacks. In the first quarter, we expect production to average approximately 670,000 BOEs per day, including about 223,000 barrels per day of oil and condensate. This will be the high point for the year. This includes roughly 3,000 or 4,000 BOE per day of cold weather impacts that we experienced across the U.S. assets in January. Our capital spend will also be the highest in the first quarter at about $625 million, largely due to $50 million of capital allocated to the Anadarko and some drilling activity in the Montney that we inherited from NuVista. I'll now turn the call over to Greg who will speak to our operational highlights. Gregory Givens: Thanks, Corey. Let's dig into each of our two asset level development programs. Starting in the Permian, capital efficiency and free cash generation remain the top priorities as we work to drive efficiency in every aspect of our operations. Ovintiv is consistently one of the highest productivity, lowest cost operators in the basin. We recently received third-party recognition of our basin leadership from JPMorgan by being awarded the 2025 Order of Merit for Midland Basin performance. Ovintiv had the highest 3-month cumulative oil per foot again in 2025, and was the only operator who improved performance in each of the last 3 years. There are several factors that have contributed to our type curve improvement over that period of time. And one of the bigger factors has been our use of surfactants and our completion designs. We've been studying surfactants for a number of years, both in the lab and in the field, and we pumped them in about 300 Permian wells since 2019. Compared to a similar group of analog or non-surfactant test treated wells, we see a 9% improvement in oil productivity. We believe surfactants account for roughly half of the type curve improvement we've observed in our Permian assets since 2022. We tested different chemical formulas across our acreage, and although performance varies by zone and by county, there is meaningful oil recovery benefit from these low-cost additives, which are highly economic. We will continue to hone our approach and trial different products across the acreage, but we are very pleased with the results we've achieved so far. Our Permian team continues to set the efficient frontier when it comes to drilling and completions performance. We take great pride in our development approach and our ability to stack multiple innovations together to create industry-leading results. On completions, part of our success is from utilizing our real-time frac optimization. Every job we pumped is optimized in real time using proprietary algorithms, leveraging our vast private Permian data set. This also allows us to make real-time decisions, which improve well recovery and reduce costs, leading to better pad economics. We also made efficiency gains this year through use of continuous pumping. We pumped for 7 straight days on our first trial, leading to a 20% improvement in completed feet per day. Our full year average completed feet per day was about 4,250. This was more than 10% faster than our 2024 program average. On the drilling front, we have developed several in-house AI tools, which have allowed us to reduce cycle times, minimize failures and accelerate efficiency gains. Our 2025 drilling speed averaged more than 2,000 feet per day for the second consecutive year. Our Pacesetter well was over 3,000 feet per day, so we'll look to continue improving on what we believe are basin-leading results. These cycle time improvements are driving lower well costs. Our 2026 expected drilling and completion cost is among the best in the industry at less than $600 per foot, which is about $25 per foot lower than last year. The 136 net wells we brought online in the Permian in 2025 continue to meet or slightly exceed our 2025 type curve. This type curve was unchanged across the year, and it remains unchanged in 2026. This year, we plan to run a load-level program with 5 rigs in 1 to 2 frac crews, bring on about 130 net wells. We plan to hold oil and condensate production at roughly 120,000 barrels per day. While our Permian economics are driven by oil, it's important to note that we now have about 150 million cubic feet per day of firm transport leaving the basin for our Permian natural gas volumes. This means that roughly 55% of our 2026 gas production will be priced at the Gulf Coast instead of Waha. Last year, our unhedged Permian gas price realization averaged $1.55 per Mcf, about 179% of Waha. Moving north to the mine, we remain very pleased with the tremendous depth and quality we have added to our acreage in the heart of the Alberta oil window over the last year. We are very excited to have the NuVista assets in our portfolio, and we are already working to integrate them into our business as safely and efficiently as possible. As a reminder, we plan to deliver well cost savings of $1 million per well across the acquired assets through the application of our industry-leading approach to drilling, completion and production operations. We demonstrated our ability to capture similar cost synergies last year as we integrated the Paramount assets into our business. The swift achievement of those synergies is a real testament to the culture and capability of our Montney team. We couldn't be more pleased with how those assets have performed. We quickly achieved our well cost savings target of $1.5 million per well, took 14 days out of the drilling cycle time and successfully tested the upside potential of the asset with a higher density development. At our 15 of 16 pad, we added a third bench and increased density to 14 wells per section, and we're seeing initial productivity rates that are exceeding our expectations. These results have unlocked roughly 130 upside locations across our Montney acreage. This year, we plan to run 6 rigs and 1 to 2 frac spreads to bring on about 135 net turn-in lines. We plan to focus roughly 1/3 of our activity on the newly acquired NuVista acreage, 1/3 on the legacy Paramount lands and 1/3 will be split between our legacy Pipestone and Cutbank Ridge areas. Current production from the Montney is in line with our previously communicated run rate of about 85,000 barrels per day of oil and condensate. We are maintaining a repeatable type curve, and although individual wells in the play will display a range of oil mix, the aggregated program delivers very predictable results. Due to some planned plant turnarounds, Montney production in the second quarter is expected to be at the lower end of our full year guidance range of 83,000 to 87,000 barrels per day and 1.75 to 1.85 Bcf per day of natural gas. While we are working with our midstream providers to minimize the downtime as much as possible. In 2026, we expect our D&C cost to average less than $500 per foot. This is about $25 per foot less than our 2025 well cost. Part of the decrease year-over-year is thanks to faster cycle times as well as greater use of domestic sand in our 2026 completions. Roughly half of our 2026 Montney wells will be completed with locally sourced sand. Overall, the asset is performing very well in the low-cost, high-productivity nature of the wells has meant we've consistently been able to generate highly competitive economics from the play throughout the commodity price cycle. I'll now turn the call back to Brendan. Brendan McCracken: Thanks, Greg. Over the last few years, we've worked hard to high grade and focus our portfolio, build extensive inventory depth, drive profitability and reduce our leverage. Over that time, our team has delivered outstanding results. Those results demonstrate that our strategy is working and our execution excellence is translating into increased value for our shareholders. We've been very intentional about building a high-quality business. We've demonstrated along the way that we are disciplined stewards of our shareholders' capital. We will continue to be relentless about making our business more profitable and more valuable every day, but we've reached a new period of stability, and we are excited to unlock the full value of what we've built. This concludes our prepared remarks. Operator, we're now ready to turn the line back for questions. Operator: [Operator Instructions] First question comes from Arun Jayaram at JPMorgan. Arun Jayaram: I was wondering if you could maybe elaborate on the change to your shareholder returns program in '26, where you're increasing the mix to 75% from 50%. And thoughts, Brendan, how we should think about the mix of shareholder returns post-2026 relative to the 50% to 100% long-term range? Brendan McCracken: Yes. Thanks, Arun. Yes. So today, we see a lot of value in our equity. And when we close the Anadarko, we expect to be at about $3.6 billion of debt. And so that's really the reason for shifting to the upper end of the range this year. And then longer term, we've set a wider range. And really, the thinking here is we want this framework to be durable through the commodity price cycle. And in particular, we want to avoid setting up a procyclical framework, and what I mean by that is when commodity prices are high, you probably should expect us to be more towards the low end of that 50% to 100% range. And what that allows us to do is be banking that windfall, if you will, when commodity prices are well above mid-cycle be banking that windfall permanently into the capital structure. And then on the flip side, in periods of lower commodity prices below the mid-cycle level, that could push us to the higher end of the range where we're likely to see more value in the equity. So that's the only thinking behind the longer-term 50% to 100% range, and we'll have the ability to flex around that. But when we see value like we do in the equity today, then the upper end of the range is appealing. Arun Jayaram: Great. Brendan, my follow-up, we were very interested in the surfactants program, and perhaps we're surprised that you guys have been doing it for so long. So I was wondering if you could maybe unpack some of the details on the program. What looks to be driving some productivity gains versus control wells. And it looks like you're using surfactants more on the completion end or the front end of the well life cycle. Maybe talk about the cost benefit and wondering if you have tested surfactants in terms of moderating your base declines as a couple of your peers have highlighted thus far. Brendan McCracken: Yes. I love the question, Arun. Yes, there's a lot going on in the company today. So glad you dug in on that surfactant piece. I'll maybe just set up a couple of comments here and then take it over to Greg on the details, but this is just another example of the stacked innovation that we've been talking about. And really for a few years now, we've been emphasizing three key features in our completion design that we think are adding value, adding to our type curves. And we've been calling it fluid chemistry. We were kind of deliberately trying to keep it quiet on exactly what we were doing since we felt like we had kind of got out ahead of others in this space and that's what you're seeing us show off today with 300 results already. That's really helped push us to the top of the leaderboard on Permian productivity. So that's kind of a bit of the background, but I'll kick it to Greg here to talk about some of the specifics. Gregory Givens: Yes. Thanks, Brendan. And thanks Arun, for the question. And yes, you highlighted it correctly, we are focusing our surfactant program on the initial completions. This is something we've been working on for a number of years, and the team continues to make breakthroughs and build our confidence in this space. So maybe just a little bit about what we're doing. So these surfactants that we're pumping, there are liquid additives that we include in our frac fluid. They are designed to improve oil recoveries in the reservoir down hole. So once you pump them down hole, they change the surface tension of the fluids which allows more of the oil to be released from the rock, flow into the fracture and then out the wellbore increasing recovery, not just in the short, but in the longer term as we've demonstrated over the last several years. We've been working for a number of years on this, both in the lab and in the field. So we've done core testing in the labs as well as field trials to try to determine which surfactants work best in which zones. We've been working to optimize the concentrations that we pump. So the amount of surfactant per ratio of fluid, both to optimize the effectiveness, but also optimize the cost of these surfactants. And so far, we pumped, as we said in the prepared remarks, surfactants in around 300 wells generating that 9% uplift, but that's been a progression over time. So we started out in the early years with some field trials, gained confidence. And more recently, last year, we pumped surfactants and about 75% of the completions we've pumped in the Midland Basin and saw very good results with that. We would anticipate pumping a smaller amount this year in 2026. So we've been very pleased with the results on our completions. We've also tested it to some degree in producing wells. Haven't seen quite the effectiveness there. And so that is a very small part of the program. But the continue -- the team continues to experiment with this and will continue going forward. But we do believe it's a very effective way to improve recovery in the near and long term from these wells. And we think it's going to -- it has been and will continue to be a big reason for our outperformance in the Permian. Operator: The next question comes from Lloyd Byrne with Jefferies. Francis Lloyd Byrne: Congrats on the transformation. I know it's been a long process. Maybe I wanted to ask about the surfactants a little bit as well and maybe Greg can talk about -- a little bit about costs per well. And how are you seeing that go forward? I know you're just in the early stages, but if you have a 9% improvement. Are the costs going up as well? Brendan McCracken: Lloyed, yes, so this is an interesting question. So when we first started this work several years ago, there was some really expensive chemistry out there that was a real barrier to pumping it more broadly just because of the risk/reward feature and what our lab work has really let us do is trial hundreds and hundreds of different chemistries here, which allows us to then create substitutes that have now kind of almost completely displaced some of those original chemistries that were in the market several years ago. So Greg commented on one of the things we've been fine-tuning is the amount of surfactant that we've been pumping, but the other feature has been substituting cheaper and cheaper alternatives. So we've been a little reluctant to be specific about some of this here because we're trying to protect what we think is an advantage. But it's in the hundreds of thousands of dollars a well, is probably a good way to think about it. Francis Lloyd Byrne: Okay. And then just as a follow-up, you've kind of moved from 4 basins to 2 basins and just what kind of opportunity does that give you to cut costs maybe from an organizational structure as well? Gregory Givens: Yes. So really appreciate that, Lloyd. With this latest transaction, what we pointed to is $100 million of synergies, but we also pointed to several synergies that we didn't quantify at this time. And we think those are going to show up on the infrastructure side. We saw that with the Paramount integration. And really, now we're kind of stitching together our legacy infrastructure, the Paramount infrastructure and then now the NuVista infrastructure, all 3 of those overlap. And so there's going to be some of those synergies realized, and we look forward to updating the market on those as we get deeper into the year. And then there's going to be some organizational synergy here, too. Everyone on our team has done just a tremendous job working safely through a lot of change at our company and created a lot of shareholder value. And so I do want to recognize their effort and the results that they have delivered. And we've taken big steps to simplify the portfolio, and so we will be redesigning our organization to match that new portfolio. And we expect to have those changes completed shortly after the Anadarko divestiture, and we'll update the market on the impact of those once we get there. Operator: The next question comes from Neal Dingmann with William Blair. Neal Dingmann: Nice quarter. Brendan, my question is just on the Montney. I'm just wondering, looking at the activity, look like maybe, right, about 1/3 of activity coming from the NuVista 1/3, Paramount and the 1/3, the prior position. And I'm just wondering if so, do you anticipate sort of similar activity across the board like that and are those well results pretty similar across the board. Brendan McCracken: Yes, Neal, you got it, Neal. That's about the activity cadence going forward is going to be that 1/3, 1/3, 1/3. And and just a quick comment on the driver for that. That's really an outcome of our reoccupation strategy. And folks will remember that's the strategy we pursue both in the Permian and the Montney to maximize value from our acreage as we manage the interactions between cubes. So a lot has been made over the last several years about the inter-well effect of co-development or cube development, but there is also inter-cube effect as we drill a new cube beside an existing cube. And so that is a governing feature of our development programs. And so that in those small part drives that allocation of activity as we just continue to mow the yard across our acreage position in both the Montney and the Permian. So that's the big driver of that piece there. Neal Dingmann: That makes sense. And maybe just a second one on that same vein for you, either you or Greg, just maybe more in the Permian development. Can I assume that the development will continue to consist mostly exclusively of cube development. And if so, is well spacing staying relatively the same there? Or is there any changes? Gregory Givens: Yes. Thanks for the question, Neal. In the Permian, we continue to optimize and make small tweaks over time to our well spacing to account for the existing cubes or parent wells in an area, but overall, we're still using the same approach. We complete the entire cube at the same time, come back 18 months later and complete the offset cube, getting all of the zones at the same time at a fairly similar spacing. And that's allowing us to get very consistent results year-over-year. So we're not saving any lesser zones to come back later when they would be disadvantaged. We're getting the whole cube at the same time, and that's working quite well for us. So no major changes there. Operator: The next question comes from Neil Mehta with Goldman Sachs. Neil Mehta: Yes. Brendan, congratulations on, again, this transformation over the last 5 years and maybe that's kind of the key question for me, which is, have you gotten the portfolio to the optimal level where you -- I think when you took over, you were in 6 areas, now you're at 2. Are you in your sweet spot? Does that mean that there's a pause on M&A as you digest all this and the incremental dollar really is to the buyback, or is there another leg to the story that you're still exploring? Gregory Givens: Yes. Thanks, Neil. Yes, the portfolio transition here is complete. So we've clearly planted our flag in the Montney in the Permian, where we have competitive advantage and where we see the best resource. And we've built one of the longest duration inventory positions, while we did that. And so we really believe that stability has real value for our investors, and we look forward to continuing to unlock the full value from what we built. Neil Mehta: Okay. I appreciate that. And then just a follow-up is just on the shape of both production and CapEx through the year. I guess, Q1 is a little bit heavier, but I'm guessing that's part of that's just the pro forma portfolio. And then Q2, you've got a little bit more maintenance in Montney. So can you just talk about how you're thinking about the cadence for production, quarterly cadence of production and then capital through the year. Brendan McCracken: Yes. Great. You nailed it exactly, Neil. So the little bit higher capital in Q1 is absolutely just the Anadarko effect. And so once we close that, that will come out and we'll just run rate out and I think we've probably said transition or transformation, the highest word count of this call so far. But one of the other pieces that we've transformed is the low-level nature of our programs, and that has been over multiple years here to shift to a fully low-level program. And really, we've got that as a really key feature in 2026. So we really like how we've leveled out that and it just creates more predictable and stable business to operate within. Operator: Greg Pardy with RBC Capital Markets. Greg Pardy: I had really a couple of technical questions. I was curious, just first, how much of an opportunity is there with respect to this using in-basin sand? I caught some of Greg's comments or, Brendan, your comments. But I'm just wondering, has that been perhaps optimized in both the Montney and the Permian. Brendan McCracken: Yes. I love the question, Greg. Yes. So we're really excited about the in-basin sand results that we're already delivering in the Permian and really excited about the evolution that's going on in the Montney as we shift more and more to domestic and wet sand in the Montney 2. And this is another great example of stacked innovation, creating value for us. And and also a great example of knowledge transfer and value between the two pieces of our portfolio because this is obviously something that we led the charge on in the Permian and now are leading the charge on in Canada and in the Montney. So Maybe, Greg, if you want to give a few comments around the percentage of utilization and where we're headed there. Gregory Givens: Yes. Thanks, Brendan. Yes, Greg. So on the Permian side, we've been at local wet sand for a number of years and essentially 100% of our program is going to be local wet sand from mines there in the field. And so we're continuing to refine that process with our sand pile and our delivery systems, but that's a fairly mature program. The new news over the last year or so is moving some of that technology north of the border. As you know, historically, most operators will be taking Northern White Sand by rail from the U.S., up to Canada, and that just adds a whole lot of cost. And so we've been working with providers there to use more local domestic sand. The sources aren't quite as close to the field, but there are good sand sources. And this year, we're going to have roughly 50% of our sand pumped will be domestic sand. They're sourced in Canada. So you eliminate that rail charge, and you are able to lower cost dramatically. We've also begun testing wet sand in Canada, and it works quite well. This time of year, we joke, it's a little crunchier, but it still goes down hole just the same. And that is an evolving technology that we think we're going to be able to use more and more over time. So we should see some of the same efficiencies we saw in the Permian and some of the cost reduction, but a little more nascent in Canada than it is in the Permian, but still working quite well. Greg Pardy: Okay. And then I'll maybe just kind of staying with Montney now. When you kind of compare and contrast NuVista versus the Paramount acquisitions. Can you -- how do you look at perhaps the degree of low-hanging fruit cost synergies, efficiencies and things like that. I think, Brendan, in the past, you've mentioned NuVista was actually a pretty good operator. I'm just curious on the two. Brendan McCracken: Yes. I think -- I mean, I'll start with geography first and then just come on to -- Greg will have some comments on the integration. But the NuVista piece really fills in the jigsaw puzzle. And so with Paramount, we stepped further South than we had been with our legacy, not by a long ways, but -- and we were, I think, had the right amount of humility there to make sure when we integrated those assets that we didn't change something inadvertently and create risk in the integration. And so we stepped our way in a very thoughtful integration process through really a full year here. And one of the highlights in the deck today, again, there's a lot in there, but one of the highlights in there is pointing to the really strong results we're seeing from our first density pad, and we're excited about those. And then with -- in contrast, NuVista really filling in the jigsaw piece in between. We just have a lot more technical confidence and we're kind of integrating quite quickly there with that piece. But Greg, if you want to comment on some of the specifics about how it's going. Gregory Givens: Yes, for sure. Yes, I think Brendan set it up really well. It's going to be the same process on NuVista as it was on Paramount. It's just going to go a little faster. So because of our familiarity with the assets plus all of the learnings we had on the Paramount integration we're going to try to accelerate things a little, and we think that that's very doable. So the team is already hard at work, employing the same playbook that we've used on all the LAP transactions. We came in day one, took over the asset. We had a short safety orientation, and then got to work. So by that afternoon, we were operating the asset as Ovintiv. There's only been a few short weeks, but we've already connected all the producing wells to our operations control center so that we can optimize production and minimize downtime. We've linked the drilling rigs to our Drive Center, which is our optimization tool where we use AI to help optimized drilling performance, and that's going to allow us to deliver our synergies here very quickly. We've already incorporated the $1 million per well of savings the synergy savings, are what you're seeing as part of the guidance. We're going to be delivering that from day one. And so, so far, we've had really, really good results. The teams are integrating well. The new wells remain drilled as expected. As I mentioned earlier, production is already at 85,000 barrels a day, which is what we expected for the assets as they come together. So integration is going quite well. Just really, really pleased, and I think it will be very similar to the last time. It will just go a little faster and hopefully be even more effective. Brendan McCracken: Greg, that high density test results on Slide 14 there, which was the 14 wells per section that we talked about when we started out with the transition of the Paramount integration of the Paramount assets. And so that does move 130 wells out of upside into the premium bucket for us. So a really critical result. Operator: The next question comes from Josh Silverstein at UBS. Joshua Silverstein: From a balance sheet perspective, pro forma, you're now below that $4 billion long-term target that you've had for a while now. How should we think about the right levels of debt for you guys going forward? Should we think about it as kind of an absolute level or a net debt level to kind of think about free cash flow allocation? Brendan McCracken: Yes, Josh. So, yes. So we've reached that target. In fact, we're going to move past it here with the Anadarko proceeds. So really, we're not setting a new target here. If you remember, the $4 billion net target that we set was really a trigger for increased shareholder returns. And we spent obviously a lot of time and effort getting us to this spot. So that is now happening. That trigger is pulled and the catalyst to change those returns is going to be up and running right after we get off this call, I guess. And so we've had to balance that debt reduction as part of our capital allocation for a long time. We've now put ourselves into this resilient position. And at the same time, we put the inventory into a really strong and resilient position as well. So it just means we're in a place here now where we can focus on keeping the debt around this level and focus on allocating more to cash returns. So that's how we're thinking about the debt level go forward. Joshua Silverstein: Got it. And then from a Montney operating perspective, I know you guys on the Paramount transaction, were able to kind of optimize the infrastructure a bit more. Can you talk about what you might be able to do on the NuVista asset as well to kind of improve the overall productivity here and then maybe from a long-term planning perspective, is there anything you guys are thinking about from an infrastructure standpoint that you may need to invest in or want from a third-party build? Brendan McCracken: Yes, I'll turn it over to Greg here, but we are excited about taking these sort of three disparate systems that were previously all operated independently and being able to have one value-creating mindset over all three of them. But Greg, you can comment. Gregory Givens: Yes. Thanks for the question. And so in the short term, we're really focused on getting the well cost savings at the well level putting in our completion designs, our facilities designs. And that's going to take place over here like immediately over the coming months. Longer term though, we're really excited about the opportunity to optimize infrastructure. If you look at the map, it's just reeks of opportunity. When you look at how well the three positions come together, the gas plants, how close they are to each other, the number of midstream lines that are crossing the asset. So a little more work to do there. It's a little more time consuming to work with the midstreamers to make sure we're doing the most efficient operations there. But over time, that's something we're going to target to get our T&P down to get the gas molecules for the most efficient plant and to work through those things. So that's coming a little longer. But in the short term, we're really excited about the well cost savings. Longer term, we think the midstream, there's a lot of opportunity there, and that will be something we'll start working on here immediately. Operator: The next question comes from Doug Leggate with Wolfe Research. Douglas Leggate: Brendan, I wonder if I could ask you about asset duration, and how you define that. The portfolio repositioning is extraordinary as everybody has observed. But I'm trying to understand, when I asked this question to Diamondback this morning as well, is this idea between sustaining production or drilling depth versus sustaining free cash flow? How do you think about that in the portfolio? What are you trying to solve for? Brendan McCracken: Yes. I mean we haven't been exotic with our thinking there. We just run it off of what it takes to sustain the production. And in a lot of ways, what we've been talking about, Doug, is the ability to sustain the returns that we're generating today, while we do that production maintenance level and this, again, at the risk of being too pedantic with it. This is why the reoccupation strategy and how we've approached, both cube development, but also program design really derisks our inventory duration over time. And just as a refresher here, because we're designing our annual programs with that reoccupation in mind, so to come back sort of 12 -- sorry, 18 to 24 months after we've drilled the prior cubes because that's been the dominant feature of our program design, we essentially are sampling all of our remaining inventory with a full year development program, either in the Permian or the Montney. So what that means is we already know what the remaining duration inventory and how it's going to perform because we're drilling it today. We're not saving the worst locations for a decade from now. We're kind of drilling the full cubes and then reoccupying cubes as we go. So I believe that to be a big derisker. And one of the other things that's important on this front is if we were telling you that, that was what we were doing, and we were delivering mediocre results, I think that would be up for question, but we're delivering leading results while we're doing that. And I think that's the true differentiation. Douglas Leggate: I appreciate that answer. I know it's a bit nuanced more than anything else. But forgive me for my second one, but you're probably not going to talk about capital structure and all that stuff. But I want to ask you about your philosophical view as the CEO about your commitment to cash returns. Because if I play back to you what you just said today, you do not want to be guilty of pro-cyclical buybacks. But that's exactly what you're doing in 2026, if I may say so, meaning that your stock is up 25%. ExxonMobil's is up 22%. Oil is about 70% for reasons we all know are not necessarily fundamental. And this is the year you're going for a 75% of your free cash flow per share buyback. Why are you not choosing to be more discretionary in your timing? Brendan McCracken: Yes. I'm going to try and not be -- I guess, I mean, I'm still trying to be humble here, but 30% still doesn't get us to what we think is a reasonable valuation for the stock. So I'm not trying to say that, that's not great, and we're pleased, obviously, with the momentum, but we still see a lot of intrinsic value in the equity today. When we talk about trying to avoid being pro-cyclical, a lot of that is going to be tied, as you know, Doug, to the commodity environment. And today, we're not in a commodity environment that screams really high windfall situation, I think, we're still in a relatively modest commodity environment today. And so we do not see the risk of being at 75% as opposed risk today because of that intrinsic value gap, we still see any equity. Operator: The next question comes from Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: My question is on the 15, 16 pads. So maybe this is for Greg. Greg, wondering if you can talk about how you sequence the completions of the three zones and sharing the details on the frac job. That third zone has been an opportunity in the area. It sounds like you guys have cracked the code. And then where in the basin next do you plan to apply that design? And could the balance of the upside locations move into the derisked inventory count this year? Brendan McCracken: Yes, I will turn it to Greg. Thanks, Kalei. Gregory Givens: Sorry, I forgot to turn my mic on. Yes, Kalei, I appreciate the question. And we're really, really pleased with the results there on this 15 to 16 pad down in Karr. So what the team has done there, just as a reminder, when we acquired the asset, our base case was 12 wells a section. We said we had upside up to 16 wells. So this is the first pad that we really got to design and to end in the area. And so we kind of met in the middle with 14 wells per section spacing. So we added that third zone down in the Lower Montney or the [indiscernible] some call it. And also increased density in the upper part of the cube, pumped a fairly normal frac design for us, which might be a little more intensity than some of the peers are pumping in the area, but it's a fairly normal frac design. It was really the stacking and spacing that we leaned in on. And so far, we're really pleased. The pad has been online a little over 100 days. The lower zones actually exceeding expectations of what we were expecting. And then the upper zones are holding up very nicely despite the increased density. So our plans now are to move to other parts there of Karr and employ this density test -- sorry, density design now. And that's why we've talked about 130 of the, call it, roughly 600 upside locations between the two deals. This proves up 130 of those. So the next step will be to go to other parts of Karr in testing the third zone. And then we've still got work to do up in Wapiti and in other parts of the acreage. So we'll be systematic about this. One pad doesn't prove up all the upside, but we'll continue to execute with this design on our future pads and then maybe even lean in a little more, when we still have a little more upside potentially, up to 16 wells per section on a few of the pads. So really pleased. But I wanted to wait until we had a few months under our belt before we talked about this one. And right now, we're feeling really good about it. Kaleinoheaokealaula Akamine: Maybe staying with the Montney here. The second question is on the plant turnaround in 2Q. We understand that was elected by the midstream operator. How should we be thinking about the cadence of turnaround activity in the Montney? Is it annual? How much heads up does the operator typically give you that a turnaround is needed? And should we expect better performance from these plants and maybe that's in yield after this work has been completed. Gregory Givens: No, I appreciate the question, Kalei. This is fairly normal operations from the midstream processing plant, up in Canada. They're on schedules that every 2 to 3 years, you take down the plant for a few weeks to do inspections, routine maintenance, maybe upgrade a few of the vessels. So these are the kind of things that we're usually we know about well in advance. That's why we're talking to you now about something that's going to happen next quarter. What we're experiencing in this coming quarter as we just happen to have five of them, which are all lined up at the same time. And so normally, we don't really have to talk much about these because you may have 1 or 2 turnarounds going on at the same time and you can move volumes around. But when you end up having 5 at once all lining up at the same time, it just takes a little more coordination. So we're working with the midstreamers to try to minimize the amount of time that they're down, try to move volumes around them where we can. But right now, we do feel like there will be some impact. And that's why we're guiding to be at the lower end of that 83,000 to 87,000 barrels per day in the Montney. But this is something that I'd say it's fairly infrequent that they all line up in the same quarter. Usually, they're more spread out over time and they're more manageable. So I don't think this is a longer-term risk for us. This is just something the way the stars align. We wanted to let everyone know that this was coming and that we're planning for it. So that when we come back and report Q2 earnings, there's no surprises. So just trying to give you guys a heads up, but trust that we're working to try to minimize the impact as much as we can. Kaleinoheaokealaula Akamine: And Greg, just to follow up, coming out of maintenance, could there be any increase in the performance in those plants, maybe that's in yield after that work is done? Gregory Givens: That's going to vary by facility and exactly what kind of work they're doing. But usually, these are not upgrades that add capacity. These are more routine maintenance, think of changing the oil in your car, probably isn't going to run a whole lot better after you're done, but in some cases, we could see some minor improvement or flushed production. But for the most part, this is just routine maintenance routine work that they're doing. Operator: The next question comes from Betty Jiang at Barclays. Wei Jiang: Congrats again on the portfolio transformation and maybe into the buyback. My first question on the Permian. If you mind me digging into the numbers a bit, but your lateral length is higher year-on-year. And so on a total net total footage basis, it's almost up high single digits year-on-year, but holding production flat, even though type curve is unchanged, what we would typically expect some upside to that production. So could you just unpack the dynamic there? And if we hold up Permian production flat, where could the CapEx trend on a normalized basis going forward? Brendan McCracken: Yes, this is great, Betty. And I'll turn it to Greg. here. The headline here is we are being an efficiency gain on the well cost side. So we're 5% down on the well costs year-over-year and then holding the type curves flat. So what you'll see over time is that this is going to translate through into the total program, but there's some timing effects for 2025 -- 2026 that are kind of masking that a bit here, but Greg can cover that. Gregory Givens: Yes. So thanks for the question. And so as we've been talking about today, we really like to usually run our programs on a very level-loaded basis, at least that's been our goal. We've tried to complete our wells as soon as they are drilled. So we don't carry excessive DUCs. But as you might recall, last year, we had a number of extra DUCs coming into the year. So in the first quarter of '25, we employed a spot frac crew in the Permian and came in and finished out all of those DUCs, which it had a couple of impacts to our program. One, capital was actually artificially low last year because for all of those DUCs, the drilling capital was in the previous year, and the only -- we only saw the completion capital last year. And the other result was we actually saw a really nice production boost there in the first quarter. We brought on over 50 wells in the first quarter, which was about double our run rate for the other quarters in the year. So really positive for last year. Unfortunately, for the metrics, we don't have that same circumstance this year. But we do have a very level-loaded program that we feel very good about. It allows us to become more efficient and continue to execute very repeatedly when we do the same number of completions, same amount of capital, same production every quarter. And so you think about the building blocks of the guide, you've got a slightly lower cost per foot, same type curve. So really, the only difference is the timing. And so that's what you're seeing manifest as it rolls through the numbers. But over time, we feel like this is going to be a very efficient program that's going to continue to get better over time as we continue to drive down the costs and keep that type curve flat. Wei Jiang: My follow-up on the Montney surfactant use. I mean it seems a lot of operational efficiency tailwind in Montney, but specifically, are you testing the surfactants in Montney as well? Is there any read cross and viability there? Brendan McCracken: Yes. I think I'll say Greg up here, but what we found and understood really from the early days of this is every bench in each county are going to perform a little bit differently depending on the wettability and the fluids that we're trying to impact. And so -- and the Montney does have a wholly different down subsurface regime from temperature and pressure perspective. So it's going to have its own bespoke completion optimization. Some of that might be surfactant. Some of it is looking like other pieces that it can add to the performance that we're seeing there. So it will be a little bit different. We're quite a way further advanced on surfactants in the Permian with 300 wells pumped there. We've done no renew that many in Montney to this point, but really excited about completion design in the Montney generally. We'll see surfactants were going to go a little slower there just because of the temperature and pressure differences. But Greg, over to you. Gregory Givens: Yes. So yes, we're in our seventh year of surfactants in the Permian. And so we've learned a lot over that time. We've learned where they work best, what concentrations work best, as Brendan said earlier, which chemicals are most effective for the lowest cost. And so we've really advanced our learnings there. We're still in the early innings, up in the Montney. The team does a great job, though, of sharing learnings cross-border and cross assets. So we're absolutely looking at things up there, and we've done some of the rock work, and we've done a few trials so far. And so we're just -- I would position it more as we're just getting started up there, but the whole toolbox is available to us as we see that working as well as we see higher completion intensity, stacking and spacing optimizations, all the things that we do in the Permian, we do the same in the Montney. And so we'll share those learnings cross-border, but maybe just a little earlier stage in the Montney on surfactants. And it will be a slightly different setup just because of the pressure regime downhole and the rock fabric. It's just a different reservoir, but we'll work to see if we can make the same kind of improvements there that we've seen in the Permian. Operator: The next question comes from Phillip Jungwirth at BMO Capital Markets. Phillip Jungwirth: Just with some of the industry news today, can you talk about how you see the prospectivity for the Barnett, Woodford across your Midland acreage? And where that might be across North, South and any plans to test this? Brendan McCracken: Yes. I'll turn this to Greg. But really pleased with the job the team has done here to assemble a position in the Barnett. But Greg, over to you. Gregory Givens: Yes. So we've been very interested in the Barnett and have been watching it for some time. I do think this is one of those plays that we're wise to learn from our peers and see what -- the two things that are going on with the Barnett, it's a deeper zone. So it's got more pressure, and it looks like it's got good productivity, but it's also got higher costs. So we're watching as some of our peers are derisking the cost side as well as derisking the well performance. We do have a meaningful Barnett position. We've got Barnett rights on about half of our acreage position in the Permian, so around 100,000 acres. We'll look to test that this year with our first well. So we'll get some information of our own, but we're also going to watch and I think be prudent on how much we lean into the Barnett. It's a deeper horizon that's separate from our cube, so that resource is still going to be there later. It's not going to be impacted by the shallow production. So I think this is one where we have time to be a little more patient, but also have the ability to fast follower and go execute on that 100,000 acres if we choose to do so. Phillip Jungwirth: Okay. Great. And then can you talk about what you've seen with LNG Canada ramping up the second train starting up just as it relates to the AECO market and Ovintiv supplying that versus maybe incremental equity volumes for the partners. And more hypothetical, but -- would changes in ownership across the facility have any implications for Ovintiv or open up any strategic partnership or marketing opportunities? Brendan McCracken: Yes. So I think -- so we are pleased in recent weeks to see that facility ramp up to essentially full capacity, which is kind of really the first time since the start-up that it's been at that level. So it's been a slow grind upwards with a bit of ups and downs along the way, as I'm sure you followed. So I think our caution on AECO remains the total takeaway from LNG Canada, while it's great to see it in recent time, up to that level. It's still relatively small relative to the total productivity potential of the basin, and we've seen the sort of behind pipe volumes, if you will, able to fulfill that takeaway. So still cautious AECO, still strong believers in diversifying our Canadian gas portfolio into alternate markets, which is, I think, kind of part B of your question there. So yes, we continue to be interested in building out a diverse portfolio of markets for our downstream gas and further LNG exposure is going to probably be part of that over time. We've now added that to our portfolio, and we're excited to have those positions in place. But I would expect, over time, we will probably grow that exposure. Operator: The next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: You guys have laid out a solid maintenance program with a big buyback for this year. But I wanted to revisit the growth question. You've talked about the potential to grow the Montney by 5% a year. And now that the portfolio transformation is about to be complete, debt is being reduced and you have oil in the mid-60s. How does that growth opportunity stack up in your capital allocation framework? And what could change that rank? Brendan McCracken: Yes. Appreciate it, Kevin. I think the two things that we've talked about with respect to growth are still very much in place. So the two dates, if you will, are -- do we see a fundamental call for incremental barrels or BTUs. And again, we don't see that today, the market's not begging for companies like ours to bring more volumes into the market. So that's kind of gate number one. And then gate number two is can we create more cash flow per share growth out of share buybacks or out of incremental rigs. And today, we see that equation tilted towards the buyback. So we get a better cash flow per share outcome across a range of commodity price assumptions going forward and share price assumptions going forward, we expect we get a better cash flow per share outcome out of buying the shares. So the combination of both of those two gates today are telling us to stay in maintenance mode. But I appreciate your question because it surfaces the other aspect of the portfolio transformation that's important here. So not only have we added tremendous inventory duration and focus the portfolio, we've also unlocked growth potential. And at some point in the future, those two dates will call for growth, and we've now created the capability to do that very efficiently at high return for our investors. Operator: The next question comes from Dennis Fong with CIBC World Markets. Dennis Fong: My first one relates towards inventory to some degree. It's clear that you've done a lot of work around the ground game to add low-cost, high-quality premium inventory. Can you kind of talk towards how that helps you kind of either gain comfort with existing depth as well as how that may influence allocating capital, both North and South of the border, which -- from what looks kind of like from a well count perspective or a TIL perspective, almost a balanced program North and South. Brendan McCracken: Yes. You got it, Dennis. So that ground game has been really effective for us. Obviously, a lot of focus on the larger transactions, but the ground game has been grinding away very efficiently. And you think about where we've arrived at here, we've put the transaction risk of having to build inventory duration behind us. And now we can rely on that ground game, which is very efficient, low-cost way to sustain our inventory duration. And it just is sort of funded within our framework, within the balance sheet that we've got today. So we can just sort of put that in and let it opportunistically pick away as we go along here and sustain the inventory depth that we've created. So we like that feature, and we're really proud of the team for how it's been able to do that over time. As far as the capital allocation between the assets today, we're really just holding both of those assets at that flat production level. And the outcome is, like you said, a relatively balanced TILs, North and South. But it's really more designed to hold the production flat. Dennis Fong: Shifting on to innovation. There's obviously a lot of questions today focused on obviously use of surfactant, and obviously, your teams have done a very good job in terms of applying leading-edge technology on improving operations. I'm just curious, has there been anything that you guys have learned potentially from the NuVista teams and operations that they were doing or techniques that they were running that you believe could be applicable to your existing Montney base and/or even the Permian. Brendan McCracken: Yes. No, we love that question, Dennis. And really, this is our -- one of our mantras here is the only infinite rate of return we can generate is by learning from somebody else's capital. And what better way to do that than in an integration where you have full transparency and data and everything, but I'll put that to Greg because there are several things that we've been excited about from the NuVista team. Gregory Givens: Yes. We were really pleased with the NuVista transaction. Not only did we get some great assets. We've also got a number of really quality individuals that came over with the transaction and brought over some really good ideas. So out in the field, I think they've done a really good job on some of their gas lift designs and how they've optimized their gas lift techniques in the field. So we're already working with them on how do we take some of those ideas and then using them more broadly across our portfolio, incorporating with our operations control center and really upping our game a little bit there on the gas lift, which will have some application in the Permian, but definitely will have application across the Montney. Another place that we've talked with them a lot about is on landing zones on the very precise, not which interval in the Montney, but to the meter, to the foot where you're going to land the wells and they've got some really good ideas that they've been able to execute on some different landing zones that have allowed them to drill wells a little faster than we have in some cases. So we're implementing that into our program, and we think that's going to help us even improve quicker in Canada than we have been so far. So our teams are doing a really good job, but we're always open to learning from others. We try to approach competitor intelligence or integrations with, what can you teach us? Not what can we tell you we know. And so far, we're learning some from them, and it's going really well. So we're really pleased with that. Operator: At this time, we have completed the question-and-answer session, and we'll turn the call back over to Mr. Verhaest. Jason Verhaest: Thanks, Joanna, and thank you, everyone, for joining us today. Our call is now complete. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Good afternoon. Thank you for standing by. Welcome to the Westlake Chemical Partners Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, February 24, 2026. I would now like to turn the call over to today's host, Jeff Holy, Westlake Chemical Partners' Vice President and Chief Accounting Officer. Sir, you may begin. Jeff Holy: Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Partners fourth quarter and full year 2025 conference call. I'm joined today by Albert Chao, our Executive Chairman; Kal Jaen-Marc Gilson, our President and CEO; and Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. During this call, we refer to ourselves as Westlake Partners or the partnership. References to Westlake refer to our parent company, Westlake Corporation; and references to OpCo refer to Westlake Chemical OpCo LP, a subsidiary of Westlake and the partnership which owns certain olefins assets. Additionally, when we refer to distributable cash flow, we are referring to Westlake Chemical Partners' MLP distributable cash flow. Definitions of these terms are available on the Partnership's website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. We encourage you to learn more about the factors that could lead our actual results to differ by reviewing the cautionary statements in our regulatory filings, which are also available on our Investor Relations website. This morning, Westlake Partners issued a press release with details of our fourth quarter and full year 2025 financial and operating results. This document is available in the Press Release section of our web page at wlkpartners.com. A replay of today's call will be available beginning two hours after the conclusion of this call. The replay can be accessed via the partnership's website. Please note that information reported on this call speaks only as of today, February 24, 2026, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an internet-webcast system that can be accessed on our web page at wlkpartners.com. Now I would like to turn the call over to Jean-Marc Gilson. Jean-Marc? Jean-Marc Gilson: Thank you, Jeff, and good afternoon, everyone, and thank you for joining us to discuss our fourth quarter and full year 2025 results. In this morning's press release, we reported Westlake Partners full year 2025 net income of $49 million or $1.38 per unit. Consolidated net income including OpCo was $299 million for the full year 2025. Westlake Partners' financial results continue to demonstrate the stability generated from our fixed margin ethylene sales agreement for 95% of annual plant production each year, insulating us from market volatility and other production risk. This structure, combined with our investment-grade sponsor, Westlake, produces predictable earnings and stable cash flows. This was evident in 2025 as we delivered another year of solid results and sustained distributions to our unit holders. The stable fee-based cash flow generated by our fixed margin ethylene sales contract with Westlake forms the foundation for us to deliver long-term value to our holders. This quarter's distribution is the 46 consecutive quarterly distribution since our IPO in July of 2014 without any reductions. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the quarter and full year. Steve? Steven Bender: Thank you, Jean-Marc, and good afternoon, everyone. In this morning's press release, we reported Westlake Partners' fourth quarter 2025 net income of $15 million or $0.41 per unit, consolidated net income, including OpCo's earnings, was $84 million on consolidated net sales of $323 million. The partnership had distributable cash flow for the quarter of $19 million or $0.53 per unit. Fourth quarter 2025 net income for Westlake Partners of $15 million was in line with the fourth quarter of 2024 partnership net income. Distributable cash flow of $19 million for the fourth quarter of 2025 increased by $4 million compared to the fourth quarter of 2024 distributable cash flow of $15 million due primarily to lower maintenance capital expenditures due to the shift in the timing of these cash flows to earlier in the year. For the full year of 2025, net income of $49 million or $1.38 per unit decreased by $13 million compared to full year 2024 net income of $62 million. The decrease in net income attributable to the partnership was due to lower production and sales volumes as a result of the planned Petro 1 turnaround. Our full year 2025 MLP distributable cash flow of $53 million decreased by $14 million compared to MLP distributable cash flow of $67 million for the full year of 2024 due to lower net income. Our distribution coverage for the full year of 2025 was 0.8x. During 2025, OpCo successfully renewed its ethylene sales agreement with Westlake through 2027 with no changes to the contract terms or conditions. We believe that Westlake's decision to renew the ethylene sales agreement under the same terms that have been in place since its origination demonstrates the critical nature of OpCo's supply of ethylene to their operations and their commitment to support OpCo's continued safe, reliable operations through stable, predictable cash flows. Turning our attention to the balance sheet and cash flows. At the end of the fourth quarter, we had consolidated cash balance and cash investments with Westlake through our investment and management agreement totaling $68 million. Long-term debt at the end of the quarter was $400 million, of which $377 million was at the Partnership, and the remaining $23 million was at OpCo. In 2025, OpCo spent $79 million in capital expenditures. We maintained our strong leverage metrics with a consolidated leverage ratio below 1x. On January 27, 2026, we announced a quarterly distribution of $0.4714 per unit with respect to the fourth quarter of 2025. Since our IPO in 2014, the Partnership has made 46 consecutive quarterly distributions to our unitholders, and we've grown distributions 71% and since the partnership's original minimum quarterly distribution of $0.275 per unit. Partnership's fourth quarter distribution was paid on February 23, 2026 to unitholders of record February 6, 2026. The partner's predictable fee-based cash flow continues to provide beneficial -- benefits to today's economic environment and is differentiated by consistency of our earnings and cash flows. Looking back since our IPO in July of 2014, we have maintained a cumulative coverage ratio of approximately 1.1x, and with the partnership stability and cash flows, we are able to sustain our current distribution without the need to access the capital markets. For modeling purposes, we have no planned turnarounds in 2026. Now I'd like to turn the call back over to Jean-Marc to make some closing comments. Jean-Marc? Jean-Marc Gilson: Thank you, Steve. We are pleased with the partnership's financial and operational performance during the fourth quarter and the year as a whole. The stability of our business model and associated cash flows demonstrate the benefit that our ethylene sales agreement and its protective provisions provide the partnership to predictable, long-term earnings and cash flows. During 2025, we successfully completed the planned turnaround at our Pecan ethylene facility in Lake Charles, Louisiana. As expected, our coverage ratio for 2025 dipped below 1x as it typically does during years where we conduct a turnaround. As we look ahead, we expect the absence of any turnarounds in 2026 to result in solid production and sales volume growth that should drive a recovery in our distributable cash flow and coverage ratio back to historical levels. Turning to our capital structure. We maintain a strong balance sheet with conservative financial and leverage metrics. As we continue to navigate market conditions, we will evaluate opportunities via our four levers of growth in the future, including increases of our ownership interest of OpCo; acquisitions of other qualified income streams, organic growth opportunities such as expansions of our current ethylene facilities, and negotiation of a higher fixed margin in our ethylene sales agreement with Westlake. We remain focused on our ability to continue to provide long-term value and distributions to our unitholders. As always, we will continue to focus on safe operations, along with being good stewards of the environment where we work and live as part of our broader sustainability efforts. Thank you very much for listening to our fourth quarter and full year 2025 earnings call. Now I will turn the call back over to Jeff. Jeff Holy: Thank you, Jean-Marc. Before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. We will provide instructions to access the replay at the end of this call. Jill, we'll now take questions. Operator: [Operator Instructions] First question comes from the line of James Altschul with Aviation Advisory Service. James Altschul: I got a couple of questions. First of all, looking at the balance sheet and the cash flow statement, radium, right, it appears that in the past year, you -- in order to pay the distribution, you drew down on the item receivable on the investment management agreement, Westlake. And it looks like you don't have too much in that category left. First of all, am I reading that right? And second, you did say in your remarks and in the release that you're expecting the distribution coverage ratio will improve in the new year -- in this year. But is that how you expect to be able to cover the distributions from operations, you won't have to draw down under the receivable anymore. [Audio gap] Steven Bender: Yes. And so the investment balance you see there at the beginning of the year of 2025 that was drawn down reflects the cost of the maintenance turnaround. Just to remind you that every month, we invoice Westlake Corporation for planned turnaround expenses and that cash is received and invested in that investment management account. Over the course of the year, we accumulate cash balances in that investment account and then we'll spend those funds to undertake a planned turnaround activity, which occur every 5 to 8 to 9 years, depending on the performance of that particular operating unit. Because that unit was down for maintenance over the course of a period of 2025, there is no production out of that unit. So therefore, it does have an impact in production and therefore, income generated as a result of that loss of production. But we have the ability to pull on our operating reserves and the operating reserves in the year 2025 were strong enough that we had strong enough balances in that operating reserve to continue to pay distributions. And so when you think about the operating surplus we had at the end of 2025, it was approximately $74 million. So that well covers any current or actually future expected annual distributions by the partnership. Because in our prepared remarks, we commented we have no planned turnaround in 2026. Therefore, we expect our coverage ratio to rise above 1.1x, which is our target ratio. And because it should rise with no planned turnarounds, it will continue to replenish the operating surplus and build cash in that investment account we also use to pay distributions to unitholders. So as we look forward, I do expect that operating surplus to build and that investment balance to also build. In a year when we undertake planned turnarounds, it is very typical that our cash balances will diminish because of the planned maintenance and also the payments of those distributions to unitholders. But given the many years going back to the IPO in 2014, we've seen this play through over many years, and we do expect those operating surplus balances to build as well as cash investments and that operating investment account to build. James Altschul: Well, that's an excellent answer. And if I may ask one more. In his prepared remarks, the CEO talked about various opportunities for expansion growth, such as increasing the percentage ownership of the OpCo organic growth. How would you anticipate financing any of these initiatives if you decide to pursue them? Steven Bender: Yes. Should we decide to undertake any of those growth opportunities, we would undertake what we'd characterize as a drop-down where a party would monetize a portion of OpCo interest and contribute that down, and we would finance that with external funding, whether it be debt or equity or some combination. That's how we've undertaken the multiple drop-downs in growth over the course of the years, which represents the ownership today that we've monetized out of OpCo. So should we take any of those actions, that's really how we would finance it through a combination of issuance of new units as well as potential leveraging the balance sheet. Operator: At this time, as I'm seeing no other questions in the queue. The Q&A session has ended. I will now turn the call back over to Jeff Holy. Jeff Holy: Thank you again for participating in today's call. We hope you'll join us for our next conference call to discuss our first quarter 2026 results. Operator: Thank you for participating in today's Westlake Chemical Partners fourth quarter and full year 2025 earnings conference call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended, and may be accessed until 11:59 p.m. Eastern Time on Tuesday, March 3, 2026. The replay can be accessed via the Partnership website. Goodbye.
Operator: Hello, and welcome to the Innovative Industrial Properties, Inc. Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Eli Kanter, Director of Finance. You may begin. . Eli Kanter: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that some of the statements made during today's conference call, including those regarding potential transactions under letters of intent are forward-looking statements within the meaning of the safe harbor of the Private Securities Litigation Reform Act of 1995 and subject to risks and uncertainties. Actual results may differ materially, and we refer you to our SEC filings, specifically our most recent report on Form 10-K for a full discussion of risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. We are not obligated to update or revise any forward-looking statements, whether due to new information, future events, or otherwise, except as required by law. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, normalized FFO and AFFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday as well as in our 8-K filed with the SEC. I'll now hand the call over to Alan? Alan Gold: Thanks, Eli, and good morning. Thank you for joining our call. 2025 was a year defined by disciplined execution, balance sheet strength and strategic repositioning for long-term growth. For the full year, our diversified platform of over $2.5 billion of gross assets generated approximately $200 million of cash flows from operations. In addition, since our inception in 2016, we have returned $1.1 billion to shareholders through dividends, reflecting the durability of our business model and our continued focus on sharing our cash flows with our shareholders. We invested capital in 2025 selectively and accretively, committing $275 million across our real estate portfolio and through our strategic investment in IQHQ, further strengthening and diversifying our platform. Operationally, we made meaningful progress across the portfolio. During the year, we executed new leases at 4 properties totaling approximately 339,000 square feet, reinforcing our belief in the quality of our assets and the ability of our team to drive performance within our portfolio. For the year, we generated total revenues of $266 million and AFFO of $205 million. We also strengthened our liquidity position for the year by raising $100 million under a new revolving credit facility in October and issuing approximately $25 million of preferred stock through our ATM. For 2026, we continue to access the capital markets opportunistically and have raised over $40 million of preferred stock at an attractive yield of just over 9.5%, surpassing the amount we raised in all of 2025. We exited the year with total liquidity exceeding $105 million, including cash and availability under our credit facilities. As we diversify our platform, we remain confident in the long-term fundamentals supporting the life science sector. Discussions at the recent JPMorgan Healthcare Conference continue to reinforce our conviction that the sector is exhibiting early signs of renewed momentum, including improving capital availability for well-capitalized life science companies, increased strategic activity among large pharmaceutical companies and continued innovation. Together, these trends are supporting sustained demand for specialized real estate within leading life science markets. Before I turn the call over to Paul, I'd like to briefly address the recent regulatory development impacting the cannabis industry. President Trump's executive order directing the rescheduling of cannabis to Schedule III represents a significant regulatory development for the industry. While the timing and ultimate implementation remains uncertain, we believe this development is directionally positive for the industry, our tenants and our shareholders. Our actions in 2025 reflect a meaningful step in our evolution and our return to growth. We believe the combination of a diversified portfolio across cannabis and life science, a strong balance sheet and an experienced management team positions us to continue strengthening our platform and delivering long-term value for our shareholders. Now with that, I'll turn the call over to Paul. Paul Smithers: Thanks, Alan. I'd like to begin by reinforcing the significance of the recent executive board directing the rescheduling of cannabis to Schedule III. While the timing and final implementation remain unclear, this represents one of the most substantial regulatory developments for the industry in many years. If enacted, rescheduling may eliminate the punitive impact of 280E for our tenants which we believe would meaningfully improve operator cash flows, strengthens credit profiles and support additional investments across the industry. In addition, the Executive Board highlighted concerns regarding the proliferation of hemp-derived THC products. Recent legislation closing certain loopholes under the 2018 Farm Bill is expected to restrict hemp-derived THC products beginning in November 2026, which should reduce unregulated products and support consumer safety across the U.S. At the state level, we are tracking several meaningful catalysts on the horizon, including the potential commencement of adult-use sales in Virginia and possible adult-use legalization in Pennsylvania and Florida. We own 16 properties totaling approximately 2.6 million square feet in those states accounting for approximately 26% of annualized base rent, and we believe our real estate and tenant base are well positioned to benefit as those markets transition to adult use. Regarding our current portfolio, as you recall, last March, we announced initiatives to replace nonperforming tenants and enhance the performance of our portfolio. Since then, receivership and legal proceedings have been ongoing for forefront Ventures, PharmaCann and Gold Flora where we have continued to actively pursue our legal rights and protect our interest under those leases. We have been actively engaged across these assets and are pleased with the significant progress that has been made. We have signed leases, LOIs and are in various stages of review for over 900,000 square feet of leasing activity related to those assets, which Ben will discuss in more detail. We believe we are at an inflection point in our efforts to bring resolution to the previously nonperforming assets in the portfolio and believe future quarters will reflect the realization of earnings upside from these actions. We are extremely proud of our team's execution and track record of retenanting our assets quickly and efficiently, maximizing value of our portfolio and driving long-term value for our shareholders. Lastly, we are also pleased to share a legal update. Last month, we received a judgment in our favor of $7 million for unpaid rent and damages due from Temescal Wellness, a former tenant at a property in Massachusetts. I'd like to now turn the call over to Ben to provide additional details on our leasing success and to discuss our other investment activities. Ben? Ben Regin: Thanks, Paul. To recap our year in 2025, we executed new leases totaling 339,000 square feet across properties located in California, Massachusetts and Michigan, opportunistically closed on 3 dispositions and closed on approximately $275 million in new investment activity, including one cannabis acquisition and our strategic investment in IQHQ, of which we have funded $150 million to date. . We've continued to build on this momentum heading into 2026. As Paul described, we've been very pleased with the activity we are seeing related to the Gold Flora and [ forefront ] receiverships as well as our legal pursuits related to PharmaCann. Gold Flora filed for voluntary receivership in March of 2025 and we have since made meaningful progress releasing our 3 properties. We executed a lease agreement with a new tenant for our 70,000 square foot Palm Springs asset during the fourth quarter, executed a lease agreement with a new tenant for our 204,000 square foot Desert Hot Springs asset last month, and we have received multiple offers for a 56,000 square foot Palm Springs asset. Overall, we are very pleased with the outcome of the receivership proceedings and the resolution achieved with respect to these properties. Regarding our 4 assets previously leased to Forefront, we have made significant progress on our re-tenanting initiatives for these assets. This quarter, we reached a tentative agreement with the tenant to lease our 114,000 square foot Washington property and expect lease execution and rent commencement in the near term. For our 250,000 square foot asset in Illinois, we have executed an LOI for the full building with a new operator, which is expected to go into effect at the closing of receivership proceedings anticipated in the coming quarters. For a 67,000 square-foot property in Georgetown, Massachusetts a stocking horse bidder has been selected by the receivership of state, and we have agreed to lease terms with this bidder. We also expect this new lease agreement to become effective upon the conclusion of the receivership process. For our 57,000 square foot property in Holliston, Massachusetts, we have received multiple offers to lease the building, which are currently under review. We look forward to continuing to move these transactions forward and bring resolution to these properties. Moving on to our properties leased to PharmaCann, we continue to be pleased with the progress we have made retenanting our 6 cultivation assets. In early 2025, we regained possession of our 205,000 square foot cultivation asset in Michigan and subsequently executed a lease with a new tenant in April. We also successfully regained possession of our 58,000 square foot cultivation asset in Massachusetts and executed a lease with a new tenant in November. In Illinois, as we reported last quarter, the judge ruled in our favor with respect to our 66,000 square foot cultivation property, and we successfully regained possession of the asset in late December subsequently signing an LOI with a new tenant for the property in January. Looking ahead, we expect to receive similar rulings from the courts in Pennsylvania, Ohio and New York and are encouraged by the inbound interest we have already received across these assets. Apart from these properties, we are also pleased to report that we signed an LOI in February with a new tenant for a 71,000 square foot vacancy in North Adams, Massachusetts. In parallel with our leasing initiatives, we have also pursued selective asset sales to opportunistically recycle capital. During 2025, we sold 3 assets located in California, Colorado and Michigan and also closed on the sale of a dispensary in Phoenix earlier this month. These dispositions reflect our ongoing efforts to opportunistically prune noncore assets from our portfolio, enhance overall portfolio quality and redeploy capital towards other investments. Regarding our strategic investment in IQHQ,to date, we have funded $150 million of our $270 million commitment with the additional $120 million expected to be funded over time. We are encouraged by this investment, and we believe the life science real estate market is continuing to stabilize following a prolonged period of elevated supply. The current construction pipeline of approximately 6 million square feet is at its lowest level since early 2019 and is down sharply from the 2023 peak of more than 37 million square feet. Signs of stabilization are beginning to emerge in key markets. Recent reports from Cushman & Wakefield and Colliers highlight improving fundamentals in select regions. In Boston, annual new demand totaled 2.1 million square feet, surpassing 2024 totals by approximately 72%. The San Francisco Peninsula recorded its first decline in vacancy in more than 2 years in Q4 2025. Continued growth among life science and AI tenants is expected to support sustained improvement in market conditions in 2026 as supply moderates and demand gradually improves. With that, I'll turn the call over to David. David Smith: Thank you, Ben. For the fourth quarter, total revenues were $66.7 million and AFFO totaled $53.3 million or $1.88 per share representing a 10% improvement compared to our third quarter 2025 AFFO of $1.71 per share. This quarter-over-quarter improvement was primarily driven by a $3.7 million or $0.13 per share of payments received for unpaid rent due during the Gold Flora receivership and a full quarter's benefit of earnings accretion from our initial investment in IQHQ. For the first quarter of 2026, as Ben detailed, we continue to pursue the recovery of unpaid rents for certain default tenants and so far have received an additional $3 million, $0.10 per share related to our Gold Flora and PharmaCann properties. On the capital markets front, we have raised over $145 million of attractively priced debt and preferred equity since October 2025. For preferred stock, during the fourth quarter of 2025, we issued approximately $5 million on our ATM and we have already issued over $40 million of preferred equity at an attractive yield of just over 9.5% early in the first quarter of 2026, reflecting continued strong investor demand for this perpetual security. We have now grown our Series A preferred stock to $95 million of par value outstanding through our ATM issuances. On the debt front, during the fourth quarter, we added a new $100 million revolving credit facility secured by our investment in IQHQ, which provides us with low cost, flexible capital at an attractive rate of 6.1% and further enhances our liquidity profile. When we announced our IQHQ transaction in August, we believe 1 benefit would be the potential to access lower cost capital, and we are pleased to see that come to fruition with the closing of this new credit facility. This continued access of capital strengthens our ability to fund growth opportunities while maintaining a conservative balance sheet. Our balance sheet remains strong, supported by over $2 billion of unencumbered real estate and a conservative capital structure with a debt service coverage ratio exceeding 10x and a net debt to adjusted EBITDA of 1.4x. We ended the quarter with over $107 million in total liquidity, including cash on hand and availability under our revolving credit facilities, which was further improved with our year-to-date preferred stock ATM issuances I mentioned earlier. As it relates to our bond maturity at the end of May, -- we are actively evaluating a range of alternatives to address the obligation, including potential refinancing and other capital sources. We believe our unencumbered asset base was over $2 million of real estate and our strong credit profile position us well as we pursue these alternatives. With that, we thank you for joining the call, and we'd like to open it up for questions. Operator, could you please open the call for questions? Operator: [Operator Instructions] Your first question comes from Tom Catherwood with BTIG. William Catherwood: Great to see the leasing progress in the fourth quarter and obviously, so far this year in 2026. In terms of this uplift, are cannabis operators looking to expand again? Or are they looking to move up the quality spectrum with new space? Or did you adjust your leasing strategy this past quarter? Or is there something else driving this increase in activity? Alan Gold: Well, so first of all, thanks for the question. I think that there's a lot of things going on here. One, we have an extremely experienced management team that's been involved with this industry for the last 8 plus almost 10 years. And they're executing on the business plan that we -- we've set out in -- at the end of 2024 and throughout 2025, and continue, and we believe we're going to continue to execute that business plan throughout 2026. This return to growth is -- comes from, as we described in our past quarters that we were seeing some green shoots in the industry. . And those green shoots have allowed, we believe, the operators in our -- the strong operators in our industry to take advantage of some of the weaker operators who haven't been able to navigate these difficult times in the industry as well. But we still believe that there are significant challenges in the cannabis industry, although we do see unique opportunities and working with some of the best growers that are in our portfolio and in the country, we believe that there are unique opportunities to take advantage of that -- of those. Ben, do you have anything or Paul, do you have anything else you want to add? Ben Regin: This is Ben. Yes, I would just add, I think the rescheduling news is certainly seen as a positive amongst the operators. We've seen a number of our top tenants successfully execute refinancings or new debt raises in the last handful of [indiscernible] Cresco among those. And I think they view these expansion opportunities is a relatively cost-effective way to move into what we believe are high-quality turnkey facilities, and we're really excited about the team's ability to convert that interest into the leasing activity that we've been talking about. William Catherwood: I appreciate all those answers. And Ben, maybe as a follow-up to that. We there's a difference sometimes between headlines and kind of what's actually happening on the ground. And when we think of U.S. cannabis, we hear the headlines of oversupply in Massachusetts and Michigan and California. You've had success re-leasing in those markets, and you've also had success in stronger markets like the recent leases and LOIs in Illinois. How does the approach differ, if at all, between those 2 markets? Or is the headlines -- are the headlines kind of overstated when it comes to the ability to re-lease in more competitive states? Ben Regin: I think that the headlines are just a very general high-level view of some of these markets. And I think when you really understand and using our experience over the last decade to really understand the nuances of each market they're finding the successful efficient operators in markets like California and Massachusetts and Michigan and identifying the groups that we believe in, that we think that can grow their business in a profitable way and bring them into our portfolio, we think makes a lot of sense. I think it's the same approach that we would take in any market. William Catherwood: Got it. I appreciate that, Ben. And last one for me, just wanted to clarify on the tenants that are in default. It sounds like kind of the outcomes are falling into 3 buckets. It's either the receivership is working through and the rents are going to commence again at the end of the receivership process you -- or the second bucket is you're getting space back and obviously, releasing that? And then the third bucket is some tenants continued to pay, though you're not necessarily recognizing that rent and continue to look to regain their facilities. Of those, who falls in the rent could commence near term at the end of receivership and who falls into the re-leasing and then still fighting to regain properties buckets? Alan Gold: Just -- I'll turn these questions over to both Paul and Dan. But just as a point of clarification, if we receive rent, we recognize rent. There is no and that's what we've done. So I think that third bucket of -- there are tenants that that are in default and the court has ordered them to pay rent or put rent in escrow and that -- and once that money is released, we recognize that rent. So let's just -- this is a point of clarification. But with that, Paul. Paul Smithers: It's Paul. So I would simplify it a little more. I really say 2 buckets. We look at the defaulting tenants that are in receivership and those that are currently in litigation. So we talked in detail about the receivership, Gold Flora and Forefront. I think we've had some great results in resolving those. And understanding that receivership, typically, there's administrative costs, and that's deferred rent that we're not getting currently, and we get that at the end of the receivership typically. . The other bucket is primarily ParmaCann that we are in the late stages of the litigation process with those cases. And we think we're going to have resolutions in the near future on those. So we look at it a little more simplistically, those and receivers and those are not. But either way, we're very pleased where we are today compared to where we were a year ago. And I think Ben and his team have done an outstanding job releasing those assets where a year ago, there was some question. I know people had, gee, these are tough markets. Are we going to have difficulty entering these leases, but we prove those people wrong and done a good job releasing those. Operator: Your next question comes from Aaron Grey with Alliance Global Partners. Unknown Analyst: This is John on for Aaron. So regarding the LOIs that have been signed or new term agreements you've come to with the 4Front assets, could you provide some color on the new rental rates and how that differs versus the rates paid by the respective tenant prior to default. Obviously, it probably varies by each property and state. But any detail on a broad haircut that might have needed to be applied would be helpful. Ben Regin: John, this is Ben. I think a couple of things there. Obviously, for some of these deals, these and others are still in negotiations for competitive reasons, we won't be disclosing the exact numbers deal by deal. I think broadly speaking, we have seen a variety. There's some unique circumstances where in certain assets historically, you could be around 50%, below 50% of contract, and we've had instances where you're pretty much right on top of the prior lease rates. It's a pretty wide range depending on each individual situation. Alan Gold: And I would also add that we've seen some very positive situations where CapEx has been significantly lower on re-leasing than anybody has anticipated. Is that right? Ben Regin: Yes, I think that's exactly right. And a great thing to keep in mind is we're typically square foot, $15 a square foot and below for these re-leasing activities. A lot of tenants that have come into our assets, if anything, have invested their own money to make additional improvements to our buildings. . So these rental rates come along with a minimal capital outlay on our end, which has been great to see. Alan Gold: And all those factors go into the rental rate that is finally negotiated. Unknown Analyst: Okay. Great. And second, regarding the dividend and earnings coverage going forward. On one end, you've had some more one-off payments from defaulted tenants, particularly in 4Q that aided the -- aided and bridging the dividend gap you also have the IQHQ interest income, which should continue to build along with new lease tenants from the previously defaulted. So on a normalized basis, do you feel in a better position to have the dividend fully covered in the near term or are incremental steps like getting more of the properties released needed? Alan Gold: Well, I think, first of all, the dividend -- our dividend policy is set by our Board, and they review what has occurred in the past. And projections going forward. But what we're seeing is this return to growth, and we're seeing strong strong re-leasing activity which is driving revenues. And we continue to see -- and we have the resolutions of some of these major lease litigations. And with those resolutions, and the activity, the leasing activity we're seeing, we feel we continuously feel positive about where we are with regards to our dividend. Operator: Your next question comes from Bill Kirk with ROTH Capital Partners. William Kirk: So following the executive order, what have you seen in regards to tenant health and maybe more importantly, like willingness to be prompt payers. I know we already talked a little bit about the 280E elimination and how that improves future health. But what about now before the rescheduling change? What are you seeing from tenant willingness and tenant health? Alan Gold: Well, I think our tenants are -- as we've reported, are paying their rents. So -- and they're paying them on time and per the leases. But I'll turn that back -- I'll turn the question over to Paul to talk about the rescheduling and how it's benefited the industry. Paul Smithers: Yes. I think, Bill, you follow it closely. The announcement 2 months ago by the President on the executive order was very significant. And that's created a lot of buzz, I think, and some positive feelings in the industry, especially with our larger MSOs that are looking to grow, looking to acquire leases in new states as evident by our re-leasing activity that we reported. So there is some question as to when and how the EO will be implemented, but it's going to get done. I think that is the feeling from the industry now. So despite the fact there is some uncertainty as to when there's -- we see a definite positive vibe just from the announcement of the executive order. Alan Gold: And that's one of the green shoots that we've seen. But the closing of the border, the tightening of wholesale pricing in some of the markets, all of those I think, go to helping the health of our tenants improve. . William Kirk: And what -- there is a possible or looming, I guess, intoxicating hemp ban in the U.S. in mid-November. A lot of that intoxicating hemp products compete against your tenants. Is that in the -- in your improved outlook for re-leasing or the way the tenants are feeling about their prospects, having a potential intoxicating hemp competitor go away this year? Alan Gold: It's an interesting comment. And I think that we're going to have to wait to see. We think that the strengthening of the market is a multifaceted situation. And every one of these small, incremental improvements help all our tenants. Operator: The next question comes from Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Just a few questions. First, thank you for the increased the new table on the troubled tenants and how much they've paid over time. Hopefully, that can extend to the leases that have been resolved definitively versus in the works, it just helps with all the discussion. So a few questions here. First, just going to the opportunity set, you have that interesting table chart that shows the size of the cannabis industry, the lawful cannabis industry versus the various alcohol industries. And cannabis is pretty big, especially if you were to even include the illicit market. But just given how sizable it is, you guys talk more about going to life science. So is it -- as we think about the company over the next few years, even as more states contemplate legalizing and perhaps the cannabis is downgraded to Schedule III. Is it your view that the life science offers a better risk-adjusted return over the next several years even if cannabis is able to resolve its current issues and get back to more of a growth arena? Alan Gold: Well, I think that the diversification out of the -- into the life science industry is multifaceted also. And it's not only that -- I mean it's not only about the unique opportunity that we see -- that we saw in the life science industry, how that industry had perhaps hit rock bottom and that there were green shoots and the increasing opportunities and a way to use our cost of capital or take advantage of opportunities with our cost of capital. . So I think you have that as one of the reasons for diversification. But you also have the fact that by diversifying, we might open ourselves up to greater avenues of capital and giving us the opportunity to reduce our overall cost of capital with that diversification. And I think that we are executing on that and seeing some of the benefits of that as we move forward. Alexander Goldfarb: And then along those lines on HQ, I think last time you updated us on the leasing or the leasing. I think it was -- the portfolio was roughly 25% leased. Is there an update? Has that changed at all or is still about where it was? Alan Gold: They're a private organization. They haven't disclosed anything publicly yet, although we are seeing a significant increased leasing activity in the markets in general, specifically in the Boston markets, Boston and then the Bay Area. And it's -- historically, what we've seen when the industry recovers, when the life science real estate sector recovers, it recovers first in the Boston area and then the Bay Area, and then it moves to San Diego. And we -- and we're seeing that come to fruition now. Alexander Goldfarb: Okay. And then just the final question is, I noticed in the update in your K on litigation, the SEC is now entered the fray, but you guys don't have any legal reserve. Can you just comment on what we should expect for legal costs this year? I think it's averaged about $2 million over the past few years. And obviously, that's all encompassing. It's a variety of things you've clearly been pursuing various tenants who have been paying. But can you just sort of give us expectation for legal costs? And what causes a company to set aside a legal reserve versus right now you don't have one? David Smith: Yes, Alex, it's David. I mean on the legal reserve, we have not taken that. Our auditors have not required to do it either as was disclosed in the 10-K. And so we'll be working through that. There will be costs, but it's hard to estimate at this point. Paul Smithers: I would add. This is Paul, Alex, a lot of the legal costs have been related to the tenant defaults and our efforts to [ oust ] them from the properties and go along with the receivership. So there's significant costs there. We think will be resolved in the next couple of quarters. So there will be some savings there on the legal fund. Alexander Goldfarb: But what causes on the reserve? What causes the auditors to make a company, just generically a company to set aside a reserve versus no reserve. . David Smith: Yes. I just -- I would just point to the statement in the 10-K where it says neither probable, nor unlikely. And until it becomes one of those probable, that could require something. Operator: This concludes the question-and-answer session. I'll turn the call to Alan Gold for closing remarks. . Alan Gold: Thank you. And first and foremost, I'd like to -- I need to thank the team for their great execution and a strong work to get us to where we are today and how we believe we're prepared for future opportunities as time evolves. And we also like to thank the support of our stakeholders. And with that, we'll end the call. Thank you. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Good morning, and welcome to ONEOK, Inc. Fourth Quarter 2025 Earnings Conference Call. As a reminder, this call is being recorded. After the speakers' opening remarks, there will be a question and answer session. With that, it is my pleasure to turn the program over to Megan Patterson, Vice President, Investor Relations. You may now begin. Megan Patterson: Thank you, Angela, and welcome to ONEOK, Inc.'s fourth quarter and year-end 2025 earnings call. We issued our earnings release and presentation after the markets closed yesterday, and those materials are available on our website. After our prepared remarks, management will be available to take your questions. Statements made during this call that include words of expectation or should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Act of 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of the factors that could cause actual results to differ, please refer to our SEC filings. With that, I will turn the call over to Pierce H. Norton, President and Chief Executive Officer. Thanks, Megan. Pierce H. Norton: Good morning, everyone, and thank you for joining us today. Joining me on the call are Walter S. Hulse, our Chief Financial Officer, Randy Lentz, our Chief Operating Officer, and Sheridan C. Swords, our Chief Commercial Officer. ONEOK, Inc. has become a diversified, scaled, integrated energy infrastructure company delivering durable growth with a disciplined capital allocation strategy. 2025 was a defining year for ONEOK, Inc. We delivered double-digit earnings growth, expanded margins, and materially strengthened our balance sheet, all while integrating major acquisitions and advancing long-cycle growth projects. On today's call, there are several key takeaways that I would like to highlight. First, over the past 2.5 years, ONEOK, Inc. has experienced an earnings power step change. In 2025, our net income attributable to ONEOK, Inc. increased 12% to $3,390,000,000. Our adjusted EBITDA is up 18% to $8,020,000,000. 2025 marked twelve consecutive years of adjusted EBITDA growth, and we achieved a 17% average annual earnings growth rate over the same period. This significant earnings power has been sustained through various market conditions and commodity cycles. Second, we have created an integrated platform advantage. The Magellan, Easton, EnLink, and Medallion acquisitions will be fully embedded in 2026 across our NGL, refined products, crude, and natural gas systems, driving scale, connectivity, and commercial optionality. We have realized nearly $500,000,000 of total synergies since closing the Magellan acquisition in September 2023, far exceeding our original expectations. We realized approximately $250,000,000 of those synergies in 2025 alone. And through strategic organic expansions, we have built in operating leverage for projects newly completed or nearing completion that will serve contracts in place and allow ONEOK, Inc. to compete for volumes in the future. Third, our strategy has created a high-quality earnings mix with approximately 90% fee-based earnings, limiting commodity exposure and supporting valuation durability. And finally, although lower crude oil prices are expected to slow the pace of drilling, we still have visibility to growth in 2026 and beyond. Our 2026 adjusted EBITDA midpoint of $8,100,000,000 is supported by volume growth, completed or near-completed projects, and $150,000,000 of incremental acquisition synergies. Related to producer activity, in the Bakken alone, there are currently 5,000 identified wells yet to be drilled on dedicated acreage, and at current rig rates, that equates to approximately 15-plus years of inventory. ONEOK, Inc.’s combined scale, integration, and feasibility with long-life assets are aligned to meet domestic and global energy demand. Management has proven they can integrate acquisitions and capture the expected synergies to generate additional cash flow. For 2026, we have good visibility into customer development plans across our integrations, with pace of growth being a key consideration for the year ahead. Our guidance reflects disciplined caution around commodity prices, but also continued confidence in the durability of our integrated asset base and the ingenuity of our employees. Through significant growth and change, our employees continue to drive our strategy forward, prioritizing safe and reliable operations, and executing on opportunities that enhance long-term value. I will now turn it over to Walter S. Hulse, Randy Lentz, and Sheridan C. Swords to provide their financial, operations, capital projects, and commercial updates. Walt? Walter S. Hulse: Thank you, Pierce. I will start with a brief overview of our fourth quarter and full-year financial performance and then move on to our 2026 guidance. Fourth quarter net income attributable to ONEOK, Inc. totaled $977,000,000 or $1.55 per share, and totaled $3,390,000,000 for the full year, representing a 12% increase compared with 2024 and resulting in earnings of $5.42 per share. Adjusted EBITDA totaled $2,150,000,000 in the fourth quarter of 2025, and more than $8,000,000,000 for the full year. Full-year results included $65,000,000 of transaction costs. During the quarter, we retired more than $1,750,000,000 in senior notes through a combination of redemptions and repurchases. Fourth quarter activity brought our full-year total to nearly $3,100,000,000 of long-term debt extinguished. In 2025, we returned nearly $2,700,000,000 to shareholders through a combination of dividends and share repurchases. We also recently increased our quarterly dividend by 4%, further reinforcing that commitment. As we progress towards our long-term leverage target of 3.5x or lower, we continue to gain flexibility in how we deploy capital. Now moving on to guidance. For 2026, we expect net income at a midpoint of approximately $3,450,000,000 or $5.45 per diluted share and an adjusted EBITDA midpoint of approximately $8,100,000,000. On page seven of our investor deck, we have provided a bridge analysis from original 2025 guidance issued in February 2025 to year-end 2025 and then a bridge to 2026 guidance. To preempt some of the questions we expect to get on this chart, I plan to walk through each column in the chart to give a brief explanation. The 2025 guidance was first impacted by lower Bakken volume growth that resulted in gathered volumes being 100,000,000 cubic feet per day lower than originally anticipated. This change in drilling pace began in 2025 when crude oil prices dropped from the $70s to the lower $60s range. We also experienced a reduction in anticipated NGL volumes when two third-party plants were delayed in 2025. The second column in the chart reflects a $125,000,000 reduction in lower upgrade margin in our NGL and refined products businesses. An example of this would be the narrowing of ARBOB-to-butane spreads in our blending business. On the positive side, we enjoyed strong location differentials such as the Waha-to-Katy spread in our natural gas pipeline segment. These differentials added approximately $150,000,000 to EBITDA in 2025. The majority of the $85,000,000 of other income reflected on the chart is the gain realized on debt repurchases made throughout the year. On a comparative basis, excluding transaction costs, we ended 2025 with EBITDA of $8,085,000,000 compared to our original 2025 guidance of $8,225,000,000. Looking forward to 2026, we see $100,000,000 of EBITDA growth from increased volumes in the Permian and the full year of third-party Permian plant volumes that were delayed in 2025. The $100,000,000 increase is net of other impacts such as contract rollovers, and the 18,000 barrels per day of Continental NGLs rolling off our Rocky Mountain region volumes this year we have previously discussed. We expect asset optimization to add $150,000,000 of EBITDA from batching and blending logistical benefits, allowing us to efficiently move NGLs and refined products through the Easton acquisition, connections between Mont Belvieu and East Houston, and other synergy projects completed throughout the Mid-Continent NGL and refined products businesses. The $150,000,000 reduction in EBITDA shown on the chart stems from lower forecasted differentials from Waha to Katy and lower price realizations year-over-year in our G&P, NGL, and refined products businesses. We have also not forecasted any gains on debt repurchases in 2026, bringing us to an adjusted EBITDA midpoint of $8,100,000,000 for 2026. Our expectations reflect an average WTI crude oil price range of $55 to $60 per barrel in 2026 and incorporate normal seasonal dynamics across the business which influence how earnings are distributed throughout the year. To help illustrate this, we have added another new slide to our earnings material on page eight that outlines the key factors driving results by quarter and directionally shows an earnings cadence that typically builds progressively over the course of the year. On average, we expect to make a little over $22,000,000 of EBITDA each day in 2026. With the first quarter only having 90 days compared with 92 days in the third and fourth quarter, coupled with the impacts of weather, we expect the first quarter to be our lowest EBITDA quarter each year. We expect earnings growth across our natural gas liquids projects to be completed in 2026 across our system, which Randy will review in a moment, as well as the Texas City export terminal and the Bighorn Processing Plant. Capital for synergy-related projects, ongoing well connections, and maintenance are also included. As we have discussed previously, we expect capital expenditures to continue to step down in the coming years as we complete current projects, and we do not expect to pay meaningful cash taxes until 2029, both of which continue to support our free cash flow and capital allocation flexibility going forward. I will turn it over to Randy for an operational and large capital projects update. Randy Lentz: Thank you, Walt. I will begin with a comment about the impacts of weather in 2025 and 2026. Winter weather across our system in 2025 tempered volumes in the natural gas gathering and processing and natural gas liquids segments, but this was largely within our expectations for normal seasonality. More recently, winter storm Fern caused wellhead freeze-offs and challenging operating conditions, briefly impacting throughput in the first quarter of 2026. We estimate January gathering and processing and NGL volumes were approximately 10% below our original expectations due to weather. We experienced no material downtime in our own assets. We have already incorporated the storm's impacts into our 2026 guidance. Now turning to our capital update. Our large capital growth projects are progressing according to plan and are currently expected to enter service as anticipated. In the Gathering and Processing segment, the 150,000,000 cubic feet per day Shadowfax plant, which is being relocated to the Midland Basin from North Texas, is expected to be in service by the end of the first quarter. We expect volumes to ramp up with activity over time, providing flexibility for our customers in the area. Additionally, the expansions of our Delaware natural gas processing assets totaling 110,000,000 cubic feet per day are expected to be completed early in the third quarter. We expect volumes to ramp up quickly as these expansions are aligned with specific producer projects. These expansions help to fill the gap in capacity until our Bighorn plant comes online in mid-2027. In the refined products segment, the Denver area pipeline expansion remains on track for expected mid–third quarter 2026 start-up. And lastly, Phase 1 of our Medford NGL fractionator rebuild is on track for a fourth quarter 2026 completion. This will add an initial 100,000 barrels per day of fractionation capacity with Phase 2 adding an additional 110,000 barrels per day of capacity in 2027. These projects extend and expand our existing system, adding needed capacity to address future volumes. I will now turn it over to Sheridan for a commercial update. Sheridan C. Swords: Thank you, Randy. As we sit today, we continue to see opportunities for growth across our expansive portfolio. We expect our Rocky Mountain and Mid-Continent region NGL and G&P volumes to grow at a steady low single-digit level in 2026. These assets continue to generate stable, long-term cash flows that help fund high-return growth across our entire platform. In the Permian Basin, we continue to expect a sustained higher pace of growth. Through a combination of organic investments and strategic acquisitions, we have established an integrated Permian platform that spans all of our products and services. This integration creates multiple touchpoints with customers and allows us to capture value across the full midstream value chain. We saw the benefit of our larger scale asset portfolio in 2025, achieving record NGL and G&P volumes in the Rocky Region and record liquids blending volumes in the refined products segment. Permian Basin processing and NGL volumes increased significantly over the course of 2025 as we continue to enhance our Permian system and add new volumes. The natural gas pipeline segment once again exceeded the high end of its guidance range in 2025, benefiting from the strategic location of our pipeline systems, specifically in the Permian Basin and Louisiana. The segment's outperformance continues to highlight the strong demand for natural gas transportation and storage, and the strategic benefit of having assets in the Gulf Coast region near key demand and export hubs. Turning to full-year 2026 expectations, and starting with the natural gas liquids segment, we expect year-over-year volume growth across our operations. In the Permian, we expect to connect at least three natural gas processing plants to our system in 2026, including two third-party plants and the Shadowfax plant, which we are relocating from North Texas. New contracts and increasing volume from our Permian plants will continue to contribute to higher volumes feeding our West Texas NGL pipeline. This pipeline remains one of the most advantaged pipelines out of the Permian, with competitive transportation rates and ample headroom to accommodate future growing volumes. Moving on to the refined products and crude segment. We expect 2026 performance to be driven by steady base refined products demand, increased asset connectivity, continued strong liquids blending, and incremental contribution from the fully contracted Denver pipeline project and other high-return growth projects. We are assuming a mid-year tariff increase in the low- to mid-single-digit range, inclusive of both market-based adjustments and index-based tariffs, with potential outcomes of the FERC rate index review incorporated into our guidance. We continue to see increased throughput into our long-haul crude oil pipelines from our gathering systems as interconnectivity between these assets has been expanded. Several related synergy projects are underway to fully connect those systems, which we expect to come online this year and in 2027. Moving on to the natural gas gathering and processing segment. We expect our multi-basin portfolio to continue to provide growth in 2026. Based on ongoing conversations with producers, we are seeing plans to hold drilling rigs and crews steady while continuing to improve production efficiencies through technology and operational enhancements. In the Permian Basin, our broad footprint across both the Delaware and Midland positions us to capture incremental throughput while continuing to drive efficiencies across our existing assets and deliver fully integrated services for our customers. With the Permian projected to grow by more than 1 Bcf per year, ONEOK, Inc. is well positioned to capture our share of that growth. We continue to see attractive opportunities in the basin beyond those we have already announced. In the Mid-Continent, we continue to expect growth from our strong mix of producers across the key Cherokee, Cana-STACK, and SCOOP areas. We have 13 rigs currently operating across more than 1,000,000 dedicated acres in the Mid-Continent. This acreage spans high-producing gas-focused, liquids-rich, and crude plays, and we see opportunities under development in each of these areas. In the Rocky Mountain region, we saw record volumes again in 2025 and expect single-digit growth in 2026. There are currently 12 rigs on our dedicated acreage, with producers heavily focused on continued efficiency gains through improved completion techniques and longer laterals. We expect approximately 50% of our well connects in 2026 to be three- and four-mile laterals. This is a significant increase in longer laterals compared with approximately 30% in 2025 and 20% in 2024. Gas-to-oil ratios in the basin also continue to naturally rise, supporting a stable long-term outlook for natural gas and NGLs across the basin. I will close with our natural gas pipeline segment, which we expect will have another strong year of performance in 2026. Our natural gas pipelines and storage assets remain well positioned to support growing demand for power generation, industrial customers, and LNG exports. On power demand, we are engaged in advanced discussions with multiple data center projects across our operations and are pleased with the momentum we are seeing. Additionally, recent commercial success on our EAGLE FORD GULF COAST joint venture pipeline illustrates how demand pull is translating into new infrastructure. Strong customer commitments led to an announced expansion to 3.7 Bcf per day from an initial 2.5 Bcf per day, and today, we are pleased to announce that all 3.7 Bcf is 100% contracted for a minimum of ten years. This reflects both supply-side momentum in the Permian and increasing demand pull from LNG exports, industrial demand, and other end-use markets along the Gulf Coast. Separately, we expect to continue to see favorable opportunities to optimize our system, particularly in the Permian Basin, to capture natural gas price differentials. We expect those conditions to remain favorable until natural gas pipeline capacity is added later this year. Our natural gas pipeline assets remain well positioned near key demand centers and high-growth areas to support long-term natural gas demand. That concludes my remarks. Pierce H. Norton: Thank you, Sheridan, and Randy and Walt. As we look ahead, we are confident in ONEOK, Inc.'s position and strategy. The work we have done to integrate assets, build operating leverage, and further enhance our portfolio is translating into durable performance and resilient growth. Most importantly, this execution is driven by our employees. I want to thank our entire team for their continued focus on safety and operational excellence and collaboration. In 2026, ONEOK, Inc. will celebrate its one hundred and twentieth anniversary. I want to take a moment to recognize the contributions of those who came before us that allow us the opportunity to do what we do today. It is our responsibility to provide the next generation the same opportunity afforded to us. Thank you to our shareholders for your continued trust and support. With that, operator, we are ready to take questions. Operator: Thank you. And our first question today comes from Spiro Michael Dounis with Citi. Your line is now open. Spiro Michael Dounis: Thanks, operator. Good morning, team. I wanted to start with the 2026 outlook, two-part question here. Walt, I was curious if you could talk about maybe where you have built in some conservatism around the guide. I know commodity assumptions maybe look conservatively set. And Sheridan, in any given year, you seem to find opportunities to optimize and find margin. I know a lot of times that is not baked into the guidance. I think Rocky ethane recovery may be one example. Just curious if you could walk through some optimization opportunities you have been able to realize in the past that you think are upside to the guide. Walter S. Hulse: Sure, Spiro. Well, I think that we think that there is a meaningful potential that we are going to see prices in that $55 to $60 range. It has some geopolitical influence on it now that has popped it up a little bit above $60. But we want to plan for that lower level as we look forward. Clearly, if we get a little stronger pricing, that could help our spread differentials. That could also provide our producers with more cash flow to drill. So higher prices are always a benefit to us. But we think we have been intentional and disciplined as we put these projections together and want to move towards that $8,100,000,000. Pierce H. Norton: Spiro, when I think about commercially where we have typically seen upside in the past, and you mentioned one of them is the discretionary ethane out of the Bakken where our marketing team has done a very good job of being able to lock those in at different periods where they see spreads being wider, not just the average of what we see over a year. They have been very successful in that. We have also had on the G&P side, especially in the Permian, we have a little bit of open capacity. They have been able to have some offloads, some spot offloads that they get throughout the year as they continue to work with producers and leverage our customer relationships that have been developed over all our basins in that area, and it can grow volume on a spot basis. We have also seen that on the NGL side as we look at, you know, between Conway and Belvieu, that spread at different times will move, and we are able to capture those from bucket going forward. And the same thing is in our refined products with our normal butane-to-unleaded spreads that we look to lock in when we see opportunities as we continue to go forward and then be able to sell those at different times of the year when the spreads are wider than we typically show in our forecast. Spiro Michael Dounis: Got it. That is helpful. Thank you, guys. Second question, maybe switching over to the power opportunity. The slides pointed out a step-up in the amount of customers you are engaging with and the potential gas opportunity for you. Curious when we can expect some of these deals to start to get announced and what they look like. I think you originally said that they were smaller, kind of higher-return projects. Curious if these additional opportunities start to scale you up a little bit? Pierce H. Norton: Yes, they are scaling up a little bit, and we are in some advanced negotiations with some hyperscalers out there that we feel really good about. We are hoping that we can announce something, you know, in the fairly near future, but still need to go through the process and get those to bed. But it is looking very, very positive on that, and we probably have quite a few that we think are in the advanced stages. Spiro Michael Dounis: Great. I will leave it there for today. Thanks, everyone. Operator: Thank you. Our next question comes from Michael Jacob Blum with Wells Fargo. Your line is now open. Michael Jacob Blum: Thanks. Good morning, everyone. I wanted to ask a couple more questions on the guidance. First, can you remind us how much open capacity you have to capture Waha basis spreads and what Waha spread is assumed in the guidance? Or are you basically assuming there is no spread in 2026? Sheridan C. Swords: Yes, Michael, this is Sheridan. I do not know if I want to go out and tell you exactly what we have on open capacity, but we do have capacity that we have contracted on the Eiger pipeline system that is above what we need right now for our gas coming off of our plants to bring that back to producers. We are seeing good spreads right now, above what our forecast was, as we continue to go forward, but it was a forecast for the whole year. And we think that will go through the third quarter before the next pipelines come online that will bring that spread back together. It is somewhat of a moving target. We are seeing—we do see upside and potential upside in that if we can hold spreads at where they are now for the rest of the year, for the rest of the three quarters. Michael Jacob Blum: Okay. Got it. Thanks for that. And then the Bakken, Rockies, and Mid-Continent processing volume guidance on Slide 16, the ranges are fairly wide. So I wonder if you could just speak to what you think will drive that towards the lower or higher end of those ranges. Thanks. Sheridan C. Swords: When we think about ranges in there, we try to put it out there because we are dependent a lot on as producers complete the wells and bring pads on at times, and sometimes they will delay those pads coming on at times, or they may speed them up at different times. So we try to give a range of where we think it is going to be, and that is what kind of drives it. And then, you know, if you see higher crude prices, you could see producers put another rig on or put more completion crews on, and you could see those grow to more of the higher side of those ranges and beyond. We are trying to give a range of what we think is reasonable from our experience of operating these assets for many years. Producer activity and how just a simple delay for a month or two can swing your forecast or improve it. Operator: Thank you. And we will move next to Theresa Chen with Barclays. Your line is now open. Theresa Chen: Good morning. I appreciate the granularity in the EBITDA bridge and the details related to the synergies. As we think about these building blocks for 2026, with respect to the $150,000,000 of incremental synergies underlying guidance, can you help us risk-weight that? I know Sheridan alluded to this in his prepared remarks, but can you speak specifically on how much visibility you have in capturing these opportunities at this point? Sheridan C. Swords: Yes. What I would tell you about that $150,000,000 synergies that was outlined by Walt is they are all identified, and they are in the plan, and they are underway. And as we continue to grow, we have a very high confidence that we are going to be able to capture these synergies in 2026. What I would say, Theresa, they will come in the same kind of buckets that you see on page nine where we have outlined the different areas where we have been able to capture synergies. We will continue. That is where these are going to come from. Theresa Chen: Thank you. And as you prepare to bring online the first phase of the Denver refined products expansion in mid-2026, what is your outlook for the subsequent phases of this project? And have the expectations related to the Denver refined product system changed at all? In parlaying this to another component of your potential refined product pipeline portfolio, can you provide some incremental color on the commercialization efforts related to Sunbelt? Sheridan C. Swords: First thing on the Denver expansion, yes, it will come up as we said mid–third quarter. It is fully contracted with take-or-pay volume, so it will come up right away during that period of time. As you can imagine, our commercial team is out there working diligently right now to bring the Phase 2 online as we continue to go forward. We have some momentum in that area, and we are hoping that we can commercialize that sooner rather than later as we go forward, because obviously it is a very nice add-on project. We built operating leverage into that pipeline when we went out there. When we think about the Sunbelt Connector, I had said last time that we had an open season that had a lot of interest in it, but not enough to FID. And we still believe that the other project out there still does not have enough to FID as well. But we do think we bring value to bringing volume into the Phoenix area by having access to the Gulf Coast and our connectivity that we have—extensive connectivity that we have through our system that ties into all those refiners down there—that we believe that there is an opportunity to be able to work together to be able to bring this much-needed project to FID. Operator: Thank you. And we will take our next from Jeremy Bryan Tonet with JPMorgan. Your line is now open. Jeremy Bryan Tonet: Hi, good morning. Thank you for the helpful information with the bridge here. I was just wondering if we could bridge maybe just a little bit more. If we take a look back, there have been a number of acquisitions in the past several years here. And just wondering if you could expand a bit more on which ones are hitting expectations or really which ones might be coming in a little bit below, such as EnLink, just trying to square acquisition expectations versus the outlook for 2026 at this point? Pierce H. Norton: Well, Jeremy, clearly, Magellan, we have had the most time to play through the synergies there, spend a little capital where necessary to make the connections, get the logistical benefits. So we definitely have the most progress on the Magellan transaction, and the synergies to date have been weighted in that direction. Remember, it has just now been a year since we brought in EnLink, and things are going according to plan. I think that they are at the pace. You know, at the time we announced that transaction, we said that there were some contractual arrangements at EnLink that were going to take a little bit of time to roll off, and those volumes would come over to our pipes. So, you know, we are still expecting that. And Medallion, I think we have been able to jump into it pretty quickly by being able to bring our balance sheet to the fold to bring volumes onto our long-haul crude pipes and really just to enhance the gathering system by providing the full integrated service. I think they are all on pace, with Magellan clearly leading the way just because we have been at it a little bit longer, and the opportunity set might be a little bit bigger given the overlap of our assets. Jeremy Bryan Tonet: Got it. Understood. Maybe coming at it from a slightly different direction here, I think there was the expectation for the potential for EBITDA to approach $9,000,000,000 going into next year. And just wondering, I guess, beyond lower commodity prices, are there any other kind of drivers to the delta with the current outlook? Pierce H. Norton: No, I think that the difference in our outlook has been really more—it is twofold. It is producer activity. You know, we clearly saw 100,000,000 a day of lower volume than we had expected in 2025. So, you know, we have not caught up on that yet. And then with the lower prices, you do see a narrowing of spreads across the various businesses. So I think it is pretty much as simple as that. Volumetrically, our expectations are down a little bit. We still see the building blocks that we have ready to come in here in 2026 will drive us into 2027, like the Denver expansion that Sheridan was just talking about, as well as Medford coming on and the Shadowfax plant. So we have got some nice adds throughout 2026 that will give us some strength as we roll into 2027 regardless of what the commodity environment is. Jeremy Bryan Tonet: Got it. Understood. Thank you. Operator: Thank you. We will move next to Jean Ann Salisbury with Bank of America. Your line is now open. Jean Ann Salisbury: Hi, good morning. Can you talk through the drivers of your NGL throughput volumes on Slide 14? Your 2026 guidance is forecast basically flat versus 2025. To your point, you know, given growing gas-to-oil ratio, we would expect, you know, growth in NGLs in all of your basins. So if you can kind of just walk through and talk about market share loss or ethane recovery changes, but why overall you kind of have that flat? Sheridan C. Swords: Yeah. I think if we think about that, I will just start with the clock and walk through it a little bit. It is obviously in the Bakken. We have talked about it for a period of time. We have a contract coming off this year where we are going to lose about 18,000 barrels a day going over to the Kinder Morgan system. So still going to see growth in that, but that is going to temper that down a little bit. In the Mid-Continent, it is an ethane story where C3+ is growing in the Mid-Continent, but we are predicting a little bit more ethane rejection in 2026 than we did in 2025. The Mid-Continent is also an area where we have been able to do some incentivized ethane or bringing some discretionary ethane on in that portion, and that is not predicted in these numbers as we continue to go forward. And then the Permian, we are expecting some nice growth uptick on that, and we do expect that to be in full ethane recovery. So it is kind of a little bit of—in a nutshell, it is our ethane assumptions through our systems that we have in there and also the Bakken with that volume coming off. I would also say that we do not have—we had a very good year last year on discretionary ethane out of the Bakken. We have not predicted to be at that same level this year. Jean Ann Salisbury: Okay. That is very clear. Thank you. And then I kind of just wanted to follow up on Michael's question. So, you know, the Waha–Katy spread is still pretty wide for 2026, but it seems like maybe you did not put all of that into the guidance. But I guess my question is just, like, in 2027 when all those pipelines come on and that spread basically disappears, would we expect, like, basically a further material step down in that bucket in 2027? Sheridan C. Swords: Well, what I would say is we contracted for that space on Eiger to be able to provide a service to our customers that we are bringing through our G&P processing plants to give them an outlet for their gas to continue to go forward. And we market that gas for them, make sure they have a good netback, and that gives us advantages to attract more gas to our system. But as we bring more volume onto our gas processing plants, that volume is not all being used right now, and the extra volume is what we are able to sell at the spread. So as we get into 2027, we are predicting that that volume will be used for our G&P business and natural gas that is coming off our plants to serve our customers. Jean Ann Salisbury: Okay. That makes sense. Thank you. Operator: Thank you. And we will move next to Julien Dumoulin-Smith with Jefferies. Your line is now open. Rob Mosca: Hi. This is Rob Mosca on for Julien. Good morning, everyone. So maybe related to that $55 to $60 per barrel assumption, do you think it would be fair to assume on a go-forward basis that at that level you would expect your Bakken G&P position to grow 1%? And maybe if not, what other factors could alter that correlation? Sheridan C. Swords: Well, I think we have come out and said that it is 55% to—what our prediction is going forward. And, yeah, at this crude level, we are seeing a low single- to mid- to low single-digit growth rate for the Bakken volume both on the NGLs and on the G&P side of it. Obviously, in a higher crude environment, as producers have more cash flows—they are operating within cash flow today—and they have more cash flow, and they feel like they can deploy more rigs for that additional cash flow, we will see increased volumes coming out of the Bakken and be able to continue to grow our position. Obviously, we have a very, very large position in there right now, so it is really about growth across the whole basin as we continue to go forth. So we really see it as, to get beyond that 1%, it is probably going to be driven by more commodity price increases. As we continue to look out forward, though, we are seeing that producers are continuing to work on efficiencies around longer laterals and efficiencies on completion techniques, as well as starting to see the inventory around with more refracking and reworking older wells that can bring more volume on as well. So as we look into the future, we think there are some other factors that could tend to push the tier two and tier three acreage into more economical areas that could be drilled at a lower price environment. Rob Mosca: Got it. That is really helpful, Sheridan. And for my follow-up, I am wondering if you could provide an update on how you are angling to get more third-party volumes onto your Permian NGL system? And what are your plans if you need more capacity beyond nameplate given that the 4Q number was strong, you are adding more plants, and you have a pretty modest-sized NGL package rolling to you in 2027? Sheridan C. Swords: I will start with the capacity. We still have right now roughly around 300,000 barrels a day on our West Texas NGL pipeline. Remember, as we continue to loop that system—we finally have to loop the whole thing—now we are sitting at well over 740,000 barrels a day on the system. As to the question about being able to attract third party onto our system, there are still G&P operators out there that are not associated with an NGL pipeline that are looking to move on an NGL pipeline. There are RFPs out there today, as well as there are a lot of producers out there that have taken hybrids at existing plants that we are able to contract for that we are already connected to or can be connected to. So even though those plants may be owned by somebody that is associated with a long-haul NGL pipeline, we have been able to execute on both of those, and we see opportunities going forward not only in 2026, 2027, and beyond, that we will have those opportunities to be able to entice that volume to come here. And with this very advantaged capacity we have on our NGL pipeline and advantaged frac capacity we will have at Medford, we think we compete for those very well. Rob Mosca: Understood. Thanks for the time, everyone. Operator: Thank you. And we will go next to Manav Gupta with UBS. Your line is now open. Manav Gupta: Good morning. Your slide deck references natural gas storage opportunities. I was wondering if you could comment a little bit more about them—which are the areas geographically where you are seeing most of these opportunities? And also, are these opportunities tied to data centers, or is it a combination of data centers and LNG export projects? If you could talk a little bit about natural gas storage opportunities. Sheridan C. Swords: Yeah. What I would say is I will kind of break our natural gas storage opportunities into two areas. One, the first area is Texas and Oklahoma, more on the legacy ONEOK, Inc. system, and that has mainly been driven by utilities going in there. We have expanded those a couple different times. We see opportunities to be able to expand them more. We continue to see if there are opportunities for us to expand. Right now, those are fully contracted under long-term contracts. When you get over to Louisiana, with the EnLink acquisition, we are completing out the GIST expansion that will go from, I think, it is 2 Bcf to about 10 Bcf. And as we go there, that will come on in 2028. That has been contracted as well. We do see some more opportunities out there to grow more storage. There is another opportunity to grow the—to expand the GIST storage some more, and then there is the Bull and Mill storage over there. We think that there is an opportunity to grow as well. We have teams—engineering teams and geology teams—looking at that to see what we can do as we go forward. Those are going to be more driven by industrial customers and LNG people that are going to need those systems, of which we have had a lot of inquiry and natural gas into that. So we do see a lot of upside on the storage beyond 2026 and beyond. Manav Gupta: Thank you. My quick follow-up is what are you seeing in terms of refined product demand in your system? We are off to a very surprising year where, you know, we have seen massive colds, so probably higher on the diesel heating oil side, but maybe a little more on the gasoline. But in your system, how are you seeing the refined product demand year-to-date? If you could talk a little bit about that. Sheridan C. Swords: What I would say is so far through the year—I mean, you have to be careful; it can be cyclical a little bit through the year—but so far, as we come off in the first quarter, we are seeing good demand, especially on our West Texas system out to El Paso, which is very, very encouraging. Now, we have to be careful. A lot of times demand swings will change based on refinery turnarounds and what is going on in the system. But so far, we have been very good. The central system through the Mid-Continent is performing at or above our expectations for the first quarter going forward. So we are seeing some good demand pull across our system. Manav Gupta: Thank you so much. Operator: Please go ahead. Thank you. Our next question comes from John Mackay with Goldman Sachs. Your line is now open. John Mackay: Hey, good morning. Thank you for the time. I wanted to touch on the 2026 CapEx guidance. Could you tell us a little bit more of a breakdown of where those dollars are going in terms of kind of the bigger projects coming on maybe over the next two years? And then on a related note, how you are thinking about kind of all-in return profiles for that capital wedge? Thanks. Pierce H. Norton: Sure. Well, the projects are the ones that I think Randy mentioned that come here in 2026: the Denver pipeline expansion in refined products, the Shadowfax plant, the first phase of Medford coming on. Those are all right on target and will be additive as soon as they come on. We have a couple rolling over into the first six months or so of 2027. And then our larger projects really have been completed, and we will be on to the more ordinary course—what we call routine growth—expanding and extending our system. We have been out there and said that we spend about $600,000,000, give or take, on maintenance, about $1,000,000,000 routine growth every year, and then we manage to find, you know, $400,000,000 or $500,000,000 of other larger capital projects that our commercial team is always out looking for. And that backlog is building. But we do not expect any—we do not see any real large capital projects like a thousand-mile pipeline or something on the horizon at the moment. Clearly, one we have not mentioned there is our joint venture on the dock, which will wrap up as we go into 2028. John Mackay: Alright. Appreciate that. Thank you. And then going back to, I think, maybe Rob's question, capturing more Permian G&P volumes—also earlier in the prepared remarks, you kind of pointed to potential inorganic opportunities in the Permian. Can you talk about that a little bit more for us? And maybe potentially what your experience with synergy capture informs what you could be considering. Thanks. Sheridan C. Swords: Well, when we think about G&P growth in the Permian, you know, with the growth that we are seeing now in 2026 is from mid- to high single digits, and that is based on contracts that we have today coming on board. We are also seeing plenty of RFPs out there come forward—the volume either coming off contract or new volume being drilled—that we have a very good chance of being able to capture, especially when you think about a lot of these customers are customers of ours in other basins as well. So we feel very good going forward. The great customer feedback that we have had and what we have done so far—we have, as I told you last time, with the Shadowfax plant, the volume we are doing in the Delaware has given us a little bit of operating room to be able to grow with these producers. And that is what they really were missing when EnLink was operating these assets. As we think about inorganic growth, I think in the comments we were talking more about—we built a platform with the inorganic growth that we have done so far. We are really concentrated at this time on the organic side of it and how do we connect it up to the wellhead or to the CDPs that are out there in front of us that will continue to fuel growth, concentrating on these RFPs that are in volume growth in 2027 and beyond. John Mackay: Understood. Thank you. Operator: Thank you. And we will now move to Brandon B. Bingham with Scotiabank. Your line is now open. Brandon B. Bingham: Hi, good morning. Thanks for taking the questions here. Just looking at the $150,000,000 headwind bar on realized pricing impacts for the guide, I was just wondering what you guys are assuming price-wise within each of those buckets and how that might compare to current strip prices? And then what the potential uplift could be if you sort of mark-to-market those assumptions? Sheridan C. Swords: What I would tell you about is when we put that together, we were at a $55 to $60 price environment. What we typically see as we think about those headwinds is that on the spread business, as crude prices are higher, we typically are wider. On our commodity exposure, that is mainly in the G&P business, and we have a systematic program of hedging, and we only try to leave only about 25% open on our commodity exposures as we continue to go forward. So as we think about going forward, if we would see some improvement in crude prices from the $55 to $60 range, we will see upside into our spread part of the business. Brandon B. Bingham: Okay. Thanks. And then maybe just one quick follow-up. Just have not heard much on the Texas JV with MPLX. Just curious if you have anything to share. What is kind of the latest and greatest there? I know you mentioned it is part of the budget for this year, but just any updates you can provide? Sheridan C. Swords: Well, I mean, it is progressing. The build side of that is progressing as planned; very satisfied with how we are going on that. On the commercial side, we are continuing to advance the commercialization of that dock. We like where we are today. The momentum is strong where we are today. We continue to have a lot of customer interaction with that, a lot of interest moving forward with quite a few people on that and going forward. So we like where we are at. And one thing I would add to that is that we have multiple touchpoints at different levels of MPLX in here, and I am very, very pleased with the communication that is going back and forth between the two companies. Excellent collaboration. Operator: Okay. Great. Thank you. Operator: Thank you. We will now move on to Keith T. Stanley with Wolfe Research. Your line is now open. Keith T. Stanley: Hi, good morning. I wanted to ask on capital allocation. Would you expect excess free cash flow this year to go to debt repayment? Where do you see leverage ending the year? And when would you expect to get to that 3.5 times target roughly? Second one on bundled NGL rate in the Bakken, it slipped a little to $0.27 in Q4. Was that increased ethane recovery, and what would your expectation be for 2026 on your rate there? Walter S. Hulse: Well, I think that it is important to recognize that our 3.5 times target is a self-imposed target. The agencies for our current credit rating would provide us a little bit more flexibility at a higher debt-to-EBITDA than that 3.5 target. So we believe we have flexibility from a capital allocation standpoint as we look forward and have clear visibility down to the 3.5. So, you know, we may or may not be a little bit opportunistic if we see opportunities in the capital allocation side. But we are still on target. Clearly, with EBITDA expectations lower than they were in 2025 guidance, our denominator has not been as strong as we thought it would. So it is going to take a little bit longer than we originally expected. But we are on track, and, you know, we were aggressively reducing debt through 2025. We still have a pretty strong CapEx project backlog this year. So we will not be able to lean in too much into the debt reduction until we start to complete those. In 2027, you will see that incremental free cash flow really kick up. Sheridan C. Swords: And on the bundled NGL rate in the Bakken, yes, that is increased ethane recovery. What you are seeing is we had a pretty good fourth quarter with ethane recovering in there. You know, we are still roughly in that $0.30-ish range going over. A lot of it is driven by how much ethane we bring on, what different contracts come on going forward. There is a little bit of difference between some of the contracts out there, but it is going to be in that $0.30-ish range. Keith T. Stanley: Got it. Thank you. Operator: And we will go next to Jason Gabelman with TD Cowen. Your line is now open. Jason Gabelman: Yes. Most of my questions have been answered, but maybe I will just ask one more on the M&A front. And more related to the refined products and crude segment—given the success in the Magellan business and kind of your unique footprint there. You have been growing in a segment that most peers have a smaller footprint. So perhaps you are better positioned to consolidate that part of the value chain. Is there a desire to further grow the refined products and crude business inorganically? Pierce H. Norton: So, Jason, this is Pierce. I was wondering when the M&A question would come up. Our focus continues to be on executing for the 2026 plan and beyond. And we do not see any really glaring holes in our portfolio right now. So we are really pleased with what we have got. We are going to continue to look at things that fit our strategic objectives and especially as, you know, our criteria and the questions around that. And we are going to continue to be intentional and disciplined in our approach to M&A. So if that is adding refined products and crude or adding different things, then we are going to look at those. But we are going to be really intentional about what we are doing. Jason Gabelman: Understood. Thanks. Operator: Thank you. At this time, we have reached our allotted time for questions. I will now turn the call back to Megan Patterson. Megan Patterson: Thank you, Angela. Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in late April. We will provide details for that conference call at a later date. Our IR team will be available throughout the day for any follow-ups. Thank you for joining us today, and have a great day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning. My name is Rocco, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Chris Forrey, Senior Vice President, Finance and Investor Relations. Mr. Forrey, you may begin your conference. Chris Forrey: Thank you, Rocco, and good morning, everyone. We'd like to welcome you to Boise Cascade's Fourth Quarter 2025 Earnings Call and Business Update. Joining me on today's call are Nate Jorgensen, our retiring CEO; Jeff Strom, our incoming CEO; Kelly Hibbs, our CFO; Joe Barney, leader of our Building Materials Distribution Operations; and Troy Little, leader of our Wood Products operations. Turning to Slide 2. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income or loss to segment EBITDA. I will now turn the call over to Nate. Nathan Jorgensen: Thanks, Chris. Good morning, everyone, and thank you for joining us for our earnings call. Slide #3. As I reflect on 2025, I want to begin by recognizing the dedication and perseverance of every Boise Cascade associate. Our people and shared values continue to be the foundation of our sustained success. We delivered strong operating results despite ongoing market headwinds with full year net income of $132.8 million or $3.53 per share. We continue to expand our distribution business, the most notable examples being the opening of our greenfield distribution center in Plano, Texas and the fourth quarter acquisition of Holden Humphrey. Our multiyear investments in support of our EWP production capabilities in the Southeast remain a strategic focus in 2025. We completed the Oakdale modernization project and are substantially complete with the addition of the [indiscernible] line. The meaningful investments we have made in the last 3 years positioned us to deliver above-market growth in the years to come. Lastly, we provided meaningful returns to our shareholders again in 2025 to a 5% increase in our quarterly dividend and more than $180 million of share repurchases. Turning to fourth quarter results. Total U.S. housing starts and single-family housing starts increased 4% and 7%, respectively, compared to the prior year quarter. Our consolidated fourth quarter sales of $1.5 billion were down 7% from the fourth quarter of 2024. Our net income was $8.7 million or $0.24 per share compared to net income of $68.9 million or $1.78 per share in the year ago quarter. Fourth quarter 2025 results were negatively impacted by approximately $6 million or $0.16 per share after tax related to accrual for legal proceedings in our BMD segment that Kelly will address in his comments. As expected, sequential volume declines in both divisions reflected the seasonal softness in demand. In BMD, our team delivered steady gross margin sequentially. In Wood Products, prices stabilized while wood markets, like commodities, other commodities continue to experience weak pricing due to soft demand. Despite market challenges, we delivered solid earnings for the quarter. As announced in December, I will retire next week after 10 years with Boise Cascade, including 6 as CEO and has been an honor and privilege to serve in this role. Jeff's transitioned into the CEO role reflects our deliberate and purposeful succession planning. I have great confidence in Jeff and the entirety of our leadership team to guide Boise Cascade's continued success and look forward to continued service on the company's Board. Kelly will now walk through our segment financial results, capital allocation priorities and the first quarter guidance. Jeff will then provide highlights on our business outlook and then close the comment before we open the call for questions. Kelly? Kelly Hibbs: Thank you, Nate, and good morning, everyone. BMD sales in the quarter were $1.4 billion, down 5% for fourth quarter 2024. BMD reported segment EBITDA of $56.4 million in the fourth quarter compared to segment EBITDA of $84.5 million in the prior year quarter. Gross margin dollars decreased $21.3 million compared to fourth quarter 2024. In addition, BMD's fourth quarter EBITDA was negatively impacted by the $6 million charge that I will speak to in more detail momentarily. In Wood Products, our sales in the fourth quarter, including sales to our distribution segment were $354 million, down 16% compared to fourth quarter 2024. Wood Products segment EBITDA was $12.3 million compared to EBITDA of $56.6 million reported in the year ago quarter. The decrease in segment EBITDA was due primarily to lower EWP sales prices and sales volumes as well as lower plywood sales prices and higher per-unit conversion costs that were influenced by decreased production rates. Moving to Slides 5 and 6. BMD's year-over-year fourth quarter sales decline of 5% was driven by a 4% decrease in sales of prices as well as a 1% decrease in sales volumes. By product line, commodity sales decreased 9%. General line product sales increased 3% and sales of EWP decreased 14%. Sequentially, BMD sales were down 12% third quarter 2025, a result of lower volumes attributable to seasonally weaker demand. Our fourth quarter gross margin was 15.1%, flat sequentially and down 70 basis points year-over-year. The year-over-year decline was driven by commodity price headwinds and EWP competitive pricing pressures. Margins on general line products were stable despite the subdued demand environment. BMD's EBITDA margin was 4.1% for the quarter down from both the 5.9% reported in the year ago quarter and the 4.5% reported in the third quarter. Sequentially, our EBITDA margin improved modestly when excluding the negative impact of the previously mentioned charge. BMD's fourth quarter EBITDA margin is below our typical earnings power. However, it represents strong performance considering current market demand and pricing conditions. This outcome demonstrates our team's effective execution across all product lines. In particular, we have prioritized growth in our general line products, leveraging our proven track record and extensive distribution network to offer a leading selection in this category. Now I want to spend a moment specific to the legal matter related to the $6 million charge recorded in BMD. This relates to a Lacey Act investigation involving plywood purchases at our distribution facility in Pompano, Florida. It's a legacy matter pertaining to certain hardwood plywood purchases made between 2017 and 2021, sourced from a former U.S.-based supplier and that supplier's importation of plywood. That investigation led to Boise Cascade receiving a subpoena for documents in 2024, and we have fully cooperated with federal authorities, specifically the Department of Justice. I wanted to be clear that we [indiscernible] matter very seriously consistent with our company values. We are committed to maintaining rigorous compliance standards across our businesses. In fact, years prior to being contacted by federal regulators. We had already undertaken steps to comprehensively review, invest in and enhance our compliance programs. Steps taken included a new compliance management and oversight program, implementation of enhanced policies and procedures related to supplier due diligence and monitoring and mandated education programs and trainings for our associates. In short, we have a comprehensive compliance program in place. The charge we recorded in the matter the DoD is reviewing relate to transaction at only 1 distribution facility several years ago, and we are confident that we have implemented effective processes to meet our compliance obligations. We will continue to cooperate with the DOJ to resolve this matter as soon as possible and move forward as a stronger company with an even greater vigilance toward trade policies and procedures. Lastly, I want to emphasize that this does not impact our operations, and we remain focused on delivering exceptional value to our customer and supplier partners. Turning to Slide 7. Fourth quarter I-joist and LVL volumes were down 16% and 7%, respectively, compared to the year ago quarter. Sequential I-joist and LVL volumes were down 16% and 8%, respectively, as seasonal declines in construction activity and a continued muted demand environment drove lower volumes. On a year-to-date basis, our I-joist and LVL volumes were down 8% and 2%, respectively, a reflection of the decrease in single-family starts. As it relates to pricing, fourth quarter EWP sales prices declined about 10% year-over-year but were flat sequentially. Turning to Slide 8. Our fourth quarter plywood sales volume was 354 million feet compared to 371 million feet in fourth quarter 2024. Sequentially, our plywood sales volumes were down 9% from third quarter of 2025 as anticipated due to the seasonal slowing in demand. The $329 per [ 1,000 ] average plywood net sales price in the fourth quarter was down 6% on a year-over-year basis but increased modestly compared to third quarter 2025. Tariffs have led to a notable decrease in South American plywood imports to the U.S. with Brazilian shipments falling over 40% year-over-year in the latter half of 2025. This reduction has contributed to recent pricing gains for Southern plywood. However, trade policy remains uncertain following last week's Supreme Court decision so it will be important to watch how these developments affect market dynamics in the months ahead. I'm now on Slide 9. With capital expenditures of $241 million in 2025 with $105 million of spending in BMD and $136 million of spending in Wood Products. As Nate previously mentioned, this capital deployment was in alignment with our strategy to solidify and expand our market-leading national distribution presence and support our EWP production capabilities in the Southeast. Looking forward to 2026, we expect our capital spending to be between $150 million and $170 million. Roughly 1/3 of BMD's 2026 spending relates to growth projects across our system but the balance of our spending in both segments attributable to replacement projects, business improvement and efficiency projects and ongoing environmental compliance. Speaking to shareholder returns, we paid $35 million in regular dividends in 2025. Our Board also recently approved a $0.22 per share quarterly dividend on our common stock that will be paid in mid-March. In 2025, we repurchased approximately $181 million of Boise Cascade common stock, including approximately $70 million in the fourth quarter. Thus far in the first quarter of 2026, we have repurchased an additional $39 million, leaving approximately $200 million authorized for repurchase under our existing share repurchase program. We remain committed to a balanced approach to capital allocation by investing in our assets, pursuing organic and inorganic growth opportunities and returning capital to our shareholders. Our strong financial position provides flexibility to advance all of these priorities for long-term value creation. I'm now on Slide 10, where we have presented a range of potential EBITDA outcomes for the first quarter, along with key driver assumptions. Notably, Winter firm -- Winter Storm Fern had a considerable effect at the beginning of the quarter, causing widespread disruptions throughout our operations in Eastern U.S. Within BMD, nearly 20 branches were closed for at least 1 day, resulting in approximately 30 lost sales days. Additionally, our Southeast manufacturing facilities experienced closures lasting multiple days. And just this week, severe weather in the Northeast is again impacting our distribution operations. With that as a backdrop, I'll shift to our outlook. For BMD, we currently estimate first quarter EBITDA to be between $45 million and $55 million, BMD's current daily sales pace is approximately 6% below the fourth quarter sales pace of $22 million per day. While we expect our first quarter pace to improve as the quarter progresses, it will likely fall short of the fourth quarter pace. Gross margins are expected to be between 14.25% and 15%. For Wood Products, we estimate first quarter EBITDA to be between $25 million and $35 million. We expect EWP volumes to increase by high single to low double digits sequentially, reflecting seasonal strengthening and channel restocking in advance of spring building season. EWP pricing is expected to range from flat to low single-digit decline sequentially. In plywood, we expect sequential volume increases in the high single digits. Of plywood pricing, quarter-to-date realizations were 1% above our fourth quarter average with the balance of the quarter market dependent. Increases in EWP and plywood volumes will also drive sequential decreases in our per unit manufacturing costs. Lastly, we expect our first quarter effective tax rate to be between 26% and 27%. I will now turn it over to Jeff to share our business outlook and closing remarks. Jeff Strom: Thank you, Kelly. I want to start by welcoming the talented team from Holden Humphrey, the Boise Cascade. We are excited to have completed that acquisition this past December and how it enhances our footprint and product offering in the Northeast region. Let me turn to Slide 11. As we move into 2026, maintaining focus and adaptability will be crucial to differentiating Boise Cascade and delivering value for our customers and supplier partners. In 2025, single-family starts fell short of 2024 levels by approximately 7% and are expected to be flat or modestly down in 2026. Homebuilders moderated starts in 2025 to avoid further buildup of finished home inventory as affordability remains a persistent challenge for prospective homebuyers. Throughout 2025, builders bridged the supply-demand gap with increased incentives and high single-digit declines in new home prices. Multifamily experienced growth in 2025, but starts are expected to level off in 2026 due to prohibitive capital cost for developers, combined with low rent growth and a decrease in permit activity. In repair and remodeling, activity has been limited by low home turnover and homeowners delaying major projects due to high borrowing costs and economic uncertainties. However, as economic policy becomes clear, consumer confidence improves and interest rates declined, the project backlog positions repair and remodeling for a long runway of growth. The strong fundamentals for both new residential construction and repair and remodeling continue to support the industry's favorable outlook. Our recent investments position Boise Cascade to capture significant upside as the market turns. BMD once again demonstrated a value to the channel, delivering outstanding service across a broad range of industry-leading building materials. We are prepared for new opportunities and challenges that lie ahead in 2026, but 1 concept will be BMD's unwavering focus on creating solutions for our customers. In Wood Products, we are pleased that EWP price erosion abated in the fourth quarter and we aim to improve EWP realizations as the year progresses. The integration of our 2 business segments has never been closer. Enhanced channel visibility supports the alignment of our production rates and inventory strategies with end market demand. cross divisional efficiencies, and our solid financial foundation of our cornerstones of our ability to execute our strategy and deliver long-term value creation. Looking ahead, we remain confident in the long-term demand drivers for residential construction, including the persistent undersupply of housing and aging U.S. housing stock and high levels of homeowner equity. Generational tailwinds support household formation growth while declines in mortgage rates should encourage buyers who have been waiting on the sidelines to enter the market. Finally, I'd like to thank Nate for his steadfast leadership and dedication to Boise Cascade. Nate's tenure as CEO, began shortly before the COVID-19 pandemic and his steady hand and tough leadership guided us through the wild swings in the market that followed. We are a stronger company today because of his leadership, and I'm pleased that Nate will continue to serve on our Board of Directors. The example of Nate has sent for me and many others at Boise Cascade is one of living our values. Nate's embodiment of these values has become a fundamental building block of our culture that has strengthened our relationships with associates, customers, suppliers and shareholders. Nate, I wish you and your family the very best in retirement. Thank you for joining us today and for your continued support and interest in Boise Cascade. We welcome any questions at this time. Rocco, would you please open the phone lines? Operator: [Operator Instructions] And today's first question comes from Susan Maklari with Goldman Sachs. Susan Maklari: Let me add my congrats on a job well done over the -- during your tenure. And Jeff, I look forward to working with you. So my first question is focused on the general line within BMD. Can you talk about the share gains that you're continuing to realize there? And the ability to continue to grow even with the housing headwinds that we're seeing? Joanna Barney: Yes. This is Joe. So what I would tell you is that we really saw demand held up well across our general line products. In 2025, they were our biggest category. They hit an all-time high as far as our overall mix. So we've done exactly what we set out to do and growing our general line products. We continue to see solid growth with James Hardie, with Trex, with [ Huber]. In fourth quarter, our home center business continued to be strong. We've got a lot of program business for the home centers as well as generalized special order business that we do. And we do really well with that business. We believe that's going to continue to grow. We see a lot of opportunity, upside opportunity with the home centers. And we continue to improve and grow our door and millwork category, both in terms of improving our operational costs as well as growing overall revenue. And we really feel confident that we're going to continue to gain market share in that category. Susan Maklari: Okay. That's helpful. And then maybe turning to EWP, the builders -- the public builders really focused on clearing a lot of their spec inventory in the fourth quarter ahead of the spring selling season. I guess as we do look to the upcoming season, can you talk about how the channel is positioned in there with the builders targeting that very low single-digit volume growth, how are you thinking about what that could mean for the business? And any potential upside if we do get more of a lift in activity as we go through the next couple of quarters? Troy Little: Yes, this is Troy. Yes. I mean, obviously, like you mentioned that we had the kind of destocking effect in Q4, but we're aligned with strong partners on the builder side and the dealer side. And so we did see some -- if you want to probably more restocking starting in -- at the beginning of Q1, that's kind of flowed through well into February, and feeling pretty good about where we sit year-to-date this month. So I think just those strong partnerships allows us access to the market when it does come back. through that channel and with our partnership with BMD, that inventory itself is ready to roll. Susan Maklari: Okay. All right. And then I'm going to squeeze one more in, which is just, Jeff, as you do step into the CEO role, can you talk about any areas that you're specially focused on? And maybe within that, any thoughts on capital allocation and priorities there? Jeff Strom: Yes. I'll just start with this one. I think when I look at things overall, our strategic priorities that we have that are in place right now. I think they've served us very well. And so maybe you might see a slight refinement there, things that will work on a more deeper intentionality. But the initiatives we put in place will be just to support that strategy what it is. So if you think about what spending, leveraging the integrated model to serve us incredibly well. We're going to keep doing that and look for more efficiencies there. It increased earnings stability. I love the work that we've done. I think it's showing up very well right now. But there's opportunities there, and there's opportunities to continue to invest and grow our business. And we're going to do that in both businesses, BMD and Wood Products. We're going to look for innovation, for efficiencies to drive some cost out and then accelerate the pace of transformation. Again, that goes to technology. And we want to invest in employing technology there to help drive revenue and reduce costs. And then one slight addition that I'd add to that, I think, is we really want to become the employer of choice for our associates. And what do I mean by that? We want to attract the best talent. We want to get them in here to work for a great business with an amazing culture, and we want to keep them there. We want to develop them, we're going to invest in them and provide a great future. So I think those will be the changes. On the capital allocation, truly, I think our balanced approach has worked extremely well for us, and I don't see anything different going forward there. Operator: And our next question today comes from Mike Roxland with Truist Securities. Michael Roxland: Nate, congrats on your retirement. It has been great working with you. I appreciate all your insights over the last few years. And Jeff, congrats on the new role, look forward to working with you more closely. First question just on EWP prices. They've been obviously done to stabilize quarter-over-quarter. You guys are guiding to better prices sequentially in 1Q. I realize there may be some seasonality you're embedding within that guy. But is there anything -- any other color you could share as to what in particular is driving the EWP price stability after so many quarters of erosion and particularly in light of persistent single-family weakness. Are you starting to see the competitive backdrop become a little bit more rational relative to the way it was? Just anything to help us with to describe what's happening with EWP pricing. Troy Little: Yes, Mike, this is Troy. Yes. No, I'm pleasantly surprised in terms of the fourth quarter being flat relative to Q3. I think where we're at in the cycle, definitely, it's pretty competitive out there, but I think that's playing itself out. And as we move into Q1, we're seeing, quite honestly, we're pretty flat where we sit right now for the second half of last year. And so that remains encouraging. We obviously are out there looking for new business and defending what we have. But right now, we're not anticipating anything substantially on the downside. And like I said, where we sit in Q1, I'd say that's probably going to be fairly flat. Michael Roxland: Got it. And Troy, is it just a matter of what the competitive backdrop being your -- your peers being more rational in terms of their pricing? I remember you guys highlighted a couple of quarters ago, number of quarters actually going at this point that in select markets, you were seeing more EWP price erosions and because of peers being more competitive. Has that subsided? And that's why now pricing has stabilized? Troy Little: Well, I wouldn't say it's stopped. It's definitely out there. It's an ongoing conversation. But I just think it's kind of where we've ended up. I mean costs throughout the last over years as prices have been coming down, our costs have been going up. So I just think maybe that's where we're at in the cycle. Michael Roxland: Got it. And for since I have you, just the 1Q guidance and what products assumed a nice increase in margin sequentially. Aside from pricing that we just spoke about and volumes, can you talk about maybe some of the other underlying assumptions in what products or like to have such a notable increase in EBITDA margin sequentially? Troy Little: Yes. I mean, obviously, we have the big project work through the second half of 2025. And then we had market-related downtime. So any time you've got volume pulling out, your cost structure is even worse. So I think with the projects being complete, that downtime, we've been running fairly full so far this year with a little bit of market-related, but -- so in terms of sequential guidance, I mean, we've got that baked in or baked out maybe, there's a better way of putting it. And then plus just we're very focused on what we call our site improvement plans at each one of our facilities. And I think a real focus on that will have incremental benefit. Michael Roxland: Got it. And one last question, I'll turn it over. On BMD, it looks like the EBITDA margin should be around 3.5% to 4% for -- based on your 1Q guidance. What do you guys think would get back -- the business back to 5% margins, which I believe is something you've classified as more [indiscernible]? What do you need to see from a housing perspective or a mix vantage point or elsewhere to get you back to that 5% bogey? Kelly Hibbs: Yes. Good question, Mike. So certainly, first quarter is going to be a seasonally weaker period. And so the top line is only going to matter in terms of what kind of gross margin dollars we can generate. If we get into the seasonally stronger periods in the second and third quarter, my expectation would be we would be back to that 5% level. But you're right, in the first quarter, it would look softer. And I think it's important to also comment on the gross margin a bit there in terms of the guide 14.25% to 15%. A couple of things to think about there. There's mix is a bit different. You'll see some less general line and EWP in the first quarter. It will be a little heavier to commodity in terms of our overall mix. And then additionally, within commodity, there's been a little bit of energy in the market of late, but there's been some confidence in the market that our downstream customers have shifted a bit more to direct. And as you know, direct drives a little bit lower margin. So it's kind of a mix overall and a bit of a mix shift within commodity that moves that gross margin percentage down a little bit lower than you might have expected in the first quarter. Michael Roxland: Got it. Very helpful, Kelly. Congrats, guys, and good luck in the first quarter. Operator: And our next question today comes from George Staphos with Bank of America Securities. Unknown Analyst: This is [indiscernible] stepping in for George Staphos. At IDS, we saw increased promotion of engineered I-joist products, including your [indiscernible] offering, positioned as alternatives to Open Web cruises. How meaningful are these products in helping you regain share from Open Web systems? And can you update on us on how the competitive dynamics are evolving? Relatedly, given the early year move in lumber prices, how does open web pricing compare to I-joist today? Kelly Hibbs: Yes, you bet. So a few questions in there. I'll try to hit on and maybe we'll spread this around a bit. So in terms of -- it sounds like you were at our booth and then saw I-joist and they were talking around our [indiscernible] systems and whatnot, that is absolutely not anything new for us. We've been doing a lot of work for a long time around software design as well as saw tech systems to have that product show up efficiently at the job site so that it can be quickly installed and help cycle time. So that's nothing new for us. And then I think -- and then in terms of lumber and lumber pricing and how that could shift market. I would tell you, typically, when you get builders to transition to engineered wood, they don't shift back to lumber, on the open web side, certainly a competitive product there and lumber is a key input cost for them. So that could drive some cost pressure for the Open Web manufacturers. Unknown Analyst: And then one additional question, I'll turn it over. For BMD margins, could you just walk us through the key factors that would drive results towards the high end versus the low end of your guidance range for this quarter? And what are the major moving pieces that we should be focused on? Kelly Hibbs: Thank you, [ Kevin ]. Just to clarify, were you talking gross margins or EBITDA margins? Unknown Analyst: EBITDA margins. Kelly Hibbs: Yes. So a couple of things there. I would highlight. One, sales velocity really matters. Like I alluded to, we're 6% below our pace so far, our pace of fourth quarter were 6% below. So sales pace really matters to generate more or gross margin dollars for us. And then also mix shift. Mix shift is going to matter as well in terms of how much generalize, how much commodity, how much EWP and I would expect our mix to maybe rich in a bit as we make our way through the balance of the quarter. And then also, like I alluded to earlier, we've been fairly heavy on direct on the commodity side of the business. And so to get to get maybe towards that top end of the margin that I -- that we alluded to there, I would say it's going to be a combination of all those things. Sales velocity mix and then also how much does our product flow out of warehouse versus direct? Jeff Strom: I'm going to add one thing to that. I think in BMD, we have done -- added a tremendous amount of projects and growth over the last few years. Some of those, we continue to operationalize and some of those are not additive. And so as we move forward and as we get better, they continue every day to progress and get better and that will add to it whether how they start to move or not. Operator: Our next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Let me also extend my congratulations, Nate, best wishes in retirement, and Jeff, I look forward to working with you. Maybe to start with on the distribution side. Can you talk about -- and you mentioned earlier about some restocking there. Can you talk to how your inventories are right now, both on the general line as well as on the commodity side, especially as we start to get ready for the spring season and recognizing that Q4 was quite weak. Jeff Strom: Yes, Ketan, this is Jeff. On the inventory is out there in general line, third -- fourth quarter, we're leaning out in the field. People ran those down. They absolutely relied on next-day service and exactly what they needed didn't buy anything extra at all. At the end of the year, there were some price increases that were announced so people bought into that ahead of the price increase a little bit, not as much as you would think. But I'd say, on general line inventories in the channel, they're still overall pretty lean for the most part and people are relying on next-day distribution. As you would expect with us, we watch our inventory closely on ours by we were there to serve and people knew we were ours came down some in the fourth quarter like you expect. And with the early buys and the winter buys throughout there, we're starting to see them build back up. So we're prepared and running for whatever is out there. And we still think first half of the year is going to be very heavy reliance [indiscernible] not a warehouse service. Ketan Mamtora: Got it. Okay. No, that's helpful. And then can you give us a quick update on how the doors in the millwork business is doing and how that is holding up? Joanna Barney: Yes, this is Joe. Our door shops are actually doing really well, making big strides. All of them across the country. We're currently even expanding our space in Brasco, our build-out should be ready to go in Florida probably by mid-summer. We're improving our capacity. We just improved some capacity in Boise, so we continue to make strides in our door shops. And I said earlier that we really are focused on the growth of our pre-finished business indoor shops, reduced lead times, automating where we can. We're working on high-end custom doors so that our customers are focused on volume production doors that we can subsidize and adjust them in their business. But we continue to make strides in our door shops. We continue to improve our operational efficiency as well as our revenue gains. Operator: And our next question today comes from Jeff Stevenson at Loop Capital. Jeffrey Stevenson: And as others have said, Nate, congrats on your retirement. So I was wondering if you could provide more -- can you provide more color on the Holden Humphrey acquisition and the potential impact on your Northeast distribution business? And also, could there be more potential opportunities to expand existing relationships with key suppliers in the region such as Trex or James Hardie with this acquisition? Joanna Barney: Yes, I'll jump in there. So Holden, which is now our Chicopee location, it has gone really well. So it's meeting our expectations. I'll tell you that we're just getting started January was a tough winter month. So we're really kind of just getting rolling there, but we are already seeing efficiency gains with our people and our products in conjunction with our Westfield location that's over there. With the addition of Holden, we gained access to the 1 stepper business in the market, which is a customer segment we really have not serviced in the Northeast region. We also gained access to many general line product categories that we're excited about. These are new to us in that market as well. So now we also have the opportunity with those product categories to leverage those relationships and those products across the entire Northeast region. Jeffrey Stevenson: Great. No, that's good to hear. And last year, you indicated that there was some slowdown in the M&A pipeline due to macro uncertainties before the Holden Humphrey transaction. I just wondered if there's been any improvement in the M&A pipeline as we came to a close last year for bolt-on strategic acquisitions in key areas you're focused on and how you plan to balance M&A and share repurchases this year? Kelly Hibbs: Yes. Jeff, this is Kelly. So yes, I would say the pipeline is -- it's still somewhat active. And so we will continue to look to be opportunistic in terms of growing inorganically via M&A if we play the right thing to do. And then to your point, at the same time, we'll also have a balanced approach to look to opportunistically buy share repurchases. If we -- if the M&A activity is not there and if we think the opportunity is right. Operator: And our next question today comes from Reuben Garner with Benchmark. Reuben Garner: Maybe to start, I know you guys are a little newer to given the quarterly guidance. Curious what on your end kind of went better than expected to close the year, especially on the profitability front. Was that just conservatism a few months ago because we were in such an uncertain environment? Or were there things that you were able to kind of do internally that surprised you to the upside? And how should we think about kind of the way you guys are giving guidance going forward? I guess, in that vein, what would lead to a similar sort of outperformance in the start of '26? Kelly Hibbs: Yes, Reuben, this is Kelly. So I guess overarching in terms of guidance, look, we're going to try to put out what we think is reasonable guidance we think we have a reasonable opportunity of being the midpoint or a little bit above in terms of when we put out guidance. So I don't want to leave you the impression that we sandbagged fourth quarter, we did not in terms of our guide. What we did see is we saw a little bit better activity than we thought in the back half of the year. BMD, in particular, I think was a bit above their guide. So a good amount of activity and good work in terms of cost control as we seasonally -- as we moved into November and December, we saw some really good cost control. So I don't think there's anything I would really specifically point out beyond that, Reuben. Jeff, anything you'd highlight? Jeff Strom: No, I think the only thing I'd say is we foreshadowed that it was going to be a warehouse-centric for the quarter. And it was, and it really was. And each month, it got more and more December was the highest percent of sales out of warehouse than we've had in a long time. So people really leaned on that more so than ever before, and they knew that we had the material on the ground and we did and so where they serve and that helped us. Reuben Garner: Yes. So that was going to be my next -- or part of my next question, Jeff, and also for Joe here as a follow-up to some comments you made earlier. So the warehousing or the elevated reliance on warehousing, I mean, does that tell you kind of a sense of cautiousness that your customers still have even entering this kind of spring season for even some of the general line products. And then Joe, you mentioned all these -- the outperformance you guys have had, it has been very impressive in general on what exactly are you guys doing that's leading to outsized growth in some of your channels? You mentioned home centers? Like what exactly are you guys doing that's driving that outsized growth for you? Joanna Barney: So as far as driving the growth, I think what I would tell you is, again, I mentioned earlier that we have really focused on our general line mix and what we're doing with our general line product categories to grow there. So that's been a strategic focus for us. And as our mix shift switches. And we've been able to grow that product category, we've seen our margins improve. We've done really well there. That said, I think it's also important to note that we are not moving away from our volume and commodities. In fact, I think our commodity performance also combat margin compression. It's we are very good with the expertise of our people. We continue to build out systems and methods that give us early indicators in the market on trends that allow us to move quickly on commodities often ahead of the market. So we continue to outperform there. Our door shops, again, the revenue growth that we're seeing there is helping us perform better. And we're going to continue to grow there to Jeff's point, from an organic growth perspective, we've made investments across the country that we continue to see grow and perform as we improve from an operational standpoint, and we're able to grow revenue. We bring our lead times to [indiscernible]. We're able to grow our revenue there, great partners to us, and we are going to continue to invest and put resources there, so that we can continue to grow that opportunity. Jeff Strom: I'm going to add on to some of the things that you asked at. Every project that we have done over the last 2 years has been about growing our general line products and adding to the mix and going wider and deeper with them. And that has paid off in a big way. You ask if the customers out there, are they cautious. And I would tell you they are. What we are at the builder show is, right, it's going to be very similar to last year only in reverse, slower first half of the year, better second half of the year. So there is some caution out there without a doubt. We have lots more SKUs on the ground that we've added, new SKUs that come in that we've been the supplier of. So we've absolutely had that. And then lastly, I'll tell you the net working capital focus that is out there goes across every dealer that we touch, and it has been really intense. So to get that net working capital down, they're relying on us. Joanna Barney: And Reuben, if we see volatility in the commodity market that actually, there's opportunity and volatility for us in the commodity market. That volatility can create spreads that improve margin, give us the opportunity to improve margin and it's actually a better environment than just balancing along the bottom all year, which is a lot of what we saw in 2025. Reuben Garner: Great. And congrats, Nate, good luck in your retirement. And Jeff, looking forward to continuing to work with you in an even bigger way. Operator: That concludes our question-and-answer session. I'd like to turn the conference back over to Jeff Strom for any closing remarks. Jeff Strom: Okay. Well, thank you very much for your interest in Boise Cascade. Please stay safe. Operator: Thank you, sir. The conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Greetings, and welcome to the Apple Hospitality REIT, Inc. Fourth Quarter and Full Year 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Kelly Clarke. Thank you. You may begin. Kelly Clarke: Thank you, and good morning. Welcome to Apple Hospitality REIT, Inc.’s Fourth Quarter and Full Year 2025 Earnings Call. Today’s call will be based on the earnings release and Form 10-Ks, which we distributed and filed yesterday afternoon. Before we begin, please note that today’s call may include forward-looking statements as defined by federal securities laws. These forward-looking statements are based on current views and assumptions, and as a result, are subject to numerous risks, uncertainties, and the outcome of future events that could cause actual results, performance, or achievements to materially differ from those expressed, projected, or implied. Any such forward-looking statements are qualified by the risk factors described in our filings with the SEC, including our 2025 Annual Report on Form 10-K, and speak only as of today. The Company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. In addition, non-GAAP measures of performance will be discussed during this call. Reconciliations of those measures to GAAP measures and definitions of certain items referred to in our remarks are included in yesterday’s earnings release and other filings with the SEC. For a copy of the earnings release or additional information about the Company, please visit applehospitalityreit.com. This morning, Justin G. Knight, our Chief Executive Officer, and Elizabeth S. Perkins, our Chief Financial Officer, will provide an overview of our results for the fourth quarter and full year 2025 and an operational outlook for 2026. Following the overview, we will open the call for Q&A. At this time, it is my pleasure to turn the call over to Justin. Justin G. Knight: Good morning, and thank you for joining us today for our fourth quarter and full year 2025 earnings call. Against the challenging backdrop in 2025, our corporate management and hotel teams skillfully executed against strategic initiatives to maximize operating performance, manage expenses, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile, and position the Company to maximize shareholder value through outperformance in the years ahead. Our portfolio of efficient, high quality hotels is broadly diversified across 84 markets, with exposure to a variety of demand generators. During the year, leisure travel remained strong across our hotel portfolio while policy uncertainty and a pullback in government travel impacted midweek demand, temporarily disrupting the steady improvement in midweek occupancy that characterized much of 2024. Our asset management and hotel teams adjusted strategy to optimize the mix of business at our hotels as demand trends shifted, in many cases layering on additional group business to bolster market share and strengthen overall performance. Portfolio performance. Through the successful navigation of changes in government dependent demand, combined with continued strength in leisure travel, we achieved comparable hotels RevPAR of $118 for the full year 2025, down 1.6% to the prior year. Based on preliminary results, comparable hotels RevPAR declined by approximately 1.5% in January 2026 as compared to January 2025, primarily as a result of challenging comps related to wildfire recovery related business, which benefited a number of our California hotels last year, and the presidential inauguration, which benefited our hotels in the Washington, D.C. area. Winter storms also weighed on January and early February results but occupancies have improved meaningfully with recent weeks showing significant year-over-year growth. Together with our management teams, we remain focused on ensuring that we are growing market share and prudently managing expenses to maximize the profitability of our hotels. Variable expense growth for our portfolio has moderated, with higher growth in fixed costs during 2025 largely coming as a result of challenging year-over-year comparisons. We achieved comparable hotels EBITDA of $99,000,000 for the quarter and $474,000,000 for the year, resulting in an industry leading comparable hotels EBITDA margin of 31.1% for the quarter and 34.3% for the year. In January, we successfully completed the transition of our 13 Marriott-managed hotels to franchise, consolidating management with third-party management companies, who were in most instances already operating hotels for us in market, in order to realize incremental operational synergies. We are confident these transitions, together with the select number of additional market level management consolidations, will further drive operating performance at our hotels. In the case of the Marriott-managed assets, the transition away from brand management will also provide us with additional flexibility and increase the marketability of the hotels in the future, as we consider select dispositions. The Marriott transitions aligned with Marriott’s publicly stated goal to drive incremental efficiencies in their own business and we appreciate their willingness to work with us in pursuit of a mutually beneficial outcome. Our disciplined approach to capital allocation has been a hallmark of our strategy throughout our history, balancing both near and long term allocation decisions to capitalize on existing opportunities while securing the long term relevance, stability, and performance of our portfolio and maximizing value for our shareholders. While our long-term goal is to grow our portfolio, our stock has traded at an implied discount to values we can achieve in private transactions for much of the past year. We prudently capitalized on the disconnect by selectively selling assets and redeploying proceeds into the purchase of our own stock, preserving our balance sheet to safeguard against potential macroeconomic volatility, and to protect our ability to act quickly on future accretive acquisitions opportunities. During the year, we sold seven hotels for a combined gross sales price of approximately $73,000,000 and repurchased 4,600,000 common shares for a total of approximately $58,000,000. Shares repurchased during 2025 were priced at around a 2.4 turn spread to dispositions completed during the year, and around a 6.5 turn EBITDA multiple spread after taking into consideration brand mandated capital investments. Our team has done a tremendous job pursuing opportunistic asset sales that further optimize our portfolio concentration, help to manage portfolio CapEx needs, and free capital for accretive redeployment at a meaningful spread. Pricing for the individual hotels varies. However, as a group, the seven hotels we sold in 2025 traded at a 6.5% blended cap rate, or a 12.4x EBITDA multiple before CapEx and a 4.9% cap rate, or 16.5x EBITDA multiple after taking into consideration the estimated $24,000,000 in anticipated capital improvements. We were able to use 1031 exchanges to reinvest gains on hotel sales, redeploying proceeds into the acquisition of the Homewood Suites Tampa Brandon, which sits adjacent to our Embassy Suites in market, and the Motto by Hilton Nashville Downtown, which we acquired in late December upon completion of construction. Recent acquisitions have performed well despite headwinds in several markets. The Embassy in Madison, Wisconsin saw meaningful year-over-year improvement as the hotel completed its first full year of operations. And the AC Hotel in Washington, D.C., which was also purchased in 2024, produced full year RevPAR of $205 and a 43% house profit margin despite the meaningful pullback in government travel and a weaker convention calendar. Four of the six hotels we purchased in 2023 achieved yields in excess of 10% last year, including our SpringHill Suites in Las Vegas, despite meaningful declines in the performance of that market due to lower inbound foreign travel and a weaker convention calendar. The Nashville Motto is ramping nicely, and we continue to have forward commitments for two future hotel development projects, which are currently in early stages, including a dual brand AC and Residence Inn located adjacent to our SpringHill Suites in Las Vegas and an AC in Anchorage, Alaska. The AC in Anchorage has broken ground and is expected to be delivered in late 2027. Construction has not yet begun on the two Vegas hotels, though current expectations are for the AC and Residence Inn to be completed sometime in 2028. We do not currently have any pending acquisitions slated for 2026. Through all phases of the economic cycle, we seek to create value for our shareholders by driving incremental earnings per share through accretive transactions that enhance the quality and competitiveness of our existing portfolio and ensure that we are well positioned for future outperformance. We will continue to adjust tactical capital allocation strategy to account for changing market conditions and to act on opportunities at optimal times in the cycle to maximize total returns for our shareholders. In the near term, we anticipate that we will continue to pursue select asset dispositions where we can redeploy proceeds at a multiple spread, while at the same time managing future CapEx needs, and fine tuning the distribution of our portfolio to increase exposure to potentially higher growth markets. Disciplined reinvestment in our portfolio is another key component of our strategy and ensures that our hotels maintain competitive positioning within their respective markets and present guests with a value proposition that enables our hotels to drive incremental rate. Our historical annual CapEx spend has been between 5–6% of total revenue, which is a significant differentiator for us relative to our full service peers. Combined with higher margin, the lower CapEx obligation enables us to produce meaningfully more free cash from operations which we then use to fund shareholder distributions and strategic investments. Our experienced capital investments team leverages our scale ownership to reduce costs, maximize the value of reinvested dollars, and minimize revenue displacement by optimally scheduling projects during periods of seasonally lower demand. For the year ended December 31, capital expenditures totaled approximately $88,000,000. For 2026, we expect to reinvest. Hotel will happen as it reaches the end of its current franchise term, with the determination to change brands informed by competitive supply dynamics within the market and brand incentives. The hotel will continue to operate as a Residence Inn through the renovation returns for our investors. During the fourth quarter, we paid distributions totaling approximately $57,000,000, or $0.24 per common share, and for the full year, we paid distributions totaling approximately $240,000,000, or $1.01 per share. Based on Friday’s closing stock price, our annualized regular monthly cash distribution of $0.96 per share represents an annual yield of approximately 7.8%. Together with our Board of Directors, we will continue to monitor our distribution rates and timing relative to the performance of our hotels and other potential uses of capital. Historically, low supply growth continues to materially reduce the overall risk profile of our portfolio, limiting potential downside and enhancing potential upside as lodging demand strengthens. At year end, nearly 59% of our hotels did not have any new upper upscale, upscale, or upper midscale product under construction within a five mile radius. Throughout our 26-year history in the lodging industry, we have refined our strategy, intentionally choosing to invest in high quality hotels that appeal to a broad set of business and leisure customers, diversifying our portfolio across markets and demand generators, maintaining a strong and flexible balance sheet with low leverage, strategically reinvesting in our hotels, and closely aligning our efforts with the associates and management teams who operate our hotels. In 2025, we skillfully executed strategic initiatives to further maximize operating performance, capitalize on dislocations in the stock market, optimize our existing portfolio, enhance our growth profile, and position the Company for outperformance in the years ahead. Travel demand for our portfolio has remained resilient, further reinforcing the merits of our underlying strategy. Our guidance for 2026 calls for comparable hotels RevPAR to be flat at the midpoint, which generally aligns with STR forecast for our chain scales. We believe that this represents a measured base case scenario for our portfolio, with early summer potentially benefiting from incremental leisure travel related to the FIFA World Cup 2026, and easier comparisons to periods adversely impacted by cuts in government spending, tariff announcements, and the government shutdown in late 2025. We acknowledge that this guidance could ultimately prove conservative. With January and February being seasonally lower occupancy months, it is early in the year for us to identify with conviction trends for either business or leisure travel. And as we saw last year, the possibility of policy related demand disruption is real. We are, however, optimistic about the setup for the year and feel we are well positioned regardless of how things play out in the broader economy. We remain confident in the long-term outlook for the hospitality industry, the strength of our portfolio specifically, and our ability to drive profitability and maximize long-term value for our shareholders. It is now my pleasure to turn the call over to Liz for additional details on our balance sheet, financial performance during the quarter and outlook for the remainder of the year. Thank you, Justin, and good morning. Elizabeth S. Perkins: While the travel industry faced several macroeconomic headwinds in 2025, we are generally pleased with the performance and resilience of our portfolio. Comparable hotels total revenue was $319,000,000 for the quarter, and $1,400,000,000 for the full year 2025, down approximately 2.1% to the same periods of 2024. Comparable hotels adjusted hotel EBITDA was approximately $99,000,000 for the quarter, and $474,000,000 for the year, down approximately 8.6% as compared to the same periods of 2024. Fourth quarter comparable hotels’ RevPAR was $107, down 2.6%. ADR was $152, down 90 basis points, and occupancy was 70%, down 1.7% as compared to the fourth quarter 2024. For the year ended 12/31/2025, comparable hotels’ RevPAR was $118, down 1.6%. ADR was $159, down only 10 basis points, and occupancy was 74%, down 1.6% to 2024. Our portfolio continues to outperform the industry, where STR reports RevPAR of $100 and average occupancy of 62% for 2025, highlighting the relative strength of our portfolio demand despite year-over-year disruption. Our teams have done a tremendous job adjusting to reoptimize the mix of business at our hotels where there were meaningful shifts in government and other demand segments, as well as maximizing revenue around special events to strengthen market share and performance for our overall portfolio. Market performance varied significantly during the quarter, with a mix of strong RevPAR gains in several markets and ongoing headwinds impacting others due to demand shifts and challenging year-over-year comparisons. Our team remains focused on hotel and market specific strategies as well as operational execution to maximize performance. Top RevPAR performing hotels during the quarter as compared to the same period last year included our Embassy Suites in Anchorage, Alaska, which was up almost 42%, our Homewood Suites in Tukwila, Washington, which was up 33%, our Courtyard in Franklin, Tennessee, which was up almost 22%, and our Residence Inn in Renton, Washington, which was up over 21% as the hotel lapsed Boeing strikes in 2024. Other top performers included our Manassas Residence Inn, St. Louis Hampton Inn, and Nashville Airport TownePlace Suites. Hotels with significant year-over-year RevPAR declines for the quarter included our San Bernardino Residence Inn, our Arlington Hampton Inn & Suites, our Panama City TownePlace Suites, our Huntsville Hampton Inn & Suites, and our Orlando SpringHill and Fairfield Inn & Suites, which benefited from Hurricane Milton business during 2024. Based on preliminary results for the month of January 2026, comparable hotel RevPAR declined by approximately 1.5% as compared to January 2025. Impacted by travel disruption related to winter weather, challenging comps related to wildfire recovery related business, and the presidential inauguration last year, as well as ramp from our Nashville Motto, which opened at the December. Performance has improved in February, bringing comparable RevPAR growth slightly positive year to date. Turning back to the fourth quarter, weekday occupancy was down 140 basis points and weekend occupancy was down only 50 basis points as compared to the same period last year. Encouragingly, occupancy growth turned positive in December, with weekday occupancy up 10 basis points after being down around 2% in October and November, and weekend occupancy was up 90 after being down around 1% in October and November. ADR declines were more pronounced on weekdays, down 1% for the quarter while weekend ADR was essentially flat. As previously mentioned, following a pullback in October and November due to travel disruption related to the government shutdown, we began to see improvement in December. Highlighting same store room night channel mix for the quarter, brand.com bookings were flat year over year at 40%, OTA bookings were up 110 basis points to 14%, property direct was up 70 basis points at 25%, and GDS bookings were down 80 basis points to 16%. Looking at fourth quarter same store segmentation, BAR was around flat at 33% of our occupancy mix, other discounts grew 30 basis points to 31% of mix, corporate and local negotiated declined 150 basis points to 16% of our mix, and government declined 100 basis points to 4% of our mix. Group business mix improved 130 basis points to 15%. Our fourth quarter channel mix and segmentation trends highlight the relative strength of our leisure consumer, the pullback in government and other business transient as a result of the government shutdown, and our team’s ability to reoptimize and grow property direct and group business where available. We continued to see growth in other revenues, which were up 5% on a comparable basis during the quarter and up 6% year to date, driven primarily by parking revenue and cancellation fees. Turning to expenses. Comparable hotels total hotel expenses increased by only 1% in the fourth quarter and 1.9% for the year as compared to the same periods of last year, or 2.5% and 3.3% on a CPOR basis. On a same store basis, total hotel expenses increased by only 1% for both the fourth quarter and full year. Total payroll per occupied room for our same store hotels was $43 for the quarter, up 3.5% to the fourth quarter 2024, and $41 for the full year, up 3% versus full year 2024. Our managers continue to achieve reductions in contract labor, which decreased during the quarter to 7% of total same store wages, down 120 basis points or 14% versus the same period in 2024. Comparable hotels variable hotel expenses increased only 0.5% in the fourth quarter, or 1.9% on a per occupied room basis. Cost control efforts amid occupancy softness kept expense growth muted, with only 80 basis points of comparable operating expense growth, 30 basis points of hotel administrative expense, and flat sales and marketing expenses. Comparable utilities and repair and maintenance expense grew slightly higher at 2% and fixed expenses remained an expected headwind at 7% growth. Our comparable hotels adjusted hotel EBITDA margin was strong at 31.1% for the fourth quarter and 34.3% for the year, down 210 basis points and 190 basis points as compared to the same periods of 2024. Adjusted EBITDAre was approximately $93,000,000 for the quarter, and $444,000,000 for the full year, down approximately 3.6% and 5.1% as compared to the same periods of 2024. MFFO for the quarter was approximately $73,000,000 or $0.31 per share, down 3.1% on a per share basis as compared to the fourth quarter 2024. For the full year 2025, MFFO was approximately $361,000,000 or $1.52 per share, down 5.6% on a per share basis as compared to 2024. Looking at our balance sheet, as of 12/31/2025, we had approximately $1,500,000,000 of total outstanding debt, approximately 3.4 times our trailing twelve months EBITDA, with a weighted average interest rate of 4.7%. At quarter end, our weighted average debt maturities were approximately three years. We had cash on hand of approximately $9,000,000, availability under our revolving credit facility of $587,000,000, and approximately 64% of our total debt outstanding was fixed or hedged. The number of unencumbered hotels in our portfolio as of December 31 was 207. As previously disclosed, in July, we entered into a new $385,000,000 term loan with a maturity date of 07/31/2030, enabling us to stagger our maturities as we approach a recast of our main credit facility in the coming months. Turning to our outlook for 2026, provided in yesterday’s press release, for the full year, we expect net income to be between $133,000,000 and $160,000,000, comparable hotels RevPAR change to be between negative 1% and positive 1%, comparable hotels adjusted hotel EBITDA margin to be between 32.4–33.4%, and adjusted EBITDAre to be between $424,000,000 and $447,000,000. We have assumed, for purposes of guidance, that total hotel expenses will increase by approximately 3% at the midpoint, which is 2% on a CPOR basis. Effective 01/01/2026, the Company will begin excluding from the calculation of adjusted EBITDA and MFFO the expense recorded for share-based compensation, as it represents a noncash transaction, and the add back to net income is consistent with the calculation of adjusted EBITDA for the Company’s financial covenant ratios under its credit facilities and is consistent with the presentation of other public lodging REITs. As Justin mentioned earlier, this outlook aligns with STR forecast for our chain scales, and we believe represents a measured base case scenario for our portfolio, with early summer potentially benefiting from incremental leisure travel related to FIFA World Cup 2026 and easier comparisons to periods adversely by cuts in government spending, tariff announcements, and the government shutdown in late 2025, we acknowledge that this guidance could ultimately prove conservative. Our outlook is based on our current view, which is limited and does not take into account any unanticipated developments in our business or changes in the operating environment, nor does it take into account any unannounced hotel acquisitions or dispositions. Trends early in the year are always difficult to extrapolate, but we are encouraged by recent improvement in midweek occupancies and GDS bookings. While uncertainty remains elevated and the possibility of policy related demand disruption continues, including the ongoing partial government shutdown, we believe our experience, discipline, and agility will enable us to adapt dynamically to maximize profitability. We remain confident in our team’s ability to successfully navigate shifting market conditions. The strength of our differentiated portfolio has proven resilient across economic cycles, allowing us to preserve equity value in challenging environments and position ourselves to capitalize on emerging opportunities. While we have faced economic headwinds this year, favorable supply-demand dynamics persist. Our recent capital allocation decisions and portfolio adjustments have enhanced our portfolio positioning and performance, and our solid balance sheet continues to provide us with stability and meaningful flexibility to pursue accretive opportunities in the future. Importantly, we remain focused on the long term and committed to executing our strategy with discipline and patience, ensuring our portfolio is well positioned to deliver growth and value creation for shareholders over time. That concludes our prepared remarks, and we will now open the call for questions. Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be difficult to hear instructions; please ensure your handset is picked up. And again, that is star one if you would like to ask a question. Operator: And our first question will come from Jack Armstrong with Wells Fargo. Jack Armstrong: Hey, good morning. Thanks for taking the question. What would you say was the total drag on RevPAR in 2025 from Liberation Day and the government shutdown? And how much of that do you expect to come back as a benefit in 2026? Elizabeth S. Perkins: Good morning, Jack. It is a good question. I think, as we have progressed through the year, and reported on government being pulled back and related business, whether it be government adjacent that we can identify or general BT related to some uncertainty. You know, we have been clear it is hard to quantify completely. If you look at room nights for government on a same store basis, for the full year, they were down about 12%. And negotiated was down five to 6%. Which really that trend did not start until Doge and certainly ebbed and flowed throughout the year, ending the year down a little bit more with the government shutdown. So I would say, if you think about it from that perspective and you assume a good portion of that could come back, the total of those could be about a point in occupancy. But, you know, some of that from a 3% for the full year. Jack Armstrong: Yes. On a comparable basis at the midpoint, you are just under 3% for variable expenses, about 2.7%. And then fixed is just under 5%, so four and a half or so, for fixed expenses at the midpoint. Elizabeth S. Perkins: Okay. Great. Thank you. Operator: And our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Liz, just you discussed all the moving pieces related to the outlook this year from some of the policy related disruption that went on last year, as well as the event-driven demand coming this year. I am just wondering if the RevPAR growth guidance assumes any volatility. And if you could just kind of maybe provide some of the cadence of how you are thinking about the quarters or first half versus back half of this year? Thanks. Elizabeth S. Perkins: It is a good question. I think as we think about FIFA World Cup, to the extent we get benefit from that, that would occur probably mostly in late second quarter. You know, we provided in our prepared remarks as well as in the press release last night that, you know, not much of that, if any, is contemplated at the midpoint of our guidance range. You know, it is a little early to know how that might materialize, so we are optimistic about the potential. So if you think about cadence sort of outside of the guidance range, I would say the end of the second quarter is when we are anticipating for our hotels where we see the most benefit, way the matches are lining up. As we think about the midpoint of guidance, and what was assumed in guidance, you know, moving throughout the year, the cadence is fairly flat in the middle of the year, and then a slight decrease in the first quarter because of the California wildfire comp to last year where we experienced the most benefit. And certainly the weather that we have experienced so far year to date has had some impact too. And then the fourth quarter, certainly, we would have a little bit more of an increase due to the government shutdown last year. So highest growth in the fourth quarter, weakest quarter first quarter. Austin Wurschmidt: That is helpful. And then, you know, you did reference you were kind of forced to shift the business mix throughout the year given all the things we just discussed last year. How are you approaching this year with respect to business mix versus last year? And just the potential benefit that that could have on ADR from remixing that business you know, last year. Thank you. Elizabeth S. Perkins: We have actually been incredibly pleased with our team’s ability to bring group into the hotels at attractive rates. And I think as we move forward this year, we expect those efforts to continue. Direct sales to group within market. Ideally, we see improvement in government business, which helps to fill in the gaps, but certainly, benefiting from the efforts of our property level teams in going out and seeking business to replace that was no longer available during the government shutdown. So our expectation would be relative to years prior to last year, know, potentially slightly less government, slightly more group but we will see how the year plays out. I think what we have demonstrated is that we have a team at our hotels that has the ability to act on existing demand in market. And we have product that is versatile and appeals to a broad variety of potential customers. Thanks for the time. Austin Wurschmidt: Thanks, Austin. Operator: Moving on to Ari Klein with BMO Capital Markets. Ari Klein: Thanks, and good morning. Just going back to the RevPAR outlook, curious just at the high end of the range, that incorporating the fact that comps are getting easier and some of the event tailwinds that you talked about? And then 2025 was characterized more so by weaker occupancy than ADR growth. Is that your assumption for how 2026 will play out as well? Thanks. Elizabeth S. Perkins: It is a good question. Yes. I mean, I think at the midpoint of guidance, we assumed little impact or benefit from the special events that may happen this year or a return to some of the business we were missing. As you move higher up the range and hopefully beyond the range, it would anticipate some growth in occupancy as we lap those comps, more so than rate. Though, I think that some of the special events to the extent they materialize should provide some rate opportunity as well. Ari Klein: K. Thank you. And then, Justin, maybe talk a little bit about just what you are seeing as far as the transaction market is concerned? Are you more focused on dispositions at this juncture? Just any color there would be helpful. Thank you. Justin G. Knight: Yeah. Absolutely. Incredibly pleased with our team’s ability to execute last year, specifically on dispositions. I highlighted numbers during my prepared remarks, but their ability to execute at the multiples they were able to execute gave us a tremendous amount of flexibility to redeploy at spread multiples, which we think will meaningfully benefit us. I highlighted in my prepared remarks that at this point in time, we do not have any acquisitions under contract or currently contemplated for this year. A lot can change as we move through the year, and I think we have demonstrated an ability to be nimble and to adjust strategy based on existing opportunities. But today, the environment looks very similar to the environment that we experienced last year. And, I think in the near term, it is safe to assume that we will be focused on select dispositions where we have confidence we can redeploy proceeds into higher producing opportunities. And, I think, certainly, at current levels, we see our shares as being attractively priced. Ari Klein: Thank you. Operator: I am sorry. And moving on to Rich Hightower with Barclays. Rich Hightower: Hey. Good morning, guys. Thanks for taking the questions here. I think you mentioned in the prepared comments that occupancy for sort of midweek transient business got a little bit better in December. And maybe just if we could dig into your outlook specifically for that segment in 2026, better or worse? What trends are you seeing sort of within the core corporate transient group of customers. Elizabeth S. Perkins: Good morning, Rich. So I think we were encouraged, especially post government shutdown, that we saw a return to midweek occupancy in December with some slight growth midweek. I mean, it was a little better than flat. And I think as we crossed over into the New Year, we have had a noisy year-to-date run here with weather, especially. We have seen signs of, especially in February, signs of good midweek occupancy growth, so we are encouraged there. As we look at segmentation, we will have more data as we round out current months, and we will string together a trend. It is a little early because we have had some stops and starts with weather to get too excited about the clean week, thinking that there could be some pent-up demand. But what we are seeing is encouraging from a midweek occupancy perspective. We believe that that translates to business transient, or the cause of that is business transient, whether it comes through the negotiated segment or not. And one of the reasons that I highlighted in my prepared remarks, we are seeing an improvement in GDS bookings, which is business oriented. So some positive signs, but as we looked forward and as we contemplated guidance given the stops and starts and, I say every year, on this call at this time that it is just a really difficult time to extrapolate the full year and what we from a business transient standpoint. I think we are a little gun shy because we were seeing slow and steady business transient growth up until the announcement of Doge and those cuts, and that is really when that trend pulled back. Once we see that pick back up and continue, we will get optimistic. I think one of the things that is important is what Justin mentioned earlier, which is the broad diversification from a demand standpoint that our properties attract, and that the team has done a really good job finding additional business in market, and we will continue to do that whether it is midweek occupancy coming through transient and it is business oriented or whether it is group that we are able to put on the books at attractive rates and then drive incremental retail. So the team continues to be really focused. We do believe there is room to grow from a standpoint. It is the trend we are looking for. It is just a little too early to get excited about the recent things we have seen. But we are happy that, despite some of the weather, that people have gotten out, and we have seen some improvement here in February. Rich Hightower: Okay. That is helpful, Liz. And then, my second question, I guess, since we are putting a spotlight on it this quarter, we all noticed that share-based comp is gonna go up ‘26 versus ‘25. So maybe just help us understand the mechanical calculation of how that gets put together every year, if you do not mind. Elizabeth S. Perkins: Absolutely. So, the mechanics of how we are approaching our total G&A, which would be now corporate expense in the share-based compensation line items, combined is the same. We start the year at target compensation, and then we adjust throughout the year based on how we are performing in third-party estimates from a total return and relative return metric standpoint. And so we are recalibrating to target-based compensation at the beginning of the year like we do. Last year, we underperformed, and so G&A expense, including share-based compensation, was much lower than target. So that is the disconnect between last year and where we are guiding this year at the midpoint. Rich Hightower: I see. So that there is flexibility throughout the year depending on performance. Elizabeth S. Perkins: Yes. So that could change in other words? Okay. Got it. It will likely change. As we move through the year. Meaningfully. If you go back and look at the prior year, the delta is less significant. Rich Hightower: Got it. Thank you, guys. Operator: Michael Bellisario with Baird has our next question. Michael Bellisario: Thanks. Good morning, everyone. Elizabeth S. Perkins: Good morning, Mike. Michael Bellisario: I just wanna go back to guidance. Can you, just on the expense front here, can you help us bridge the changes in the same store comp pool? I think New York is having a big impact on the headline growth rate as I think that is a very low margin property. And then also, how was Nashville impacting growth rates and margins in ‘26? Any kind of clarification there as sort of, like, the true comp for comp number would be helpful. Elizabeth S. Perkins: Yes. Okay. So there is a lot of noise, especially since and thank you for highlighting. I did not include it in my prepared remarks, we are adding Hotel 57 back to the comparable set so that creates some noise. It is a lower margin asset, and so normalizing 2025 comparable for 57 would have a 40 basis point impact on 2025 margin. So that is one thing to note. When you look at same store total growth at the midpoint, that is actually 1.6%. The additional increase comes from adding Hotel 57 back in, and then, of course, we have Tampa that is off, not part of the same store set that we bought earlier last year. So that is impacting total growth rates, but same store is 1.6%, which is something we are proud of, especially given the top line at the midpoint. You know, we are getting some benefit from not having brand conferences in 2026, which we had in 2025. There also have been some fee reductions for the brands, and we will benefit from that. That is probably a net benefit of all three of those things combined $5,000,000. Michael Bellisario: Got it. That is helpful. And then similarly just on the manager changes, I know previously you sort of touched on qualitative expectations, but is there any lift explicitly included in your outlook now for 2026? Justin G. Knight: Not really at this point. And I think we continue to feel good about how the transitions will materialize, remembering that there are some incremental costs in the beginning of any manager transition. Our base case expectations are that we would be offsetting transition costs through more efficient operations as we move through the year, with the primary benefit of the transactions being realized in future years. I think that is, as is the remainder of our guidance, a reasonable base case or a measured base case. As we interact with management at those properties, their expectations for how they might perform are meaningfully higher. Michael Bellisario: Helpful. That is all for me. Thank you. Operator: And as a reminder, if you would like to ask a question, please press star one. And we will go next to Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: Hi. Thanks. I just wanted to ask as we move closer to the World Cup, which is tough to pencil. How are you guys thinking about, I guess, just the potential upside to your portfolio either from people attending the games, maybe international travelers extending vacations between games? And what would you estimate as the booking window before the games actually begin? Justin G. Knight: A lot of good questions there. I want to clarify. We are incredibly excited about the potential for incremental business and incremental travel related to the World Cup. Our team, both at our corporate office and our management teams, are intently focused on working to ensure that we maximize the opportunity, which means layering the appropriate business into the hotels, taking group where appropriate and early bookings, and then blocking rooms to maximize rate as we get closer to the games. The booking window is still short, and so I think a significant part of the reason that, at the midpoint of guidance, we are not reflecting the optimism we have about the potential business is because from our perspective, it is too soon to tell. As we get closer and are in a better position with more business on the books, we will also be in a better position to quantify the actual impact. I think as we have had discussions with our property teams and as we have thought more broadly about how things might play out, we anticipate that this could be a meaningful driver of incremental business as we move through the year. We just are not yet, based on business that we have on the books, in a position to give you a really good estimate. Jay Kornreich: Okay. That is it for me. Thank you. Operator: Our next question comes from Kenneth G. Billingsley with Compass Point. Kenneth G. Billingsley: Good morning. Thanks for taking my questions here. Two of them here. Is that one on EBITDA growth? So you have expressed a lot of conservatism on the call with regard to growth expectations, revenue being below lower than expense growth guidance. How much is that conservatism impacting your EBITDA guidance, which is lower than last year? How much of it is your conservatism versus just the fewer hotels that are in the comps? Elizabeth S. Perkins: You know, a portion of it will be that we sold assets last year. Though, you know, we also were adding Zamato and Hotel 57 back into the pool of assets. So I think for the most part, it is revenue driven, and it is top line driven. But, certainly, there are some puts and takes with hotels sold and, again, the new property as well. Kenneth G. Billingsley: Okay. Thank you. And then on the Marriott franchise transition, I think it is 13 of them. You mentioned is how do you expect improved returns by doing that transition? Can you talk about where you see that opportunity? And then the other part is does it make them more marketable assets by having them under the franchise agreement? Justin G. Knight: So to answer the second part of your question first, it makes them infinitely more marketable. We have tremendous amount of flexibility to sell at this point those assets unencumbered by management, which meaningfully increases the potential buyer pool. And, even assuming operations remain constant in terms of net income produced by the assets, we see an ability to the extent we were to sell any of these assets to unlock significant value. Outside of that, I think there are two primary drivers of the that we anticipate for incremental profitability from these assets. The first is that we are, in most cases, consolidating management within markets with management companies that we already have operating in market, which we believe will drive cost savings both on the formerly Marriott-managed assets as well as our other assets in market as we share expenses and build presence with specific management companies in those markets. And then outside of that, Marriott from an efficiency standpoint, that has not been one of their strengths, especially as they work to deploy themselves against the types of assets that we own, and so we also anticipate meaningful reductions in overhead allocations to the properties, which will support a stronger bottom line. I think outside of that, we expect that our managers will bring increased focus and attention to the properties which has potential to drive incremental top line results, meaning stronger rate and occupancy of the hotels. But our primary underwriting was on the cost side and easily justified the transition just through anticipated cost savings. Kenneth G. Billingsley: K. Thank you. Operator: And moving on to Chris Darling with Green Street. Chris Darling: Thanks. Good morning. Justin, in the prepared remarks, I want to say you said that 59% of your hotels have no new construction within, I believe, five mile radius. I think back over the last couple of years, I think that number has sort of consistently gone higher, although sequentially it looks like it went lower this quarter. Wondering if you could dig in a little bit, anything idiosyncratic driving that change, and maybe just a broad overview of what you are seeing in the supply backdrop would be helpful. Justin G. Knight: Absolutely. So from a supply standpoint, we continue to feel incredibly good about the picture. And I have highlighted on past calls and continue to believe that it meaningfully changes the risk profile of our portfolio, reducing downside risk and improving upside potential as the demand picture improves. Some of the subtle adjustments are nuanced and driven by changes to our overall portfolio. So when you look at the assets that we have been selling and the types of markets that we have been selling out of, those are, in some instances, lower supply markets, and the net result has been shrinking the total number of assets, increasing our concentration in some individual markets. And so, on the margin, the difference that you are seeing between the number we reported last and the number now has as much to do with kind of subtle shifts in our portfolio as it does change in outlook or incremental supply. I think what we have historically been accustomed to in terms of supply growth in our markets is meaningfully greater exposure than we have now. And given the dynamics that continue to exist between construction costs and profitability, we see a meaningful impediment to increased supply growth for the foreseeable future. Chris Darling: Okay. That makes sense. Helpful to hear sort of the nuance there. As a follow-up, if we circle back to the capital allocation discussion, what is the level of appetite you are seeing among private buyers for portfolio deals these days? Or is it safe to say, you know, one-off deals still represent best execution? Justin G. Knight: You know, we, and I have commented in the past. Our team continues to probe the market with various size potential portfolio transactions. To date, we continue to see more attractive pricing for individual assets. I think that potentially shifts as we see industry numbers improve more universally. As investors in order for us to achieve portfolio premiums, generally speaking, investors need to see an industry level trend that would advantage them from buying in scale. And what we are finding more often is that we are able to maximize value by creating the story around an individual asset, for often, a local owner-operator that has ties to the individual market and ability to bring incremental efficiencies to the property. So I think based on our track record over a more extended period of time, I think we have demonstrated an ability to pivot as we see changes in the overall marketplace. For the near term, my expectations are that we will be likely transacting on individual assets, but we will continue to probe and look for other opportunities. Chris Darling: Alright. Understood. Appreciate the time. Operator: And this now concludes our question and answer session. I would like to turn the floor back over to Justin Knight for closing comments. Justin G. Knight: We appreciate you taking the time to join with us this morning and are excited about the year ahead of us. As always, I hope that as you are traveling, you will take the opportunity to stay with us at one of our hotels, and we look forward to providing you with updates as we continue through the year. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speakers' remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, 02/24/2026. I would now like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Chief Accounting Officer. Sir, you may begin. Jeff Holy: Thank you, Amber. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our fourth quarter and full year results for 2025. I am joined today by Albert Chao, our Executive Chairman, Jean-Marc Gilson, our President and CEO, Mark Steven Bender, our Executive Vice President and Chief Financial Officer, and other members of our management team. During the call, we will refer to our two reporting segments: Housing and Infrastructure Products, which we refer to as HIP or Products, and Performance and Essential Materials, which we refer to as PEM, or Materials. Today's conference call will begin with Jean-Marc, who will open with a few comments regarding Westlake's performance. Mark Steven Bender will then discuss our financial and operating results, after which Jean-Marc will add a few concluding comments and we will open the call up to questions. During 2025, we wrote off inventory and accrued expenses totaling $495,000,000 related to the decision to shut one styrene and three core vinyl facilities in North America and our epoxy facility in Pernice, Netherlands in PEM. We also recognized $16,000,000 of accrued expenses within our HIP footprint optimization actions and the sale of a compounding business. We refer to these expense items, which in aggregate were $511,000,000, as the identified items in our earnings release and on this conference call. References to income from operations, EBITDA, net income, and earnings per share on this call exclude the financial impact of the identified items. As such, comments made on this call will be in regard to our underlying business results using non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to GAAP financial measures is provided in our earnings release, which is available in the Investor Relations section of our website. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's SEC filings. We encourage you to learn more about these factors by reviewing these SEC filings, which are also available on our Investor Relations website. This morning, Westlake issued a press release with details of our fourth quarter and full year results. This document is available in the press release section of our website at westlake.com. We have also included an earnings presentation, which can be found in the Investor Relations section on our website. A replay of today's call will be available beginning today, two hours following the conclusion of this call. This replay may be accessed via Westlake's website. Please note that information reported on this call speaks only as of today, 02/24/2026, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. Finally, I would advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our webpage at westlake.com. I will now turn the call over to Jean-Marc Gilson. Jean-Marc? Jean-Marc Gilson: Thank you, Jeff, and good morning, everyone. We appreciate you joining us to discuss our fourth quarter and full year 2025 results. Our fourth quarter EBITDA of $196,000,000 is net of $511,000,000 of identified items that reflect our announced plan to restructure the businesses and reset our cost position to address the persistent macroeconomic challenges and volatility in trade policies we are experiencing. Despite continued industry pressures, we have taken decisive action to strengthen our global manufacturing footprint and we will continue to deliver on our commercial commitments while executing our three pillar strategy which we expect to contribute $600,000,000 of growth earnings improvement in 2026 while maintaining a focus on our long-term strategy of value creation. Westlake's cost saving measures gained significant traction across every business in 2025, and we delivered over $170,000,000 of structural cost reductions. Looking at our fourth quarter results, HIP performed well while experiencing the typical seasonal decline in sales volume and earnings and the added impact of lower construction activity in the fourth quarter. The year-over-year decline in sales reflected lower new housing construction activity in North America, but that decline was partially offset by solid municipal pipe sales volumes as we benefit from the growth in infrastructure spending in cities across North America. Turning to PEM, the fourth quarter was a continuation of the trends that we witnessed throughout 2025, with results reflecting a decline in volume and price with margin compressions across our product portfolio as we serve the stable global industrial and manufacturing base. As we discussed in December, global overcapacity in certain products created downward pressure on the sales price for many of PEM's products, leading to a sharp decline in PEM's profitability compared to historical levels. These pricing pressures continued in the fourth quarter with a further 5% decline in PEM's average sales prices compared to the 2025. Our three pillar strategy, which I outlined in December, is expected to contribute a $600,000,000 improvement in earnings in 2026. Let me summarize each of these pillars as significant steps have already been taken to drive this earnings performance strategy forward. First, we have taken decisive actions to close higher cost PEM assets that largely sold products into low priced export markets. We closed an epoxy manufacturing site in Pernice, The Netherlands, a non-integrated PVC plant in China, three North American chlorovinyl assets, a styrene asset, and three HIP fabrication sites. These actions contributed to a 6% reduction in our headcount and an even more significant reduction in our contractor workforce in 2025. Having now shuttered all of these assets, we expect to see an improvement in earnings of $200,000,000 in 2026 from footprint optimization. Second, we have redoubled our efforts to address reliability in plant operation. Thus, we expect to deliver a $200,000,000 year-over-year EBITDA improvement from better plant reliability in 2026. Third, building on the successful structural cost reduction efforts achieved in 2025, we have implemented an additional structural company-wide cost reduction program that we expect will deliver $200,000,000 in 2026. These decisive steps and the commitment to deliver improved financial performance through these self-help actions will deliver better utilized assets and an improved cost structure to compete in a global marketplace. I would like now to turn our call over to Mark Steven Bender to provide more detail on our financial results for the fourth quarter and full year of 2025. But before I do that, I would like to make an additional comment. As you may have seen in the 8-K we issued yesterday, our colleague, and long serving Chief Financial Officer, Mark Steven Bender, has informed us that he plans to retire later this year once his replacement has been appointed and appropriate transition has occurred. We are tremendously grateful for the countless contribution that Steve has made to the company over the years. He joined Westlake in 2005, not long after the company's 2004 initial public offering, and he has been instrumental to the significant growth in the company that the company enjoyed since then. Steve will be with me on several more earnings calls in 2026 so this is not yet a goodbye. Nonetheless, we wanted to take this moment to express our gratitude to Steve. Now let's turn to the fourth quarter and full year 2025 financial results. Steve? Mark Steven Bender: Thank you, Jean-Marc, for those comments. Thank you very much, and good morning, everyone. As a reminder, my comments regarding income from operations, EBITDA, net income, and earnings per share all exclude the financial impact of the identified items. Westlake reported a net loss of $33,000,000 or a loss of $0.25 per share in the fourth quarter on sales of $2,500,000,000. The net loss in the fourth quarter of 2025 was $5,000,000 lower than the prior-year period, primarily due to lower average sales prices and lower sales volumes. For 2025, our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact of $2,000,000 compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited. We delivered an additional $60,000,000 of cost reductions in the fourth quarter, thereby achieving the $170,000,000 of total cost reductions in 2025 and accomplishing our 2025 target of structural cost reductions. For the full year of 2025, we reported a net loss of $116,000,000 and EBITDA of $1,100,000,000. Compared to our 2024 results, 2025 sales of $11,200,000,000 declined 8%. The lower full year 2025 sales were the result of a 5% decline in sales volume, driven primarily by PVC resin and epoxy resin, and a 3% decline in average sales price driven primarily by pipe and fittings, and PVC resin. We are pleased with the stability and resiliency of the portfolio businesses that we've assembled. At the same time, as we discussed in December, our PEM segment was impacted by global overcapacity, particularly in polyethylene and the core vinyls chain, that drove lower average sales prices and margins. As Jean-Marc discussed, throughout 2025, we took the necessary actions to adjust to the changing global balance of supply and demand and to position our PEM segment for improved profitability in 2026 and beyond. Moving to the specifics of our segment performance, HIP sales in the fourth quarter declined 8% year over year driven by a decrease in sales volumes. The sales volume decline was mostly driven by PVC compounds and exterior building products, which were most exposed to lower residential construction activity and was only partially offset by the continued solid sales volume in pipe and fittings. HIP's EBITDA margin in the fourth quarter of 2025 was below the prior year period due to unfavorable changes in sales mix and some higher cost. Shifting focus to HIP's full year 2025 results, EBITDA of $839,000,000 and EBITDA margin of 20% were in line with our guidance and expectations. While HIP's 2025 sales and EBITDA were below the prior year, we are pleased with its ability to manage the slower new residential construction environment better than the overall industry due to its broad footprint and deep product offering that make it a supplier of choice for many large national homebuilders. HIP's resilient sales and EBITDA in 2025 were also supported by strong customer adoption of our innovative PVCO pipe as well as continued solid demand growth for municipal pipe in general. Moving to PEM segment, fourth quarter EBITDA of $45,000,000 decreased by $45,000,000 sequentially. The sequential decrease in EBITDA was the result of 5% lower average sales price driven primarily by polyethylene and PVC resin and a 2% lower sales volume due to seasonal customer inventory destocking, which was partially offset by a $27,000,000 benefit from annuitizing certain pension obligations among other small one-time items. PEM's fourth quarter EBITDA margin of 3% declined from 5% in the prior quarter, driven by lower average sales price and sequential lower planned utilization, which was partially offset by a $26,000,000 benefit from fewer turnarounds and unplanned outages. Shifting focus to PEM's full year 2025 results, EBITDA of $267,000,000 was lower than 2024 due to higher feedstock and energy cost, an elevated level of planned and unplanned outages, and lower global sales price. Weak global industrial manufacturing activity combined with overseas capacity additions created global overcapacity in certain materials in 2025. This global overcapacity drove lower average sales prices and margins in PEM, particularly for polyethylene and for alkali, and for vinyls. In response, we made the necessary decision in December to close three of our non-integrated and higher cost North American core vinyl assets that sold into low priced export markets. As we discussed in December, we expect these actions to provide an annual EBITDA benefit for PEM of approximately $100,000,000 starting in 2026 by reducing our exposure to the low priced export market. Turning to the balance sheet and cash flows, as of 12/31/2025, cash and securities were $2,900,000,000 and total debt was $5,600,000,000. Our balance sheet continues to be well positioned with a sixteen-year average debt maturity life. For 2025, net cash provided by operating activities was $225,000,000 while CapEx expenditures were $241,000,000. For the full year of 2025, we returned $335,000,000 to shareholders in the form of dividends and share repurchases. We continue to look for opportunities to strategically deploy our balance sheet in order to continue to create long-term value for our shareholders. Turning our attention to 2026, let me address some of your modeling questions and provide some guidance for the year ahead. Our three pillar strategy, which was outlined in December, is expected to contribute $600,000,000 of improvement in earnings in 2026. Through these self-help structural actions, we are better positioned to serve our valued customers and navigate the current macro environment. We have revamped our operating model and now have better utilized data and a lower cost structure to compete in the global marketplace with improved financial performance. Now turning to our guidance for HIP. Housing and industry consultants and a consensus of economists forecast housing starts to range between 1.3 and 1.4 million in 2026 and for home affordability based on lower interest rates to improve. Furthermore, we expect HIP to benefit in 2026 from the recent acquisition of ACI, with a now expanded compound product offering and strong customer relationships, the strong 2026 structural savings that we have initiated, and the benefits from plant optimization actions taken in 2025. Thus, based on our current view of demand and prices, we expect 2026 revenue in our HIP segment to be between $4,400,000,000 and $4,600,000,000 with an EBITDA margin of 19% to 21%. For 2026, we expect a $100,000,000 year-over-year reduction in our capital expenditures to approximately $900,000,000, similar to our depreciation run rate. For the full year of 2026, we expect our effective tax rate to be approximately 17%. We also expect cash interest expense to be approximately $215,000,000. Jean-Marc? Now I would like to turn the call over to Jean-Marc to provide the current outlook of our business. Jean-Marc Gilson: Thank you, Steve. 2026 represents an inflection point. Following the actions we have taken to optimize our manufacturing footprint, streamline our cost position, and operate our assets to serve our customers, we have positioned Westlake for a stronger, more resilient, and profitable future as we navigate the challenging macroenvironment with our three pillar action plan, together with our long-term strategy and our investment discipline. Turning to our outlook for demand, we expect a rebound from the seasonal lows of the fourth quarter. We are also seeing signs of improvement in global industrial and manufacturing activity to start the year. The January U.S. ISM reading of 53 was the first month in expansionary territory in a year, and the average thirty-year mortgage rate sits at 6.2% today, down from 7% a year ago, which improved the affordability of new houses. So overall, some signs of improvement in the market, which has us cautiously optimistic that we will see sales volume growth in each of our segments in 2026. Sustainability and environmental stewardship remain critical to our mission at Westlake. Having established a target to reduce our carbon emissions intensity by 20% by the year 2030, I am happy to report that in November, we released our 2024 sustainability report which showed that we achieved our emissions reduction goal six years early. Before I open the call to your questions, I want to close by highlighting Westlake's foundational strengths which continue to serve us well. These strengths include a diversified and complementary portfolio of businesses, our vertically integrated business model, our globally advantaged feedstock and energy position in the U.S., and our investment grade rated balance sheet with $2,900,000,000 of cash and securities. We have streamlined our operating model and have reset our cost structure. As we navigate the cycle in PEM, we have a more competitive business that is positioned to grow more efficiently with our customers. The expected steady improvement in housing construction will provide HIP the ability to continue to capitalize on its very broad and deep product offering to grow our business and to create value for our shareholders. We remain focused on execution, cost discipline, and value-driven growth. Thank you very much for listening to our earnings call. I will now turn the call over to Jeff. Operator: Thank you, Jean-Marc. Before we begin taking questions, I would like to remind listeners that our earnings presentation, which provides additional clarity into our results, is available on our website and a replay of this teleconference will be available two hours after the call has ended. We will provide that information again at the end of the call. Amber, we will now take questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from David L. Begleiter of Deutsche Bank. Your line is open. David L. Begleiter: Thank you. Good morning. Jean-Marc and Steve, can you go back to the HIP business in Q4 and break down the beat versus what you announced back in mid-December of roughly $90,000,000? Thank you. Mark Steven Bender: Yes. So David, thank you very much for the question. And as you could see, when we compare the results in PEM quarter over quarter, we did identify specifically some annuitization of some pension benefits. You can see that we also shuttered some of these assets in the fourth quarter. And so the three core vinyl plants had actually been down during the entire fourth quarter. So the losses that we saw accruing during the period no longer were accruing. So when I think about this, we had a volume reduction of only about 2% and a price reduction really in PVC and in polyethylene. So the beat was really attributable to beginning to take the proactive steps in our three pillar initiative by removing the losses that we saw accruing from those sales in that low priced market and beginning to take some of those cost reduction initiatives at the tail end of 2025. David L. Begleiter: Very clear. And just on polyethylene February, what are your expectations around your announced price increases and potential realization? Thank you. Mark Steven Bender: Well, as we think about 2026, we have seen some improvement in demand and some improvement in price action. But remember, we had some adjustments at the end of the year of 2025. And so the announced increase in polyethylene price that we saw in January of about $0.05 really begins to offset some of the market adjustment at the end of last year. And we have made further announcements in price actions for February. We will see how February plays through, but we have another price announcement also on the table for February. David L. Begleiter: Thank you. Operator: Our next question comes from Patrick David Cunningham of Citi. Your line is open. Patrick David Cunningham: Hi. Good morning. I am curious on your outlook for chlorovinyls and PVC chain in 2026. It seems maybe cautiously optimistic with some demand pull through into the HIP business, but still dealing with some structural supply issues. So how would you frame the supply and demand outlook? And sort of direction for price and margin in 2026? Mark Steven Bender: Well, I think, Patrick, as you look at the price action that we have seen so far, it is indicative of some restocking that is going on. I would say that we remain cautiously optimistic. We have seen some price action. In PVC resin, we have seen some improvement in price. But we are still not fully recovered from the end of the year price adjustments that we saw in PVC. So we have seen announcements also in February, and we have also noticed that inventory is restocking by some of our customers. But I would say we are still very cautious in terms of how we look through the year because I do not have that longer-term availability of visibility. I can only see out several months. But I think the early signs that we see in pricing initiatives in PVC and in caustic signal that we see some improvement in restocking, but it is hard to know whether this will play through the entire quarter and for that matter the entire year. I would also note that with the actions that we have seen in terms of the export market, export market prices have started to trend higher. And I think that is attributable to some of the reduction of duty drawback that certain markets like China are providing. It is going into effect in April, but the actions taken already suggest that prices have moved up in export market pricing. Patrick David Cunningham: Understood. Very helpful. And then maybe just some clarification on the HIP guidance. I am assuming that includes three quarters of ACI with a slightly lower margin guide. Is the bulk of that coming from the dilutive margin impact there? Or are there any other mix impacts we should be monitoring? Mark Steven Bender: No. It is really not an impact of ACI, and we closed that in January. And so I do expect that it will be a contributor all year long. But I would say, Patrick, it is really looking at the numbers that we have guided to—1.3 to 1.4 million starts in 2026, similar to 2025—and just recognizing that as we work through the starts numbers this year that product mix can have an impact in the overall margin that we see in the HIP overall business, but we still remain cautiously optimistic about the contributions that HIP will make this year in 2026. Operator: Thank you. One moment for our next question. Our next question comes from Patrick Duffy Fischer of Goldman Sachs. Your line is open. Patrick Duffy Fischer: First question just on the $600,000,000 of cost help this year. How does that play through the year? If you could kind of walk quarter by quarter, how do we add up to that number for the year? Mark Steven Bender: Yeah. Good question, Duffy. And I would say that as we have taken the actions in 2025, some of these savings that we achieved in 2025 were attributable to the actions that we took in 2025 and those will continue to play through for the year through 2026. And so those actions that we have taken cover things such as logistics, procurement, a variety of other initiatives to really drive reductions in cost, which we think will be structural in nature. So we think that as we think about the ratable benefit that we expect to see, we do expect to see that ratable benefit of cost reductions to play through the year. Of course, we have shuttered those assets at the end of the year for that second pillar. And so certainly those operations are down, no longer exposing us as heavily to that low priced export market. So I do expect those also to be coming through the course of 2026. The third pillar is reliability. And, of course, we have to earn that each and every day. But we are very confident we have made significant investments in our plants, significant training of our people. 2024-2025 were years of very elevated levels of planned turnarounds. And therefore, associated with some of those planned turnarounds were the unplanned outages as we brought those plants up or attempted to. 2026 will be a year with far fewer planned turnarounds, so we do have a high expectation that we will be able to deliver on that third pillar of reliability. Patrick Duffy Fischer: Fair enough. And then at the midpoint of your HIP guidance, you are basically $60,000,000 better on EBITDA than you were last year. Again, does that portend for kind of each quarter? Are there still some quarters where you may be down year over year even if you hit the midpoint, or maybe first half, second half, just to kind of help us get the shape for the HIP earnings this year? Mark Steven Bender: Yes. And Duffy, good question. The fourth quarter and the first quarter of each year tend to be weaker quarters just seasonally. Those who are in the Midwest or Northeast have seen the heavy snowfall in the winter season play through. And so as we think about it, it slows down demand and the construction activities. The fourth quarter and the first quarter of each year tend to be a slower period of activity. But nevertheless, quarter two and quarter three tend to be much stronger. So that same cycle that we saw play through in 2025 should be similar in terms of the shape of the curve in 2026. So we do expect, again, a cautiously optimistic outlook for HIP and the guidance we have for starts is similar to those in 2025. Frank Joseph Mitsch: Perfect. Thank you, guys. Mark Steven Bender: You're welcome. Operator: Our next question comes from Joshua David Spector of UBS. Your line is open. Joshua David Spector: Yeah. Hi. Good morning. I wanted to just ask on HIP where you guys continue to talk about relatively strong growth in the infrastructure segment around pipe and fittings. But the infrastructure sub-segment sales are actually down more than the housing products segment, both year on year and sequentially. So does that mean that the composites business is down much more, or what am I missing between that more positive commentary and the segment results? Mark Steven Bender: Good question. And the answer is that a lot of that municipal pipe actually goes into neighborhoods and subdivisions, which actually are not in that subsegment. And so there are sales not only to cities and counties and states, but also into major developers who may be developing those neighborhoods and those subdivisions with infrastructure pipe and fittings. And so it is really a mix between those two subsegments within the HIP segment. We are seeing really continued strong growth in the volume in that side of the business. And so when I think of and speak to municipal pipe, it is not always necessarily in the infrastructure subsegment because some of that is in the housing subsegment related to nationwide builders who are building out infrastructure in their neighborhoods and subdivisions. Joshua David Spector: Okay. Thanks. That is helpful. And maybe actually a similar point to what Duffy was asking. If I look at the cost savings, is any of that being attributed to HIP? So if EBITDA is up $60,000,000 at the midpoint and you are doing an acquisition, is the organic up? Is there cost savings? Is there something else we are missing in the moving parts there? Mark Steven Bender: Yes. As we think about the pillar that we talked about of cost reduction, yes, the HIP side of the business does have a meaningful contribution in that cost savings initiative. And so as we look forward, they and all the other functions are also contributing. So there is a meaningful contribution in that pillar that HIP is making. So I do expect them to continue to make those contributions in 2026. Joshua David Spector: Okay. Thank you. Operator: Thank you. Our next question comes from Frank Joseph Mitsch of Fermium Research LLC. Your line is open. Frank Joseph Mitsch: Thank you, and let me echo Jean-Marc's appreciation for your job, Steve. It has been a pleasure working with you. Of course, we will work with you, I guess, on another one or two calls. Steve, in 2025, Westlake registered negative free cash flow. I was wondering what your expectations are in terms of free cash flow for 2026. Mark Steven Bender: Good question, Frank. And our objective really is to generate strong results to drive strong cash flows. But as you can see, a lot of the self-help that we have with these three pillars is really focused and the predominance really is on the PEM side of the business. And you can see that our capital expenditure plan for 2026 is also $100,000,000 lower than we had in 2025. So our real focus is to drive free cash flow for the entire business as we go forward. And so while we have no real visibility beyond the next several months, from our order book, I would say our real objective really is to drive real cost savings, improvement in reliability, and really make this business a cash flow positive generating business. But as you know, we do not give direct guidance on a lot of those metrics. But that is clearly our objective. Frank Joseph Mitsch: Okay. Terrific. And I was wondering if you guys could opine on the news the other day, you know, following the Supreme Court decision on tariffs, the administration on several items came out and said it was looking at putting emergency tariffs including plastic pipes. So I am curious if you could offer some comments there as to the necessity and what expectations you might have in terms of tariff benefits, etcetera? Mark Steven Bender: Yeah. Frank, good question again. And I would say that our materials are all subject to the USMCA rule guidelines. And so therefore the impact to tariffs has really been de minimis, really immaterial. Frank Joseph Mitsch: Okay. Great. But the fact that they called out plastic pipes among, I think, six or seven items, is there something going on there where the domestic plastic pipe industry needs tariff protection? Mark Steven Bender: Frank, I would say that what we have seen all throughout the course of 2025 and, frankly, in the previous administration is that the current administration has really used the USMCA treaty as a way to make sure that those items that were embodied in that treaty are not hit with additional tariffs. So that is our expectation. Frank Joseph Mitsch: Okay. Alright. Thank you so much. Mark Steven Bender: Thank you. Operator: Our next question is from John Roberts of Mizuho. Your line is open. John Roberts: Thanks, and thanks as well, Steve, and welcome Bob Patel to the board. OxyChem is a large competitor. Do you see any changes in how they compete after the change in ownership a couple months ago? Mark Steven Bender: We have not at this stage. John Roberts: Okay. And then your competitor cited weakness in domestic merchant chlorine. Did you see that weakness as well? And what is the near-term outlook for domestic merchant chlorine? Mark Steven Bender: Yeah. As you know, we are a much smaller producer of domestic chlorine now with some of the actions that we have taken in December. But as we think about it, our view is that the weakness in chlorine is really attributable to some of the weakness that we have seen in the vinyl side of the business. And, of course, in the first quarter and the fourth quarter of the year, we also have a reduction in demand for water treatment and some of the precursors going into refrigerants. And so all of those speak to kind of the lesser pull on chlorine, whether it is construction materials, water treatment, or precursors to refrigerants. And so it does not surprise that there is a slowdown in demand in fourth quarter and first quarter for those kind of materials. Operator: Thank you. Our next question comes from Jeffrey Zekauskas of JPMorgan. Jeffrey Zekauskas: Thanks very much. You talked about $600,000,000 in benefits from plant reliability, cost reduction, footprint changes, but I was wondering, what is the EBITDA base that these benefits should come from? So last year, your EBITDA was $1.14 billion. Should a rational agent add $600,000,000 to the $1.14 billion and get, I do not know, $1.74 billion? Or because business deteriorated through the course of 2025, the EBITDA base is lower that the $600,000,000 in costs should be added to. Could you give us an idea of how to put the two numbers together? Mark Steven Bender: Yeah. And so, Jeff, as you think about it, the actions that we have taken in December impacted four of the North American plants. And frankly, the full shuttering of the Pernice facility was not completed until really the very tail end of 2025. And so when you think about the contributions of that first pillar of site optimization, we really get that full benefit starting in 2026. In terms of the cost initiatives, yes, we achieved $170,000,000 of cost reductions that were structural in nature, but the guidance we have continued to provide for 2026 is an additional $200,000,000 on top of those achieved in 2025. And of course, the reliability issues, as I mentioned earlier, again, 2025 was an incredibly busy year of planned outages, a number of unplanned outages around those outages as well. And given that our plan for 2026 is far fewer planned turnaround activity or maintenance activities, I do expect that we will see those benefits accrue in this year as well. So back to your question, I think that you could think of a starting point when we took those actions at the plants as a way to build that math. Jeffrey Zekauskas: Okay. And when you think about your opportunities in PVC volume in 2026, do you think you will grow more in the export market or more in the domestic market? Do you think the growth rates will be comparable? How do you assess volume opportunities in PVC for 2026? Mark Steven Bender: And so, Jeff, when you think about the vinyl demand, it is really going into largely building products of one sort or the other, whether it is in pipe and fitting, siding, trim, and other applications. That is closer to 65% of your overall vinyl resin demand. And so as you could see, our outlook for HIP is reflective really of a year of construction activities similar to 2025. We have seen a really thin level of inventories being carried by our customers all throughout 2025 because prices continued to trend lower. And the restocking that we have seen in the first part of this year is reflective of some of the demand pull that we have seen in a rebuilding of those inventories and being able to nominate prices in vinyl. So as we look forward, we are again cautiously optimistic as we see the demand pull on PVC resin going into the construction materials and some of the other compounded materials that we sell through our compounds businesses. Jeffrey Zekauskas: Okay. Can you comment on the opportunities in PEM and PVC? Mark Steven Bender: Yeah. In PEM, again, we are selling a significant portion of our resin into our own HIP segment. And certainly, given our lower cost structure that we have achieved through these rationalization actions that we have taken in the plants and through our cost reductions, we think we have a much better cost structure and will certainly be looking to initiate sales initiatives with many of those customers going forward domestically. Given the fact that we pulled back from exports through those actions that we took in December, I do expect our exposure to export volumes will be greatly diminished. Jeffrey Zekauskas: Thank you very much. Operator: Our next question comes from Hassan Ijaz Ahmed of Alembic Global Advisors. Hassan Ijaz Ahmed: Good morning, Steve and team. Steve, I know a bit premature, but great working with you over the years, and wishing you all the best for your retirement. Mark Steven Bender: Thank you very much. Hassan Ijaz Ahmed: Now a quick question around HIP segment's EBITDA guidance, but just wanted to switch over to the sales guidance. I know you are talking about a return to sort of more normalized longer term sales growth in 2026, so 5% to 7%, even though, if I heard you correctly, you are assuming similar housing starts in 2026 to 2025. But, flipping through the presentation, it seems a chunk of that growth you are expecting is coming from the ACI acquisition as well as product innovations. So I am just trying to understand the significance of both those innovations as well as the ACI contribution to that growth. Mark Steven Bender: Yeah. I do expect that ACI will be a very nice contributor. It brings a broader portfolio offering rather than just adding to our existing PVC portfolio that we had; it brings an expanded portfolio in silicone and cross-linked polyethylene to be a nice contributor. But I would also say the innovations that we have seen in products such as our PVCO plant, which will be starting up at the end of this year, such as other product innovations in our Westlake Royal exterior businesses, we think will continue to be a nice driver in not only the revenue growth, but also margin growth. So this product innovation is certainly a huge element within the HIP side of the business and continues to have us be selected as supplier of choice by many of the nationwide builders. So that long-term guidance that you highlighted is very much as we see it still on track. Hassan Ijaz Ahmed: Understood. Very helpful. And as a follow-up, I know you guys have been busy sort of optimizing the footprint and the like. And obviously, $200,000,000 of incremental EBITDA coming from that. But if we step back a second and you guys take a look at the broader portfolio, I mean, obviously, you are getting deeper and deeper into building products. And, as you take a look at the ethylene/polyethylene side, it seems fairly oversupplied. If rationalization does not happen, it will remain that way for a while. So I am just trying to understand, from a portfolio perspective, do you still see a role for that part of the portfolio? Or would you potentially consider divesting that at some stage? Mark Steven Bender: Well, again, our focus is to really be focused on value creation. And so as I think about opportunity sets in both the PEM side and the HIP side, the answer is we will deploy capital where we see the strongest value creation. The fact that we have continued to underbuild in North America means that the opportunities to deploy capital on the HIP side of the business probably have the nearest-term return potential. But that does not mean that we would not invest in a valued opportunity on the PEM side of the business. It really is just where is the best investment opportunity for that dollar, be it in HIP or in PEM. Our focus remains very much value oriented and driving long-term value creation. And if that takes us into PEM or into HIP, and we see that opportunity, that is where the funds will be deployed. But given where we are in the various business cycles, I would say the predominance of the opportunities near-term would probably be in HIP. That does not mean there could not be some opportunities on the PEM side. In other words, we continue to watch both. Hassan Ijaz Ahmed: Very helpful. Thank you so much. Operator: Our next question comes from Aleksey V. Yefremov of KeyBanc Capital Markets. Your line is now open. Aleksey V. Yefremov: Thanks. Good morning, guys. This is Ryan on for Alexi. I just wanted to ask the first question. In the deck, you mentioned competitive market pressures in pipe and fitting. So I was just curious if maybe you could provide some more color there. And how much was pricing down for pipe and fittings versus the broader HIP segment with flat pricing year on year? Mark Steven Bender: Yes. As we think about the pipes and fittings business, it remains a very good business. But certainly with some of the slowdown in construction activity, we have continued to make inroads from a volume perspective but naturally, with some of the pressures on affordability and the slowdown in construction activity, there is going to have to be some pressure on pricing. But we do believe that we are at a point where our product innovation, and I have mentioned PVCO earlier, allows us to really continue to penetrate that market with innovative products, which bring really solid margins to the business. While there is always the ebb and flow in each region across the country in terms of volume and pricing, so it is hard to give you a direct pricing number because it varies by region across the country, I would say that the innovative products that we are bringing forth specifically in our pipes and fittings business continue to drive long-term good value there. And I just want to remind you that we are really the only player in the U.S. markets that provides both the integrated solution of fittings and pipes and I would add engineering. So we are able to sit down with a customer and we can engineer the project for you. We can deliver the pipe and deliver the fitting. So there is an integrated value of providing the service as well as the products to provide an integrated solution to a customer. And I would say that we continue to see real good innovation in that business and I expect to see future PVC continuing to be built and grow that market space. Aleksey V. Yefremov: Okay. I appreciate the comprehensive answer there, Steve. And just the last one for me, maybe can you just give us your thoughts on caustic soda? How do you feel about market balance and pricing over the next couple months? Mark Steven Bender: You know, caustic is a market where we have begun to see some price traction. We announced pricing initiatives of $75 a ton back in December and have had a second price initiative of $65 a ton that was announced just last month. And so we are seeing some ability to get traction on those price announcements. And so when you think of our two announcements that total $140 a ton, we do expect that we will achieve some of that. And that is really coming from some of the industrial and manufacturing demand that we saw at the very tail end of the year and early this year so far. Operator: Thank you. Our next question comes from Matthew DeYoe of Bank of America. Your line is now open. Matthew DeYoe: Thanks. Steve, I guess just to follow-up on that. You mentioned earlier you were seeing some signs of an industrial recovery. Is Westlake seeing something specifically in its order books? Or is this just the read on PMIs? Mark Steven Bender: Well, it is both. When you think about the PMI, it certainly is a positive signal. We would like to see more of those positive signals play through, but I would also say the volumes that we are seeing in some of the infrastructure business that we mentioned earlier continue to be constructive as we go forward. It is still early in the first quarter. As I mentioned, the first quarter is typically a slower demand period. So we want to take a look and see how the rest of the year plays through. So as I say, we are cautiously optimistic, but there is a constructive view here as we look forward into 2026. Matthew DeYoe: Okay. And just to kind of follow-up on Dave's question a bit. Maybe it is blunt, but the street was walked down in the fourth quarter on account of the unabsorbed fixed costs from the assets that were eventually closed. Clearly, we saw a lot of those charges hit GAAP income. So is the outperformance on an adjusted basis just saving money faster once the assets were closed? Or is it just some creative adjusting on the unabsorbed fixed costs? Mark Steven Bender: I will answer the first part of your question, and I would say what you are really seeing is the impact of taking the actions that we announced in December and really taking the steps to reduce our cost and shutter assets that were not creating real value. So that is really what you begin to see play through in fourth quarter. And as we think about our three pillared strategy, this is why we have the confidence that we can deliver on that three pillared strategy. Matthew DeYoe: Is it fair to say then that if you are seeing this faster in Q4 that the tailwind for 2026 is less than $600,000,000 all else equal because now you are going to be comping some savings in Q4? Mark Steven Bender: No. I think the guidance that we provided was to achieve that $600,000,000 in those three pillars throughout 2026. And so as you see that we took actions in 2025 related to cost and optimizing our footprint, I think we are still very comfortable that that $600,000,000 is going to get fully contributed over the course of the year. Operator: Our next question comes from Arun Viswanathan of RBC Capital Markets. Your line is now open. Arun Viswanathan: Great. Thanks for taking my question, and I will echo all the other comments. Steve, great work with you over the last several years. Good luck in your retirement, and we will be speaking again soon, obviously. But just wanted to follow-up on that same line of questioning here. So if we take your HIP guidance, that implies around $900,000,000 of EBITDA at the midpoint if you say 20% margins on $4,500,000,000 of sales, and then your PEM guidance can be interpreted to be the $267,000,000 that you did in 2025 plus maybe $600,000,000 of increase. So that would be $1,750,000,000 maybe at the midpoint. What would you call out as decrements to that or maybe other positive drivers? Are we missing anything else, or are those the most important components? Thanks. Mark Steven Bender: As Jean-Marc noted, the $600,000,000 is a gross number. So there will be some cost to achieve some of those initiatives that we have outlined here. But again, setting the market conditions aside because none of this is factoring in the market conditions—this is just really focused on the self-help initiatives of these three pillars. As we look forward into 2026, we will take the market conditions as they come, but we will be very focused on delivering these actions that we have outlined here in this three pillared strategy. There will be some cost to achieve that $600,000,000 savings in each one of those three pillars, but we think that we have got a good effort underway. We recognize for reliability, we have to earn that each and every day. But the actions to rationalize the footprint we have already taken, and initiatives to negotiate reduced costs, will continue throughout the rest of the year. As you would imagine, we are not just going to rest on those actions that we have taken in 2025. We will continue to look for other opportunities to reduce our costs throughout the rest of this year above and beyond those we have outlined already. Arun Viswanathan: Okay. Thanks. And understanding you just completed an acquisition here, what else needs to be done from your portfolio standpoint? Would you be looking to integrate further downstream in building products, continue to grow out that business, or do you feel like your position now is quite set? What else are you looking at from an M&A standpoint? Thanks. Mark Steven Bender: Starting with the HIP side of the business, improving the portfolio depth and breadth is certainly a focus that we always have. ACI is a good example of adding both the geographical position as well as product breadth. We think about the other components of our HIP business—adding further depth and breadth is certainly something that we have talked about, and I mentioned innovation is a huge piece of our focus. That can come from both organic or inorganic growth opportunities. On the PEM side, we continue to look for ways where we can improve our positioning. There are still opportunities to further integrate the business and improve the logistics related to those businesses that improve the overall profitability by cost reductions. So there are efforts both on the HIP side as well as on the PEM side to improve the integrated model that we have, integrated not only from a product set, but also from a managing cost perspective. It is really focused on both sides of the business to be able to integrate and run the business smoothly, effectively, and cost effectively. Arun Viswanathan: Great. Thanks a lot. I will turn it over. Operator: Our next question comes from Peter Osterland of Truist Securities. Your line is open. Peter Osterland: Hey. Good morning. Thanks for taking the questions. I just wanted to start by following up on the profitability improvement plan. From the actions you have already announced and that are embedded in that $600,000,000 of improvement this year, is there some amount that you would expect to be realized on a year-over-year basis in 2027? And could you size that? Mark Steven Bender: Yes. As you think about the initiatives that we have taken in 2025—$170,000,000—those were structural in nature. The 2026 target is an additional $200,000,000. So we do expect, since these are structural benefits, to continue to have that carry through into 2027. As I mentioned earlier, we are continuing to look for areas where we can continue to find ways to reduce our cost. These can be in the manufacturing area, support area, logistics, and procurement. As we think about those, we will continue to then enunciate those as we go forward over the course of 2026. But those changes that we have already announced are structural in nature, and I expect them to carry forward into future years. Peter Osterland: Okay. Great. And then, on cash flow, do you expect free cash flow to be positive in 2026? And what are some of the major drivers aside from earnings growth to be aware of? Could you highlight your working capital expectations or any nonrecurring cash costs associated with asset closures this year? Mark Steven Bender: Yes. As we think about 2026, working capital is always an issue that we need to keep our eye on. Some price initiatives can certainly have an impact on working capital. So as we think about the overall cash generation of the business, our CapEx program guidance for 2026 is $900,000,000. We will keep a close eye on working capital and CapEx because we clearly recognize that generating free cash flow is critically important to our stakeholders. That is always a strong objective as we go through any year, including this year. That will be our objective and a big focus. Operator: Our next question comes from Matthew Blair of TPH. Your line is now open. Matthew Blair: Hey, Steve. Congrats on your retirement. It has been great working with you over the years here. I want to circle back to your comments on the removal of the VAT rebate in China, which I think is scheduled for April 1. I think China's PVC exports are nearly 10% of the global PVC market, and if you think that PVC is roughly breakeven in China, the rebate is 13%, it seems like this could be a pretty meaningful impact on the market, meaningfully reduce export volumes coming out of China. Does that make sense to you too? Do you agree with that? And is there anything else that you would add there? Mark Steven Bender: Yeah. It is a good question. And I was just looking at some statistics this morning. China represents about 15% or so of global PVC capacity and somewhere similar in caustic capacity, but they are not exporting that much—not the 15% that I just mentioned. They are exporting much less than that as a percentage of their total domestic production. But the focus that they have initiated on removing, effective April 1, that VAT drawback or that duty drawback is about a 13% impact in overall pricing. We have actually seen the benefits of that announcement play through in export pricing already. It is targeted in PVC. And so we have already seen export prices in PVC begin to rise because of the expectation that that duty drawback will not be available to them going forward. So I think it is an indication by the authorities in China that they really need to find actions to rationalize some of those exports that are being disruptive to the market, both internationally and domestically. Matthew Blair: Great. Thank you. And then the incremental $200,000,000 of cost reductions in 2026, I just want to clarify. Does that all stem from the asset closures that you already did in 2025? Or will there be incremental cost reduction efforts as you progress through 2026? Mark Steven Bender: Yeah. These are incremental above and beyond the actions taken in December or earlier in the year in 2025. These include initiatives in the manufacturing arena, initiatives in logistics, procurement—domestically as well as internationally—that add up to well over 50% of the $200,000,000 that we have talked about in cost reduction initiatives. So these are not solely tied to those footprint optimization initiatives. Operator: Our next question comes from Vincent Stephen Andrews of Morgan Stanley. Your line is now open. Turner Hinrichs: Hi. Congrats, Steve. This is Turner on for Vincent. Since last year, consultants have been calling for pretty significant chlorine price declines this year, which I understand is driven largely by vinyls weakness. Has the situation evolved this year, perhaps due to the VAT export rebate elimination or perhaps something else on demand or orders? And could you provide color on how you see chlor-alkali and vinyls earnings trending this year? Mark Steven Bender: It is a good question. And I would say that, as I mentioned earlier, given the demand pull that we are seeing in PVC going into construction activity, we see a similar year in 2026 to 2025. So the construction activity we see as being similar. So the demand pull is there. I would say though that given the indications we have seen in industrial and manufacturing demand for caustic, we have actually seen those numbers tick up. And that tick up in demand has driven re-inventorying, and that re-inventorying position has caused us to recognize that pricing has just gotten too low in caustic soda. So as you could see, we have initiated two price initiatives: $75 a ton that we initiated in late December and then another in January of $65 a ton, a total of $140 a ton. We do think we will get some traction on that. On the chlorine front, again, we will have to see how the year plays through for vinyl demand. As we sit through fourth quarter and first quarter, as I mentioned earlier, the fourth quarter and first quarter tend to be weaker demand periods for chlorine, simply because of the slower construction season pulling less on chlorine, lesser demand in the precursors for refrigerants, and water treatment. So no surprise that we would see some slowdown in pricing and demand in chlorine. But a lot is uncertain as we look forward into the year. I do not have the visibility I wish I had for the midyear or tail end of 2026. Our visibility is more limited than that. I would say that as we look forward, we see bright spots in pricing in caustic and bright spots in pricing in PVC. I do not want to extrapolate that until we see more of how 2026 will play through. Turner Hinrichs: Thank you. That makes a lot of sense. Skipping over to the HIP segment, can you talk about some of the swing factors that could take us to the low end versus the high end of the 19% to 21% EBITDA margin guide? And any color on related drivers such as price, mix, or synergies? Mark Steven Bender: I would say it is really going to be a function primarily of mix. We have seen a lot of discussion on affordability over the course of the last several years. To address affordability and be the producer of choice by many of the nationwide homebuilders, we have a good-better-best range of products, and each one of those ranges has a different margin associated with them. It is important that nevertheless we are picked because of the quality and the ability to deliver those products. Having that range of products matters. Being able to have that volume is very important. But a big swing could be simply product mix over the course of the year. Operator: Our next question comes from Abigail Eberts of Wells Fargo. Looking at PEM, I am curious about your expectations for the cost side. If you look at what the consultants have, obviously, polyethylene pricing is looking to be higher on a more or less apples-to-apples basis in 2026. But on the flip side, integrated margins are looking like they might be down up to double digits. Is that around in line with what you are looking for? And also, for your February price increase, are you around $0.05 in line with your peers? Mark Steven Bender: Certainly, as you know well, we are also a buyer of ethylene, and that ethylene goes into our production of PVC. We have seen elevated pricing in ethylene. Ethane has been pretty volatile over the last several months—run up in natural gas, and ethane has followed the run up—and also some pullback in pricing, but ethylene has remained pretty elevated. From a pricing perspective in polyethylene, we did see a recognition of $0.05 in January. But remember in December, we also saw some price adjustments in the December reset. We do have an announced increase in February of $0.05. We will see how the marketplace does over the course of February and into March, but we have announced an additional increase in February. Operator: Our last question comes from Kevin William McCarthy of Vertical Research Partners. Your line is now open. Kevin William McCarthy: Yes. Thank you, and good morning. Steve, it has been a real pleasure over the last twenty one years. Wish you all the best. Most of my questions have been asked and answered, but maybe a couple to probe here. First, I wanted to ask you about asset utilization. If I look at slide four, your $200,000,000 of savings from footprint optimization, I think, was crafted before we saw the PMI and the incremental goodness in your order book. So I guess my question would be if I look at it on an apples-to-apples basis, do you think what you are seeing now would support a contention that you would see an uplift in utilization, let us say, in chlorovinyls and polyolefins, irrespective of your rationalizations, that could help earnings more than the $200,000,000 would suggest? Jean-Marc Gilson: Yes. Asset utilization has been a little bit uneven across the business last year. After the big turnaround in the ethylene/polyethylene chain, we saw really good performance in the second half of the year. With no turnaround in 2026 and maybe one in 2027 for LCC, we are expecting that our olefin business will continue to run at very high utilization rate. Last year, most of the issues were on the chlorovinyl side. Now the combination of better operating performance and the shutdown of assets, I think, will lead to a significant improvement in operating rates—rates that we think will be conducive, together with all the cost savings, to much better results in 2026. Kevin William McCarthy: Thank you, Jean-Marc. And then, Steve, maybe a small question for you on the tax line. I think you guided to a 17% rate for 2026, which was a little bit lower than we might have guessed. Has your tax rate come down on a structural basis? And if so, what is driving that? Mark Steven Bender: Yeah. Kevin, good question. And the answer is because of our operating performance in 2025, I have some net operating losses that I am able to utilize in 2026. So what you see in my effective tax rate of 17% is really overseas taxes—overseas international tax rates—and I am actually trying to utilize those NOLs generated in 2025 in 2026. Kevin William McCarthy: I see. Okay. Thank you so much. Operator: Thank you. At this time, the Q&A session has ended. I would like to turn it over to Jeff Holy for closing remarks. Jeff Holy: Thanks, everyone, for participating in today's call. We hope you will join us again for our next conference call to discuss our first quarter 2026 results. Operator: Thank you for your participation in today's Westlake Corporation Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this call will be available for replay beginning two hours after the call has ended. The replay can be accessed via Westlake's website. Goodbye.
Operator: Hello and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the NexPoint Residential Trust, Inc. Q4 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star and the number one on your telephone keypad. I would now like to turn the call over to Kristen Griffith, Investor Relations. Kristen, please go ahead. Thank you. Good day, everyone, and welcome to NexPoint Residential Trust, Inc. conference call to review the company's results for the fourth quarter ended 12/31/2025. On the call today are Paul Richards, Executive Vice President and Chief Financial Officer; Matthew Ryan McGraner, Executive Vice President and Chief Investment Officer; and Bonner McDermett, Vice President, Asset and Investment Management. As a reminder, this call is being webcast through the company's website at nxrt.nexpoint.com. Before we begin, I would like to remind everyone that this conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on management's current expectations, assumptions, and beliefs. Listeners should not place undue reliance on any forward-looking statements and are urged to review the company's most recent Annual Report on Form 10-K and the company's other filings with the SEC for a more complete discussion of risks and other factors that could affect any forward-looking statements. The statements made during this conference call speak only as of today's date and, except as required by law, NexPoint Residential Trust, Inc. does not undertake any obligation to publicly update or revise any forward-looking statements. This conference call also includes an analysis of non-GAAP financial measures. For a more complete discussion of these non-GAAP financial measures, see the company's earnings release that was filed earlier today. I will now turn the call over to Paul Richards. Please go ahead, Paul. Paul Richards: Thanks, Kristen, and welcome everyone joining us this morning. We appreciate your time. I will kick off the call and cover our Q4 and full year results and highlights, update our NAV calculation, and then provide initial 2026 guidance. I will then turn it over to Matt to discuss specifics on the leasing environment and metrics driving our performance and guidance and details on the portfolio. Results for Q4 are as follows. Net loss for the fourth quarter was a loss of $10,300,000 or $0.41 per diluted share on total revenue of $62,100,000, as compared to a net loss of $26,900,000 or $1.06 per diluted share in the same period in 2024 on total revenue of $63,800,000. For the fourth quarter, NOI was $37,100,000 on 35 properties compared to $38,900,000 on 35 properties for 2024, a 4.7% decrease in NOI. For the fourth quarter, same store rental income decreased 2.8% and same store occupancy closed at 92.7%. This, coupled with an increase in same store expenses of 1.1%, led to a decrease in same store NOI of 4.8% as compared to Q4 2024. We reported Q4 Core FFO of $16,500,000 or $0.65 per diluted share compared to $0.68 per diluted share in Q4 2024. During 2025, NexPoint Residential Trust, Inc. repurchased 223,109 shares for a weighted average price of $34.29 per share, which is approximately a 29% discount to the midpoint of our Q4 2025 NAV, to be discussed here shortly. We continue to execute our value-add business plan by completing 380 full and partial renovations during the quarter and leased 275 renovated units, achieving an average monthly rent premium of $74 and a 22.2% ROI. Since inception, NexPoint Residential Trust, Inc. has completed the installation of 9,866 full and partial upgrades, 4,979 kitchen and laundry appliances, and 11,199 tech packages, resulting in $158, $50, and $43 average monthly rental increases per unit and 20.86%, 37.2%, and ROI, respectively. Results for the full year 2025 are as follows. Net loss for the year ended December 31 was $32,000,000 or a loss of $1.26 per diluted share, which included $95,800,000 of depreciation and amortization expense. This compared to net income of $1,100,000 or income of $0.04 per diluted share for full year 2024, which included a gain on sale of real estate of $54,200,000 and $97,800,000 of depreciation and amortization expense. As a quick reminder, the company sold our two remaining Houston assets as well as Radbourne Lake in Charlotte in 2024. For the year, NOI was $151,700,000 on 35 properties as compared to $157,000,000 on 35 properties for the same period in 2024, or a decrease of 3.4%. For the year, same store rental income decreased 1.3% and same store occupancy closed at 92.7%. This, coupled with a slight increase in same store expenses of 0.1%, led to a decrease in same store NOI of 1.6% as compared to the full year in 2024. We reported Core FFO in 2025 of $71,300,000 or $2.79 per diluted share compared to $2.79 per diluted share for 2024. Since inception of the business in 2015, NexPoint Residential Trust, Inc. has generated an 8.54% compounded annual growth rate in our Core FFO. Moving to the NAV per share. Based on our current estimate of cap rates in our markets, unchanged at 5.25% to 5.75%, and our 2026 NOI guidance, we are recording a NAV per share range as follows: $41.43 on the low end, $55.72 on the high end, with $48.57 at the midpoint. Next, our dividend update. For the fourth quarter, we paid a dividend of $0.53 per share on December 31. Since inception, we have increased our dividend 157.3%. For 2025, our dividend was 1.35 times covered by Core FFO with a payout ratio of 73.8% of Core FFO. Now our capital markets balance sheet leverage, and liquidity. On 07/11/2025, the company entered into a $200,000,000 revolving credit facility with JPMorgan Chase Bank and the lenders party thereto from time to time. The credit facility may be increased by up to an additional $200,000,000 if the lenders agree to increase their commitments. The new facility improves pricing by 15 basis points across all leverage tiers, to Term SOFR plus 150 to 225 basis points. The credit facility will mature on 07/30/2030 unless the company exercises its option to extend for a one-year term. NexPoint Residential Trust, Inc. has $13,700,000 of unrestricted cash and $108,000,000 of available undrawn capacity on our unsecured corporate credit facility, giving the company $121,700,000 of available liquidity as we head into 2026. We have no scheduled debt maturities until 2028. Over time, we will look to reduce leverage, credit facility leverage in particular, through a disposition and recycling of long-held, lower-growth assets where we have the ability to harvest gain and put capital back to work into more productive strategies and investments. As of 12/31/2025, we had total indebtedness of $1,600,000,000 at an adjusted weighted average interest rate of 3.28%. Interest rate swap agreements effectively fixed the interest rate on $900,000,000, or 62% of our $1,500,000,000 of floating rate mortgage debt outstanding. As we have done historically, we will continue to evaluate the credit markets for opportunities to hedge or restructure our debt to best position our assets and the portfolio for future growth while maintaining a highly liquid, low friction optionality afforded to us through the use of floating rate agency mortgage financing arrangements. Full year 2026 guidance. For 2026, we are issuing the guidance as follows. Rental income, on the low end, 0%, with a midpoint of 0.9%, and the high end of 1.9%. Total revenue, low end of 0.1%, with a midpoint of 1.1% and a high end of 2%. Total expenses, low end of 4.2%, midpoint 3.5%, high end 2.8%. Same store NOI, low end negative 2.5%, midpoint negative 0.5%, and the high end of 1.5%. Earnings per diluted share, low end, negative $1.54, midpoint, negative $1.40, and the high end negative $1.26. And lastly, Core FFO per diluted share: low end, $2.42; midpoint, $2.57; and at the high end, $2.71. Matt will go into detail on our same store operating assumptions with his prepared remarks, and the largest driver from our 2025 actuals to 2026 midpoint guidance is interest expense. And, again, Matt will provide details on our thoughts regarding upside on the operational front and our same store operating assumptions. And with that, I will turn it over to Matt for commentary on the portfolio. Thank you, Paul. Let me start by diving a bit deeper into our fourth quarter same store operational results. Same store average effective rents closed the year at $1,489 per unit per month, down 10 basis points year over year. Matthew Ryan McGraner: Six of our 10 same store markets generated positive year-over-year growth in effective rents with Tampa leading the way at 3.1%, followed by Las Vegas, South Florida, and Charlotte at 2.1%, 1.6%, and 1.3%, respectively. On the occupancy front, the same store portfolio closed the year at 92.7%, down 195 basis points year over year. South Florida took the pole position at 94.5% with Phoenix, Charlotte, then Raleigh rounding out the top four markets with at least 93% occupancy as of the year end. We saw noteworthy occupancy improvement in Phoenix in particular, building to 94.5% as the team maintained heavy focus on defense to combat the heavy delivery of new units over the past several quarters. Renewal conversions were 57.4% for the quarter and 54.25% for the full year, with 2026 retention starting off strong with January over 50% and February month-to-date at 51.6%. March is projected to finish around 56%. Revenue for the year in five of our 10 same store markets delivered positive revenue growth with South Florida, Atlanta, and Raleigh each growing at least 1%. Tampa and Charlotte rounded out the growth markets. Bad debt continued to trend down, finishing the year at 80 basis points of GPR, a 42% improvement year over year, demonstrating both the health of our tenant demographic as well as the efficacy of the centralized screening techniques we have employed to strengthen our portfolio post-COVID. Tampa, Raleigh, and Atlanta saw particular improvements to bad debt, with each reducing losses by more than half the prior year total. Concession utilization has increased from 38 basis points as a percentage of gross potential rent in 2024. Phoenix, Orlando, South Florida, and Atlanta each saw a need for increased concessions with 1.1%, 4.4%, 0.4%, and 0.36% increase in utilization, respectively. Overall, same store revenues were down 1% year over year, and turning to the expense side, with limited catalysts for revenue growth in 2025, the team paid particular attention to expense management and we are pleased to report a full year decline of 10 basis points to same store operating expenses. Advances in AI and our strategic focus on its development to streamline workflows across both our resident and property staff experience enabled us to achieve a 3.7% year-over-year decrease in total payroll costs and an 80 basis point decline in office operations expense. We see this trend continuing, and I will have more detail later on this in my prepared remarks. Thoughtful asset management, zero-based budgeting, and our sharp focus on turn cost management and material contract negotiation kept the lid on repair and maintenance expense inflation, growing by just 2.5% for the year. Other favorable results were realized through our real estate tax and insurance strategies, up 1.8% and down 12% for the year, respectively. Our full year same store NOI margin was a stable 60.8% while our year-over-year same store portfolio finished down 1.6%, as Paul mentioned. Notable same store NOI growth markets for the year were South Florida, Charlotte, and Nashville, at 1.4%, 1%, and 90 basis points, respectively. On 12/11/2025, NexPoint Residential Trust, Inc. purchased Sedona at Lone Mountain in Las Vegas, Nevada for $73,250,000. Management identified an opportunistic high-growth acquisition in a long-term market. The strategy involves deploying accretive value-add capital to normalize economic occupancy and expand operating margins through targeted demand generation, interior and amenity enhancements, lifestyle upgrades, and disciplined execution, ultimately driving asset appreciation and outsized returns. Recent large-scale developments have driven significant expansion, job growth, and residential revitalization in North Las Vegas, which is now the Las Vegas Valley's most prominent industrial market. Over 15,000,000 square feet of industrial space is currently under construction or planned, supporting the creation of 8,000 new jobs in the market. As a reminder, we intend to improve economic occupancy by approximately 900 basis points over four years while upgrading 182 units and installing smart home technology throughout the community, driving a 7.2% NOI CAGR through 2029. Now turning to 2026 guidance. As Paul said, we are guiding between a 2.5% decline and a 1.5% increase in same store NOI growth for 2026, with the midpoint projecting a 50 basis points reduction year over year. Our 2026 guidance includes the following assumptions. A 90 basis point rental income growth at the midpoint, forecasting 93.4% to 94.1% financial occupancy with peak occupancy modeled for Q3 with a more normal seasonal demand and performance expectation for the year. A negative 30 basis point earn-out from lease trade-outs and a gain-to-lease inversion in 2025. A positive 1.2% market rent growth in 2025 with roughly 40% realized this year predominantly in the second half of the year. A positive 40 basis point top line growth attributable to ROI CapEx spending, as detailed further hereafter. Economic occupancy at 91.8% at the midpoint, 30 basis points lower vacancy costs at the midpoint, 93.7% versus 93.4% for the prior year. We are stabilizing bad debt at approximately 80 basis points with a range of 70 basis points to 90 basis points, down more than 75% from peak pandemic era payment behavior. And then flattish concession utilization at 71 basis points to GPR, heavily weighted in the first half of the year. We are assuming 1.1% total revenue growth at the midpoint, driven by modest rental income growth expectations I just went over and mid-single-digit other income growth. Turning to expense guidance. We are assuming 6.4% controllable expense growth at the midpoint. 80% of this growth is attributable to bulk increase Wi-Fi contract costs that have a direct revenue offset. We are assuming down 1% R&M and turn cost growth, but turnover in interior R&M is expected to decrease $375,000 or 8.4% due to effective cost management and an increased volume of renovations in 2026. We are assuming 2% labor growth; the continuation of our rollout of AI technology and centralization of operations contribute to modest labor growth. We see optimism in outperforming our midpoint as we further implement agentic AI strategies and maintenance podding across our markets. We are assuming a 7.4% growth in advertising and marketing expense and just a 10 basis point growth in G&A expense. We are assuming total expense growth of 3.5% at the midpoint, a 4.5% increase in the utility expense line item, and a 2.1% insurance premium reduction, assuming a 0% to 10% renewal on April 1. For that, our team, including Paul here, were recently meeting with the markets in both London and New York and we are optimistic we will achieve another favorable outcome for the program with this 2026 renewal. On the real estate tax expense growth side, we are assuming a positive 4.4% growth. Real estate taxes make up 31% of the 3.5% total expense increase at the midpoint, and we are expecting the band of real estate taxes to increase from 2% to 8% across the portfolio. And, of course, we will protest and litigate outsized value assessments vigorously throughout the year. On the value-add side, we continue to be an internal growth business at our core. And to that end, our guidance includes the following assumptions regarding our value-add programs, which remain aligned with our historical 15% to 20% ROI targets. We expect to accelerate value-add CapEx deployment toward the back half of 2026 and into 2027 as our submarkets see net demand and occupancy pricing power improve for landlords. We are assuming approximately 300 full interior upgrades at an average cost of $16,500 per unit generating a $240 average monthly premium. We are assuming approximately 400 partial interior upgrades at an average cost of $3,500 per unit generating a $70 average monthly premium. These partial upgrades include varying bespoke additions such as new stainless steel appliances, hard surface countertops, updated tub enclosures, and private yards among other aspects. These partial bespoke rehab initiatives are strategically tailored by 1,500 bespoke upgrades across the portfolio with double-digit ROIs. Finally, we also plan to install 680 washer/dryer installs at an average cost of $1,200 per unit generating a $54 monthly average premium or 54% return on investment. Now turning to summarize our outlook for the 2026 year. Basically, we like what we own. We believe affordable residential assets in well-located suburbs in the top job growth and net migration markets in the country will outpace demand over the near term. Our markets are business friendly with the continued persistent tailwind of factors pointing towards Sun Belt growth. You name it, we have it: taxes, weather, business climate, jobs, investment in physical and digital infrastructure. Indeed, many signs for growth were already pointing to the Sun Belt, and we believe still are. And underpinning our guidance for the year is cautious optimism. We think the Sun Belt multifamily market is approaching its long-awaited inflection point. After absorbing the largest supply wave since the 1980s, with completions peaking at almost 700,000 units in 2024, a 54% increase from 2021 baseline completions, we are optimistic that new lease growth is set to turn positive across most Sun Belt markets by 2027. Reasons for our belief include persistent structural demand. The cost to own a home is three times more than to rent an apartment in our markets. A 60% decline in new market rate deliveries from the peak and construction starts running approximately 70% below their 2022 peak, locking in a multiyear supply trough. Weighing each NexPoint Residential Trust, Inc. market by unit exposure, the portfolio level jobs/new construction unit ratio bottomed at approximately 1.5 jobs to 1 unit of new delivery in mid-2025, and our entire portfolio is projected to cross back above the historically significant ratio of 4 jobs to 1 unit by 2027. However, the recovery is highly asymmetric. Roughly 35% of our portfolio—South Florida, Las Vegas, and Atlanta—is already at or approaching equilibrium, while 44%, including Phoenix and DFW, will not reach that threshold until 2026. But, for example, South Florida, or 21% of our NOI, has an adjusted BLS nonfarm payroll divided by the CoStar and Yardi delivery ratio of 7.5 jobs to 1 unit, well above the equilibrium. Atlanta, or 12.5% of NOI, just crossed back over 5 to 1. And given that supply is now relatively muted over the near term, the key variable is whether Sun Belt job growth and net migration can maintain its recent pace. If it can, the supply cliff now baked into every NexPoint Residential Trust, Inc. market's pipeline creates the conditions for sharp and synchronized recovery in 2026. Another reason for optimism is the demographic profile of our renter population. We do believe in AI, and it will have a near term chilling effect over entry-level white collar jobs. But today, the NexPoint Residential Trust, Inc. average renter is largely blue collar, 38 years old, with a household income of $90,000 per year. Not really the AI bull’s-eye. Furthermore, advances in health and wellness are adding longevity to the population, creating somewhat of a demographic backstop to demand. The 65+ population is 5% across NexPoint Residential Trust, Inc. markets, and Harvard JCHS projects the senior renter population to double from 5,800,000 households to 12,200,000 households by 2030. While obviously a senior housing tailwind, we are starting to see sizable signs of this trend in our own remotes. So in closing, even though the last few years have indeed been difficult, we are optimistic that new lease inflection will happen in the Sun Belt this year for the vast majority of our portfolio. In the meantime, we will continue to do all that we can to utilize technology, become more efficient, drive value-add programs, and ultimately drive value for our tenants and our shareholders. That is all I have for prepared remarks. Thanks to our teams here at NexPoint Residential Trust, Inc. and BH for continuing to execute. And with that, we will turn the call over to the operator for questions. Operator: At this time, if you would like to ask a question, press 1 on your telephone keypad. To withdraw your question, simply press 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Omotayo Okusanya with Deutsche Bank. Please go ahead. Omotayo Okusanya: Yes. Good morning, everyone. First question around the refurbishment and remodeling. I think you mentioned that in 2026, you are going to do about 400 of those. And then you do, like, 600 washer/dryer installation. So that is, like, 1,000 altogether versus, I think, 2025 you did about 1,800 total volume. Just kind of curious why you kind of have the drop, especially as you are talking about they could still do another 1,500, you know, if market conditions allow? Matthew Ryan McGraner: Yes, sir. Hey. It is Matt. Good morning. Maybe I did not come across or you misheard the category. So the plan is to do 300 full upgrades across the portfolio, an additional 400 partials and then roughly—yeah. And so I think that was the delta, but we are ending up basically at the same place, about 1,700 units. And then as you know, if what we believe will happen happens, then we will be able to drive those incremental bespoke upgrades that I mentioned that can reach up to 1,500 additional units. Omotayo Okusanya: Okay. That is awesome. That is helpful. And then in regards to the interest rate swap, again, a few years ago, you guys kind of successfully negotiated some of these swaps and kind of came out ahead with some lower rates. Just kind of curious as you kind of think about 2026. How you kind of see that playing out this time around, especially when, again, you do kind of see, you know, rates have been coming down at least to start the year. Paul Richards: Yeah. Great question, Kyle. This is Paul. So, yeah, we look at 2026 and what the swap market is pricing, you know, the U.S. three-, five-, seven-year swap, and just taking in what we fully expect on the rate cut side. If you look at the current Fed dot plot, the dispersion is extremely interesting. You have a deeply divided committee with 175 basis points of actual spread with Mester at the bottom end at 2.125%, and you have a few multiple hawks that are, you know, pricing in zero rate cuts this year. You had three dissenters this past meeting. So it is a really deeply divided, you know, dot plot, which is, you know, affecting swap markets and not really pricing what we truly believe, you know, will be at the end of the year with rate cuts. So we are holding tight right now on putting and layering in additional swaps, but again, this can change in a moment's notice. So it is a constant daily recheck and refresh of those rates to see if they are, you know, hitting what we believe to be kind of two and a half to three rate cuts for the year. And, you know, I am a little more bullish too on that too. So it is just a constant refresh and remodel of our models and when we want to layer in additional swaps for the year to layer in behind the ones that are burning off here in Q3, Q4 this year. Omotayo Okusanya: Gotcha. Thank you. Operator: Your next question comes from the line of Buck Horne with Raymond James. Please go ahead. Buck Horne: Hey. Good morning, guys. Just wondering if you could give us any updates on either January and or February trends since quarter end in terms of new, renewal, blended lease rates, just occupancy? Any additional color on how early spring leasing has gone? Matthew Ryan McGraner: Yeah. Hey. Hey, Buck. Good morning. It is Matt. The January new leases were down 7%. Renewals were 1.6% for a blended minus 2.6% or 2.7% or $40 trade-out. February is better and getting better and firming. The new leases were down 5.7%, and renewals were a positive 1.7% for a blended negative 1.8%. And, again, we are seeing pretty positive trends on the renewal side too, on the trend. Buck Horne: Gotcha. Gotcha. Appreciate the color there. And then I think secondly, my other question was on CapEx and maybe potential CapEx spending for the upcoming year. Looks like the trend in both kind of the recurring and nonrecurring maintenance CapEx number is still trending above normal or above trend line, historically. How are you thinking about what were some of the key drivers for that this year? And then total CapEx spending for this coming year? Paul Richards: Yeah. On the maintenance side, I will kick that to Bonner. But some of the outside that we are doing are the, you know, the bulk Wi-Fi on the resident amenity side, which again has a direct offset. So that is kind of elevated the numbers. But, again, the net effect of that is minimal on the income statement. Do you have anything to add on the maintenance side? Bonner McDermett: Yeah. So our 2026 outlook—and relative to, you know, 2025—you see 2025 we had a little bit of a pickup in interior rehab spending. We had less of the exterior and common area this year post refinancing the portfolio. That $2,200,000 in 2024, there were some more major projects there. So outside the Sedona acquisition, there is about a million bucks of exterior work to do there. The capitalized rehab should be pretty stable year over year. And I think that same for the capitalized maintenance, the recurring and nonrecurring. You know, we are certainly looking to control those expenses, understand that is roughly $30,000,000 for the full year 2025. I think that we have seen some price easing, certainly being thoughtful about that as a team. And as Matt mentioned, we kind of have a strategic approach here where, you know, pricing power is going to dictate the volume of renovation output for the year. So if we can get healthy trade-outs that justify the spend, we will see a little bit higher spend, probably more in line with 2025. But if we are not getting to the, you know, the trade-out that we need, the ROI that we want, we may look to skinny that down a bit. Buck Horne: Gotcha. Alright. Thanks, guys. Good luck. Operator: Next question comes from the line of Michael Lewis with Truist Securities. Please go ahead. Michael Lewis: Great. Thank you. Maybe this question kind of logically follows after talking about CapEx. When we subtract CapEx from your AFFO calc, it looks like the dividend is not covered. I know you recently raised the dividend. This is always a tough—I realize it is a board decision. It is a hard question to answer. But as you look forward to 2026, I mean, do you think the dividend is covered by cash flow? And maybe just kind of remind us of what the dividend policy is. Paul Richards: Yes. The dividend is covered by cash flow, and its target ratio is 65% to 75% of Core FFO. Michael Lewis: Of AFFO. Okay. And then I wanted to ask, you know, you gave a lot of great data about supply and demand. Really detailed. The occupancy for 4Q was a little lower than we expected. I was wondering if it was lower than you expected and, you know, how you are kind of managing pricing versus occupancy, you know, right now where we are before we kind of get to that inflection whenever it comes. Matthew Ryan McGraner: Yeah. It is a great question, Michael. It is lower than we expected, but it was somewhat intentional. So, you know, concession utilization was increased over the fourth quarter and into January. It is abating somewhat in February. But we were reluctant to utilize, you know, more than a month of concessions, particularly when we, you know, believe pricing power will significantly increase over the year. And I also did not want to lock in a negative twelve-month, you know, earn-in and cannibalize what we believe is an inflection year. You know, we truly believe that on a deal-by-deal basis, largely for the vast majority of our portfolio. And, you know, not, you know, jumping up and down happy with 92.7%, but the good news is our first quarter guidance is at 93%. So, you know, I think we are on track to hit that. And, you know, hopefully, we will capture some of this inflection. Michael Lewis: Okay. Thank you. Paul Richards: You got it. Operator: Your next question comes from the line of Linda Tsai with Jefferies. Please go ahead. Linda Tsai: Hi, thanks for taking my question. In terms of your comments on the senior renter population doubling by 2030 and seeing sizable signs of this trend in your markets, can you delve into this comment more? And then would you start to amenitize properties any differently based on an aging population? Matthew Ryan McGraner: Yes. Again, great question. We are seeing it because our average age is picking up, and we are just getting, you know, anecdotally, from the sites, especially in, you know, the Sun Belt and particularly in Florida, for, you know, resident amenities that cater more to the senior housing population. It is something that we have, you know, I guess, taken notice of as, you know, Welltower and the others catch a really good bid and believe in this demographic backstop, as I mentioned in my prepared remarks. We do believe this trend. We think AI is going to grow GDP ultimately and have, you know, people when, you know, when they live longer and, you know, make more money, they want to invest in their health and entertainment. And so we are, you know, actively looking to resource our portfolio design to, you know, to cater to health and wellness and entertainment. And I think that those things will, you know, produce a wider demand funnel than what we have historically been used to and catering to blue collars. So there is no reason in our portfolio why we cannot attract, you know, in Richardson, Texas, a suburb, well-located suburb outside of Dallas, some empty nesters that want to, you know, be closer to their kids. They go to SMU for example. So I think that trend will continue, particularly in the Sun Belt, particularly in our markets, and just follow the same net migration trends as we have seen over the last five years. Linda Tsai: Are you seeing new renter income from the older population increasing? Matthew Ryan McGraner: Yes. Indeed. And that is adding to both our AEG and our average household, you know, demographics. When we started this company, you know, eleven, twelve years ago, you know, our average renter was, you know, 28 years old and, you know, made $60,000 a year. So we are increasingly catering, I think, to a purpose-driven renter. And,you know, it makes sense. You know, aging population, they want less yard. They want, you know, more amenities. They do not want to deal with, you know, maintenance themselves, and they want to travel. So, we like that trend. We are going to play into it, and I think we have the portfolio to take advantage of it. Linda Tsai: And then just one guidance question. It does not seem like your guidance incorporates buybacks. Are you still considering buybacks in 2026? Paul Richards: Yeah. We are. Matthew Ryan McGraner: We will always consider them. I think that, you know, the Sedona deal was important because we liked—yeah. We like the ability to take that cap rate from a 5.7 going into a 7.5, and that was, you know, one-off opportunity. And those opportunities we will always do. But in the meantime, you know, I think if we do, you know, sit stock price, you know, sub 30 and a 6.6 implied cap rate, you know, and we stay here for a while, I think you will see us buy back some stock. That being said, I really do believe that, you know, that this year is the year that, you know, we will inflect, and I think stock prices will follow that upwards in the second half of the year. Paul Richards: Thanks. Operator: That concludes our question and answer session. I will now turn the call back over to management team for closing remarks. Matthew Ryan McGraner: Thank you for all your time this morning. Appreciate everyone's, again, time and attention. I look forward to speaking to you next quarter. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to Bowhead Specialty's Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. If you have any questions, please disconnect at this time. With that, I would like to turn the call over to Shirley Yap, Head of Investor Relations. Shirley, you may begin. Shek Yap: Thanks, Marianna. Good morning, and welcome to Bowhead's Fourth Quarter 2025 Earnings Conference Call. I'm Shirley Yap, Bowhead's Chief Accounting Officer and Head of Investor Relations. Joining me today are Stephen Sills, our Chief Executive Officer; Brad Mulcahey, our Chief Financial Officer; and Derek Broaddus, our Head of Casualty. As we introduced last quarter, we'll be inviting an additional member of our management team on our earnings calls to share insights from the area of expertise. Today, we are joined by Derek Broaddus, who heads our casualty team, Bowhead's largest division. Derek will walk us through Bowhead's casualty portfolio and offer his perspective on the casualty markets in which we operate. Turning to our performance. Earlier this morning, we released our financial results for the fourth quarter of 2025. You can find our earnings release in the Investor Relations section of our website. And later this evening, you will also be able to find our Form 10-K on our website. I'd like to remind everyone that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors should not place undue reliance on any forward-looking statement. These statements are made only as of the date of this call and are based on management's current expectations and beliefs. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. You should review the risks and uncertainties fully described in our SEC filings. We expressly disclaim any duty to update any forward-looking statement, except as required by law. Additionally, we will be referencing certain non-GAAP financial measures on this call. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measure can be found in the earnings release we issued this morning and in the Investor Relations section of our website. With that, it's my pleasure to turn the call over to Stephen Sills. Stephen Sills: Thank you, Shirley. Good morning, everyone, and thank you for taking the time to join us today. I'm very proud of Bowhead's accomplishment in 2025. We delivered disciplined premium growth of 24% for the year, surpassing our original expectation of 20%. We also had a meaningful improvement in our expense ratio coming in below 30% for the year and better than the low 30s range we expected at the start of 2025. Together, these achievements resulted in an over 30% growth in our adjusted net income for the year and adjusted return on equity of 13.6% and diluted adjusted earnings per share of $1.65. I'll begin with gross written premiums. Bowhead's GWP increased 21% in the fourth quarter to $224 million and 24% for the full year to approximately $863 million. We achieved disciplined premium growth from each of our divisions in the quarter and for the full year with casualty driving the increase. Given our emphasis on underwriting discipline and prioritizing profitability over volume, we're pleased to have delivered stronger-than-expected growth in the fourth quarter. In Casualty, GWP increased approximately 26% in the fourth quarter to $133 million and 28% for the full year to $551 million. The growth in both periods was primarily driven by our excess casualty portfolio. Our fourth quarter growth came in stronger than expected, driven by construction project risks that were quoted earlier in the year, but delayed due to macroeconomic factors we discussed in previous earnings calls. The green lighting of these projects added just under 30% to our fourth quarter casualty premiums. While we like the profitability of the construction project business and expect new construction projects to continue, the nonrecurring nature of this business may create lumpiness in our GWP. In our Professional Liability division, GWP increased approximately 4% in the fourth quarter to $48 million and 9% for the full year to $174 million. Our fourth quarter growth was primarily driven by our cyber liability portfolio, where we continue to target small and midsized accounts facilitated by our digital underwriting capabilities. Our full year growth was driven by commercial public D&O and miscellaneous errors and omissions. In our Healthcare Liability division, GWP increased approximately 8% in the fourth quarter to $34 million and 14% for the full year to $116 million. Our growth in both periods was driven by our health care management liability and senior care portfolios. Additionally, our hospitals portfolio, which represents the largest portion of the division's full year premiums at almost 30%, continued to grow while we reduced our total limits deployed. For Baleen, GWP increased 47% from Q3 to over $9.1 million. And we're proud of the fact that for the full year, Baleen generated over $21 million. The momentum we saw in the fourth quarter gives us confidence in Baleen's continued expansion and its anticipated contribution to our broader digital initiative. With a strong year behind us, I'm even more excited about Bowhead's future. As we've said before, Bowhead was built to deliver sustainable and profitable growth across market cycles, and we do that by delivering our products through 2 complementary underwriting models. Our first model is our craft underwriting model, the foundation of our company. It is led by experienced underwriters who specialize in complex nonstandard, high-severity risks and who deliver tailored solutions for our brokers and insurers. Our second model is our digital underwriting model, which represents the technology-enabled low-touch approach to our specialty flow business. This model began with the launch of Baleen in the second half of 2024, focusing on small, harder-to-place risks with restricted coverage. We then expanded this technology to handle the high volume of small and midsized submissions that were within our appetite, but historically, not cost effective for our craft underwriters to get to, a capability we call Express. Express automates the underwriting process that used to be repetitive and time-consuming, allowing our underwriters to make disciplined underwriting decisions within minutes. We first applied Express to our small and middle market cyber liability products in Q2, then broadened it to an E&O product in the second half of 2025. While our craft model delivered over 97% of our GWP in 2025, we've been able to achieve our sub-30 expense ratio even before the digital model is fully scaled. For example, in 2025, head count grew just under 19% from 249 people to 296, while GWP grew 24%. And in the fourth quarter alone, head count increased less than 3%, while GWP grew 21%. Together, Baleen and Express form our digital underwriting model, designed for speed, consistency and disciplined decision-making, all while preserving the underwriting culture that defines Bowhead. We look forward to introducing you to our Head of Digital on a future earnings call so you can hear directly from the team leader driving this effort. Turning to our premium outlook for 2026. We continue to expect profitable premium growth of around 20% for the full year. While we anticipate the growth coming from each of our divisions, we believe the main source of this growth will be driven by our Casualty division, followed by the growth stemming from our digital capabilities. With that, I'll turn the call over to Derek, who's been in the Casualty business over 30 years and won the Insurers 2025 E&S Underwriter of the Year Award. Derek, over to you. Derek Broaddus: Thank you for the introduction, Stephen, and good morning, everybody. Bowhead wrote its first casualty policy at the end of 2020. So we never wrote large limits for low premiums in the pre-2020 years. We were born in an uprate relatively low limit environment, which still largely exists today. When Bowhead began, the commercial casualty market had just emerged from a 15-year-plus soft market where pricing was suppressed and limits were abundant, all while social inflation was brewing in the background. We think that the payback equation between limit and price in that time was way off. And because of the tail, we still don't think the bill has totally come due for the industry's pre-2020 prior year adverse development. As a 30-year veteran of the industry, I'm happy to say that it has never been a better time to be a casualty underwriter. Our trading partners ask us what differentiates Bowhead's approach to casualty. Well, many of you have heard the insurance business is a people business. The best way to build a successful underwriting organization is to have the best underwriters in the business. Bowhead attracts top talent with our underwriting-first culture focusing on profitability over volume. Underwriters are also attracted to our straightforward distribution model, supporting and partnering with our trading partners. We are overwhelmingly surplus lines. We also are not distracted by fixing a book of business. We are laser-focused on managing and building our current portfolio. It's worth mentioning here that while we remain a predominantly remote organization, we are constantly on video talking about risks with what we call roundtables. Our underwriters are accessible anytime, anywhere. It is an advantage to be able to hire talent no matter where they sit. Another meaningful benefit to this structure is that it is easy to include less senior underwriters from around the country in complicated underwriting meetings that might have been near impossible in a traditional office setting. No one is above being questioned or challenged at Bowhead. In fact, it's encouraged. Additionally, Bowhead Casualty deliberately avoids classes that are well-known hotspots. Two examples are [ for-hire ] Commercial Auto. We don't write risks that are in the business of hauling people or things for others, and we have limited exposure to large national accounts. Our focus remains on profitable classes where we have expertise and experience. We manage limits carefully in today's market. Our average excess limit deployed is just over $5 million rather than the $25 million blocks that were common pre-2020. Large excess towers that once required only a few markets to complete now require many markets at better pricing. We also avoid low price per million, high excess placements that require the deployment of large limits and are more exposed to loss than ever before due to social inflation and nuclear verdicts. Bowhead's Casualty portfolio benefits from today's positive rate environment, lower required limit to participate on towers and the ability to exercise disciplined risk selection. We know that outsized awards and litigation funding are not going away. Social inflation is not a surprise to anyone anymore. Even with improved attachments, risk selection and rate still matter. In terms of our disciplined approach to underwriting, our focus is on deal fundamentals. We believe that walking away from deals that don't make sense is just as important, probably more important than any piece of new or renewal business. Some might say knowing when to walk away is the toughest but most valuable underwriting skill there is. From a market perspective, in excess, limit discipline largely remains. Many excess towers continue to see limit compression from incumbents. This creates new opportunities for underwriters like Bowhead. However, one moderating influence on rate is the movement of admitted markets into the E&S space as was typical in past insurance cycles. Also, nonrisk-bearing MGAs and broker sidecars are bringing more capacity into the U.S. casualty market. We agree with certain industry leaders when they say there is a fundamental misalignment of interest in some nonrisk-bearing underwriting facilities. Overall, we remain confident in our ability to grow profitably. We think the current market is competitive, but there is a relatively healthy balance of rate and limit management. Our brand in casualty continues to grow and strengthen. Submissions are growing faster than we can quote and investments in technology, our digital platform and talent will allow us to capture more opportunities that fit our appetite. With that, I'll pass the call over to Brad to discuss our financial results. Brad Mulcahey: Thanks, Derek. Bowhead had generated adjusted net income of $15.5 million or $0.47 per diluted share and adjusted return on average equity of 14.1% in the fourth quarter of 2025. For the full year, Bowhead's adjusted net income increased 30.2% to $55.6 million or $1.65 per diluted share, and adjusted return on average equity was 13.6%. Our strong results were driven by top and bottom line growth. Gross written premiums increased 21% to $224.1 million for the quarter and 24% for the full year to $862.8 million. Our growth story was consistent throughout the year. We achieved premium growth in each of our divisions, with Casualty continuing to be the largest driver and Baleen generating $21.4 million for the year. Due to the timing of our annual reserve review in Q4 each year, we consider our full year loss ratio a more meaningful metric. For the full year, our 2025 loss ratio of 66.7% increased 2.3 points compared to 64.4% in 2024. The current accident year loss ratio increased 1.8 points due in part to higher expected loss ratios and trends after the annual reserve review as well as mix changes in the portfolio. The prior accident year loss ratio was unchanged as a result of the annual reserve review, but increased 0.5 points due to audit premiums recorded in 2025 that related to prior accident years. As a reminder from previous earnings calls, the audit premium related reserves in the prior accident years is not based on actual losses settling for more than reserved and did not represent an increase in estimated reserves on unresolved claims. We're simply putting loss reserves into the appropriate accident year regardless of when the premiums are billed and earned. And remember, since we've only been in operations for 5 years and write long-tail lines, our actual loss experience is limited. Because of this, our annual reserve review is primarily based on inputs from industry data. Our initial expected loss ratios are derived from a combination of internal pricing data and external benchmarks, while development patterns are mostly based on external benchmark patterns. We attempt to align all industry benchmarks to the nuances of our portfolio, including not writing risks that are in the business of hauling people or things for others and our lack of large national account exposures in casualty. Additionally, the development patterns we use attempt to take into account our excess position in particular lines, which generally results in later development patterns than primary positions. The most recent annual reserve review in Q4 resulted in various adjustments that were smaller compared to our adjustments in Q4 2024. But most importantly, we had no prior accident year development in our aggregate net losses for 2025 as a result of this review. As you will see in our 10-K, we reallocated prior accident year reserves by division to align more closely with the actuarially derived projected loss ratios and development patterns. These reallocations were primarily in professional liability, where we reduced the '21 accident year while increasing the newer accident years and in health care, where we reduced the '23 accident year and increase the '22 and '24 accident years. These were offset by a decrease in casualty for the '22 accident year to align with updated projected loss ratios, all resulting in no prior year development on an aggregate net basis. More specifically, in Professional, the '21 accident year is performing well, resulting in a favorable $3.5 million reduction in IBNR. However, the limited experience in subsequent years, coupled with declining rates, warrants caution. The '22 accident year in particular, where our early experience is deviating from the industry development patterns was increased by $2.8 million at year-end. Similarly, in health care, the '23 accident year is performing well. But in the '22 year, our early experience is also deviating from the industry development patterns. This warranted a $2.2 million increase in the '22 accident at year-end, along with a $3.3 million increase in the '24 accident year out of an abundance of caution. These adjustments to the industry development patterns are another example of conservatism in our reserving. We're reserving as if the industry patterns are correct for now and therefore, reallocating reserves in select areas. Lastly, we increased some of the '25 accident year initial expected loss picks to align with actuarial estimates. In alignment with our conservative approach to reserving, we are carrying loss ratios in the '25 accident year above the industry estimates on a majority of our product groups. Overall, our actual experience of paid claims and reserves continues to be better than we actuarially expected. And at the end of the year, IBNR as a percentage of total reserves was 90%. Turning to our expense ratio. We consider our full year ratio a more meaningful metric to monitor the trending of our expense ratio due to the inherent volatility quarter-to-quarter. For the year, our 2025 expense ratio of 29.8% decreased 1.6 points compared to 31.4% in 2024. The reduction was driven by a 2.3 point decrease in our operating expense ratio, which was partially offset by a 1.1 point increase in our net acquisition ratio. The decrease in our operating expense ratio was due to the continued scaling of our business, scaling that is accelerated by the realization of various technology initiatives to improve efficiencies. The increase in our net acquisition ratio was driven by the increase in broker commissions due to mix changes in our portfolio and to a lesser extent, the increase in the ceding fee we paid to American Family. Overall, the effect of our loss ratio and expense ratio contributed to a combined ratio of 96.5% for the year. As a reminder, we don't write property and we don't write natural catastrophe-exposed risks. Turning to our investment portfolio. Pretax net investment income for the quarter increased approximately 36% to $16.6 million and 44% for the year to $57.8 million. The increase was primarily due to a larger investment portfolio resulting from increased free cash flow. At the end of the year, our investment portfolio had a book yield of 4.6% and a new money rate of 4.5%. The average credit quality of our investment portfolio remained at AA and our duration increased from 2.9 years in Q3 to 3 years at the year-end. Our effective tax rate for the year was 20.1%. As a note, our effective tax rate may vary due to items such as state taxes and stock-based compensation. Total equity was $449 million, giving us a diluted book value per share of $13.45 for the year, an increase of 22% from year-end 2024. Turning to our expectations for 2026. We continue to expect a GWP growth of around 20% for the year. As Stephen mentioned, the growth should come from all divisions but led by continued momentum in our Casualty division and growth driven by our digital underwriting capabilities. From a ceded perspective, although our main quota share and XOL treaties renew in May later this year, we've renewed our cyber quota share treaty effective January 1 of this year at 65%, up from 60% in 2025 and increased our ceding commissions. As a note, at each renewal, we consider various factors when determining our reinsurance coverage. While we may adjust our reinsurance program, including our retention to support capital needs, we expect our reinsurers to maintain a financial strength rating of A or better. Furthermore, we expect our 2026 loss ratio to be in the mid- to high 60s due to product mix and our reliance on industry loss trends. Additionally, we expect our expense ratio to be below 30% for the full year due to the continued scaling of our business, scaling that is accelerated by the realization of various technology initiatives to improve efficiencies. We expect our expense ratio in the first half of the year to be slightly higher than the second half due to payroll taxes. Therefore, we believe our combined ratio will be in the mid- to high 90s for the full year and return on equity to be in the mid-teens. Turning to our investment portfolio. We expect to extend our duration slightly from 3 to 4 years. This change is not because we're predicting interest rates to decrease, but to closer match the duration of our investments to the duration of our liabilities. And lastly, from a capital perspective, in November, we issued $150 million of 7.75% senior unsecured notes that are scheduled to mature on December 1, 2030. We expect the proceeds to be sufficient for our year-end 2026 regulatory capital requirements, but we'll continue to assess throughout the year. With that, we'll turn the call over for questions. Operator: [Operator Instructions] Our first question will come from Meyer Shields with KBW. Meyer Shields: Great. Thanks so much. Brad, I appreciate all the detail on the prior year reserve development. Can you walk us through what that implies for price adequacy for 2026 for professional financial lines -- I'm sorry, for professional health care? Brad Mulcahey: Meyer, thanks for the question. Yes, we detailed quite a bit on our prior accident year development, changes around in our IBNR in particular. We think we're priced well. We think pricing is coming in above trend. But we do have a couple of pockets that was just normal changes. I don't want to read too much into it. They were actually pretty small changes. So I don't think there's really a pricing impact from it. It's more just taking a conservative approach to the reserving and adjusting where it was warranted, nipping and tucking around the edges, if you will. Meyer Shields: Okay. No, that's helpful. And I guess a question on Baleen. When -- right now, obviously, it's a very, very small percentage. But when -- as it grows, should we think of it as having the same loss ratio characteristics as Casualty? Is it going to be more evenly distributed? That's the wrong way of phrasing it. But when you look at the different segments, you've got different loss ratio profiles there. And I'm wondering how we should think of a mature Baleen in that context? Stephen Sills: I think that -- this is Stephen. I think that the Baleen loss ratio will be superior to the general large casualty business. The -- I'm not as certain as when we get into the Express Casualty business, whether that will probably mirror more of what the larger casualty business is. But the Baleen business, based upon the restricted nature of the coverage, we think that, that will have a superior loss ratio. Meyer Shields: Okay. Fantastic. Operator: Your next question will come from Rowland Mayor at RBC Capital Markets. Rowland Mayor: I wanted to quickly ask on how you translate industry data into the loss ratio picks. I assume you're trying to be better than the industry and your business is much more niche, but how do you kind of get granular on that data and use it in your business? Brad Mulcahey: Yes, Rowland, this is Brad. Thanks for the question. We've been doing this for a couple of years now. Obviously, we don't have enough data on our own to set our picks and development patterns. But we do have a third-party actuary who has very detailed proprietary information that they give us. So this is not Schedule P industry data that we're using. This is something that we can slice and dice, as I mentioned, we don't really have a big Fortune 1000 exposure in casualty, for example. That's given everybody a lot of heartburn. So we're able to tailor these industry benchmarks to our portfolio to an extent. There's only so much you can do, obviously. So -- but we think that the proprietary information that we now have helps us. And looking backwards, it has been pretty accurate with foretelling what is happening in the casualty market and the other markets that we participate in. The development patterns are probably the one that we're starting to see our own data, but I don't know if we can say we have a trend in our data for that. So we are definitely using the industry development patterns. And I think that's adding a little bit more conservatism into our reserves as well. Does that help? Rowland Mayor: Yes. That's super helpful. And then I wanted to talk about the expense ratio target. You're now sub-30. I get there's going to be a step-up in acquisition costs from the deal in May and maybe some first half payroll taxes. But is there a place you're thinking about long term where you can get the expense ratio down to? Brad Mulcahey: Yes. I think we have headwinds with our ceding fee going to American Family, as you point out, but we got a lot of tailwinds in the technology initiatives that we've put in place. We saw halfway through last year, we're starting to see the benefits of those a lot faster than we had thought, surprisingly so. So we're still going to squeeze as much as we can out of this expense ratio. But it is sort of a last year, low 30s. We were happy being in the low 30s, but this is sort of a new paradigm now with some of the tools out there. So hard to say where it will come in, but I think we're comfortable low 30s, and we'll do our best to get it even lower than that. Operator: Your next question will come from Bob Huang with Morgan Stanley. Jian Huang: So my first question revolves around Casualty. I wanted just to follow up with something that you talked about a little earlier. As we -- I think previously, right, you've talked about the undisciplined nature of some of the underwriters, but also the risk of like these eye-watering verdicts from social inflation. As we go into 2026, like is there any sign that pricing environment and excess casualty maybe is beginning to plateau? Is the market significantly offering substantial growth in 2026 and beyond, just given where we are in the underwriting cycle for the casualty side? Derek Broaddus: Bob, this is Derek. I like directionally the limit discipline that we're seeing in the market. I think that's holding pretty well. I would say that there's a lumpy moderation going on. You're seeing some deals, in particular, that are still dealing with adverse development from prior. And then on other deals, you're seeing 5 years of compounded double-digit rate and great loss experience. So you're going to see a little bit of a mix of response from the market for those 2 different types of risks that are coming in. For the most part, though, as Brad said, I think directionally, we're seeing rate exceed loss trend. Jian Huang: Got it. Okay. No, that's very helpful. My second question is more of AI and automation. So when I look at Baleen on the automated underwriting side, is there a reason to believe that at some point in time, the technology on that side is advanced enough that you can essentially disintermediate brokers as in you're going directly to customers for that line of business or maybe even if that line of business gets bigger, like higher limits, can you skip the brokers and going directly to customers? Stephen Sills: In the type of business we do, I don't see that happening anytime soon. I mean, carriers for as long as I've been in the business, have talked about could brokers been disintermediated. At the end of the day, the type of specialty insurance we do is not homogenous. It's not like a family automobile policy or a homeowners policy. There's a lot of complexity to it that I think needs a lot of explaining. And I think the broker brings a lot to the table. And even further than that, the wholesalers play a large role because many of the retailers who are good producers of the business are not experts in the nuances, the ins and outs of some of the specialty insurance. So we don't see that going away anytime soon, number one. Number two, we think the biggest advantage at this time is the speed of being able to get to the business. I think we've mentioned before that close to -- in the casualty space, we don't even have the ability to get to 90% of our submissions that come in the door. It's just -- unless it's a premium that's maybe 50,000 or above, we don't have the resources to handle it. In the next several months, we're going to be getting -- we're going to be able to get our system online in Express where we'll start to be able to handle that business. So it's a matter of being a great underwriter assist in doing the business to help us grow profitably. But the idea of disintermediating is not on our radar. Operator: Your next question will come from Pablo Singzon with JPMorgan. Pablo Singzon: So first question for Brad. How much did mix contribute to the 1.8% [ attritional ] loss ratio uptick at '25? I think about '26, the reed loss pick should flow through at the same level. So if we use 66.7% in '25 as a base, how would you sort of frame the impact of any mix impacts in '26? Brad Mulcahey: Pablo, thanks for the question. I don't really have an answer for that yet. You're right, we will use our '25 loss picks as sort of the starting point for 2026. But that doesn't mean it's set in stone at that level. We'll review these every quarter. And if we need to make changes, we will based on rate or anything else we're seeing or the industry changing as well. I think there is a -- we're probably reaching like the upper limit of how much mix plays into it as you see the casualty portfolio is such a bigger portion of the overall premium. But even with that -- within Casualty, there's mix. So the primary casualty has a different loss pick from excess, for example. So there's mix within mix, if you will, and we just kind of have to see how that plays out. I wish I could give you a more precise number for next year, but that's the best I have. Pablo Singzon: Okay. And taking a step back, right, and I appreciate, Brad, you provided a lot of detail on the combined ratio. But I guess as I think about the overall number, it seems to me that all else equal, maybe the loss ratio should go up a bit, right, maybe for mix, acquisition expense will probably go up. And the question is, do you expect to fully offset those with a lower expense ratio? Or will it offset be only partial? And I know that's spitting hairs, but I guess just given where combined ratio is, even a 50 bps movement can be meaningful. So any perspective you can provide there? Brad Mulcahey: Sure. I guess -- and Stephen, feel free to jump in. But I think the way that we approach this is we will try to get as low of an expense ratio as we can regardless of where the loss ratio is going. And we will let the loss ratio do what it does based on how we feel comfortable with our reserves regardless of what the expense ratio is doing. So hopefully, those 2 come together, and there will be some offset if the loss ratio does trend up. We do have the benefit of older accident years that have lower loss picks. As those roll off, each year, you will see that impact the loss ratio. So I think that's why we're saying our target is the mid- to high 60s on the loss ratio. But I wouldn't read too much into that being a huge increase, but that's probably where I would stand on that. Stephen Sills: Well said. Operator: Your next question will come from Cave Montazeri with Deutsche Bank. Cave Montazeri: First question is on Baleen. It looks like growth is picking up nicely after what was arguably a slower-than-expected first half of the year. So I guess my question is, what's been working so well in the second half of 2025? And how should we think about growth in 2026 for Baleen specifically? Stephen Sills: Well, part of it has to do with acceptance that there are certain entrenched markets and with relatively small premiums of, say, $5,000, there is not a ready acceptance to market them. So there's a certain amount of hanging around the net, if you will, and continuing getting our message out to brokers of what we're offering, how our policy form compares, how our commission level compares our service level, all those things and ultimately getting the message through until people start to try us, and it becomes more and more accepted. And now as it starts to build, we've started to put more infrastructure behind it in terms of people -- more people going out and speaking to brokers about the business. And then success breeds success. They see that what we've done has -- it's been worth the effort to try us, and they're trying us more. And with adding more marketing people, we've been able to add more distribution points, and that's still building on itself. But also even beyond Baleen, and we tried to make this clear earlier, but even beyond Baleen, building on that technology is enabling us to do that smaller business, not the restricted type business of Baleen, but the smaller business that we call Express, which is going to be another real plus, I think, in '26. Does that help? Cave Montazeri: Second question -- my second question is for Brad. On the investment portfolio, it's good to hear that you can increase the duration from 3 to 4 years. With your new money yield being below the book yield, would you also consider maybe going up the risk curve? You have a very defensive portfolio right now. Brad Mulcahey: Yes. Thanks for the question, Cave. The answer is no on that one. When we discussed moving our duration up, we explicitly kind of agreed that we're not going to change the risk profile of the portfolio. We like the conservative position in it. Operator: Your last question will come from Cameron Bianchi with Piper Sandler. Cameron Bianchi: This is Cam on for Paul Newsome. Just one question for me. On the lower expense ratio guide for 2026, how much of that improvement would we say is attributable to scale versus mix? Brad Mulcahey: Yes. Good question. I think the -- our previous guidance of low 30s, that was scale. I think the new guidance of being below 30%, that's the impact of the technology. And it's not just technology in the digital platform as well. There's -- we're deploying technology on the craft business as well that's helping with efficiencies. Our claims team is getting more efficient. So we're really seeing that across both. So I'd say the difference between the low 30s and where we actually end up would be that the impact of the non-scaling of the business, if you will. Operator: That concludes the question-and-answer portion of today's call. I will now hand the call back to Stephen Sills, CEO, for closing remarks. Stephen Sills: Thank you. Bowhead delivered another strong quarter to end a great year. Before we go, I wanted to say thank you again to our colleagues and brokers for making 2025 such a successful year. Thank you, and we look forward to speaking to you along the way. Operator: Thank you for joining today's session. The call has now concluded.
Operator: Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Apellis Pharmaceuticals Fourth Quarter and Full Year 2025 Earnings Conference Call. Please be advised that today's call is being recorded. I will now turn the call over to Eva Stroynowski, Head of Investor Relations. Please go ahead. Eva Stroynowski: Good morning, and thank you for joining us to discuss Apellis' Fourth Quarter and Full Year 2025 financial results. With me on the call are Co-Founder and Chief Executive Officer, Dr. Cedric Francois; Executive Vice President of Commercial, David Acheson; Chief Medical Officer, Dr. Caroline Baumal; and Chief Financial Officer, Tim Sullivan. Before we begin, let me point out that we will be making forward-looking statements that are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. Now I'll turn the call over to Cedric. Cedric Francois: Thank you, Eva, and thank you all for joining us this morning. Before turning to our fourth quarter results, I'd like to briefly reflect on the progress Apellis made over the course of 2025. It was a year of disciplined execution and foundation building for our company. We strengthened our commercial franchises, advanced key programs across our pipeline and continued to demonstrate the value of our differentiated C3 approach, all while maintaining a strong balance sheet and a clear focus on long-term value creation. These foundations position us well as we move ahead with clear priorities centered on execution, growth and unlocking the next set of value-creating inflection points for Apellis. At our core, Apellis is a company focused on complement biology, specifically targeting C3, the central hub of the complement cascade. By intervening at this central point where all complement pathways converge, we take a fundamentally different approach that enables comprehensive disease control at the root cause while preserving essential immune function. This strategy continues to differentiate us scientifically and commercially and positions us to address a broad range of serious complement-driven diseases. Our 2026 focus remains anchored in our 3 strategic pillars. First, strengthening SYFOVRE's leadership in geographic atrophy. Second, driving growth with EMPAVELI across rare kidney diseases. And third, advancing an innovative pipeline that underpins our next wave of growth. Starting with SYFOVRE. SYFOVRE continues to be a resilient and durable business. In 2025, we delivered steady growth in total injections, and we expect SYFOVRE to remain a stable and meaningful revenue stream through 2026. Last month, co-pay assistance programs at third-party organizations began reopening to new patients. While we do not have visibility into how activity may ramp over time, we are encouraged that patients may be able to gain access to treatment. Looking ahead, we are advancing key initiatives to lay the foundation for accelerated growth in 2027, including a best-in-class prefilled syringe, and OCT-F, our AI-enabled approach to visualize the functional benefits SYFOVRE can provide for patients. Together, these initiatives are designed to make treatment more tangible, improve workflow and support broader adoption over time. Turning now to our second pillar, EMPAVELI. EMPAVELI is our near-term growth engine, and its launch trajectory reinforces our confidence in its long-term value. Following FDA approval in July for patients with C3G and primary IC-MPGN, the launch has progressed fully in line with our internal expectations, reflecting strong execution and early market receptivity. After its first full quarter on the market, EMPAVELI achieved more than 5% market penetration, significantly outpacing other rare nephrology launches. We continue to receive outstanding feedback from the community, with growing appreciation of EMPAVELI's value proposition following the publication of our data in the New England Journal of Medicine. We believe EMPAVELI's strong efficacy and safety profile will continue to drive adoption, and that over time, it has the potential to be used by up to 50% of the estimated 5,000 U.S. patient population. Lastly, our third pillar, which is our innovative pipeline. In nephrology, we are building on the momentum of EMPAVELI and expanding the franchise into new indications with pivotal trials now underway in focal segmental glomerulosclerosis and delayed graft function. In geographic atrophy, we are further bolstering SYFOVRE's leadership through our next-generation strategy, combining SYFOVRE with APL-3007, designed to enhance efficacy, patient experience and further differentiate our offerings. We are also excited to advance APL-9099, our category-defining FcRn program. This first-in-class base editing approach has the potential to disrupt a multibillion-dollar market and enable a one-and-done treatment paradigm across multiple indications. These programs reflect the breadth, strategic depth and long-term ambition of our pipeline. With a strong balance sheet and a growing commercial revenue base, we are well positioned to self-fund our pipeline and drive long-term value through disciplined financial execution. And with that, I will now turn the call over to David for an update on our commercial performance. David Acheson: Thank you, Cedric, and good morning, everyone. I'll begin with SYFOVRE. As Cedric highlighted, 2025 reinforced that SYFOVRE is a resilient and durable business. While full year revenue was modestly down compared to 2024, largely due to elevated use of free goods, the underlying demand remains strong with total injections growing approximately 17% year-over-year. SYFOVRE continues to lead the GA market. Physicians and patients value its differentiated profile, including robust efficacy and the flexibility of dosing as few as 6 times per year. Payer coverage remains strong with preferred status across a broad range of plans. As the GA market continues to evolve, we see meaningful opportunity for SYFOVRE and are focused on 3 priorities to support continued expansion and long-term growth. First, sharpening our field engagement through physician segmentation, refined messaging and a greater emphasis on early career retina specialists. Second, reinforcing our data leadership in GA. SYFOVRE is supported by the most extensive clinical and real-world evidence base in the category, anchored by 5-year GALE data; and third, advancing innovation with a best-in-class prefilled syringe and OCT-F. Together, these initiatives are foundational to supporting broader growth in 2027 and beyond. Turning to EMPAVELI. We are very pleased with the progress in C3G and primary IC-MPGN launch with early uptake fully consistent with our expectations. Following its first full quarter post launch, EMPAVELI achieved more than 5% market penetration. This level of early adoption is particularly notable in nephrology, a specialty known for conservative prescribing behavior and high evidentiary thresholds. As of year-end 2025, we received 267 cumulative patient start forms, reflecting strong early demand and a growing patient pipeline. Demand is being driven by broad engagement across the nephrology community and supported by favorable payer access with 95% of published policies reimbursing to label or with minimal restrictions. Physicians consistently highlight EMPAVELI's compelling efficacy profile, along with the convenience and ease of use of its on-body auto-injector and twice weekly dosing. With its broad label, EMPAVELI is the only approved therapy for approximately 2/3 of patients with C3G and primary IC-MPGN in the U.S. As the launch has progressed, we have expanded meaningfully across prescriber community, increasing both the breadth and depth of engagement. Over time, physicians are gaining experience in treating additional patients, reflecting growing confidence as the launch matures. Importantly, this execution has translated into strong patient pipeline. Early identification and engagement efforts over the first 6 months have positioned us well for continued growth, and we remain focused on broadening and deepening that pipeline as the market develops. As we look ahead, our 2026 launch priorities are focused on 3 clear areas: first, strengthening the patient identification through targeted medical education to both improve diagnosis and drive urgency around earlier treatment. Second, expanding engagement with prescribing physicians. We began the launch with a disciplined focus on our top 20 accounts, which represent more than 30% of the overall market and have accounted for approximately 1/3 of patient start forms. We are now systematically broadening engagement across additional tiers through targeted field activity and peer-to-peer education. And third, deepening adoption across patient segments. We continue to see strong interest from pediatric and post-transplant patients with growing opportunity in the adult population as the treatment paradigm shifts and clinical practice continues to evolve. Overall, the launch is progressing very well. We entered 2026 with strong momentum, and we believe that strength will continue through the year with some quarter-to-quarter variability. We believe EMPAVELI is on a clear trajectory to blockbuster status and that it could ultimately be used by up to half of U.S. C3G and primary IC-MPGN patient population. With that, I'll turn the call over to Caroline. Caroline Baumal: Thanks, David. I'll begin with SYFOVRE. As the only approved therapy that targets C3, SYFOVRE addresses the central biology driving geographic atrophy, which continues to differentiate its clinical profile. In the fourth quarter, we announced new 5-year data from a post-hoc analysis of the GALE extension study, which showed that SYFOVRE delayed progression of geographic atrophy by approximately 1.5 years in patients with nonsubfoveal GA when compared to sham or projected sham. We look forward to presenting the full 5-year data set at the Macula Society later this week as one of our 8 oral presentations at the conference. Looking ahead, we are advancing 2 initiatives designed to support clinical decision-making and real-world use. First, our prefilled syringe intended to improve efficiency in retina practices. The clinical study is complete, and we are working toward a regulatory submission in the first half of this year. Second, we continue to make important progress with functional OCT, our AI-enabled approach to visualizing functional benefit in GA. We recently shared data at the Angiogenesis meeting earlier this month and plan to make the tool available for research use in retina practices in the second half of this year. In parallel, we continue to advance the Phase II study of SYFOVRE in combination with APL-3007 as a next-generation approach designed to more comprehensively block complement activity in the retina and choroid. We expect to share top line data in 2027. Now turning to EMPAVELI in C3G and primary IC-MPGN. Physician feedback and the recent New England Journal of Medicine publication continue to reinforce EMPAVELI's differentiated profile. As the only C3 targeting therapy, EMPAVELI has demonstrated the trifecta of efficacy outcomes with direct clearance of C3 deposits translating into reduced proteinuria and stabilization of kidney function. These data reinforce our confidence in EMPAVELI's mechanism and its potential to redefine treatments in complement-mediated kidney disease. We also recently initiated pivotal trials with EMPAVELI in FSGS and DGF, 2 additional high unmet need kidney indications. Both conditions are strongly linked to complement activation and currently have no FDA-approved therapies. Finally, I'll briefly touch on APL-9099, our FcRn program. This first-in-class base editing approach is designed to reduce IgG levels while preserving albumin, which we believe addresses important limitations of existing FcRn therapies. We expect to submit an IND in the second half of this year and look forward to sharing more details as the program progresses. With that, I'll now turn the call over to Tim. Timothy Sullivan: Thank you, Caroline. I'll now walk through our financial results. Additional details are included in this morning's press release. Total revenue for the fourth quarter and full year 2025 was $200 million and $1 billion, respectively. As a reminder, full year 2025 revenue includes the onetime $275 million upfront payment from the Sobi royalty repurchase agreement. We reported SYFOVRE net product revenue of $155 million for the fourth quarter and $587 million for the full year 2025. During the fourth quarter, we delivered approximately 102,000 SYFOVRE doses to physician offices, including approximately 89,000 commercial doses and 13,000 free goods doses. As previously discussed, reported revenue was meaningfully impacted due to elevated free goods utilization through 2025. Looking ahead, we remain committed to supporting patient access while recognizing that free goods utilization may evolve over time as third-party programs resume activity. Turning to gross to net. SYFOVRE adjustments in the fourth quarter trended just above the mid-20% range. In 2026, we expect gross to net to be in the high 20% range, reflecting the normal step-wise evolution of the buy-and-bill market. Importantly, based on our current pricing strategy, we expect net price to remain relatively stable through 2026, and we remain confident in our access position. As we exited 2025, we took a disciplined approach to inventory management, and we are comfortable with the current channel levels. We, therefore, expect a modest inventory reduction in the first quarter alongside typical seasonal dynamics, including Medicare reverifications. Overall, SYFOVRE remains a meaningful and durable foundation for Apellis. In 2026, we are focused on disciplined execution while advancing initiatives that position the business for renewed growth in 2027 and beyond. Moving to EMPAVELI. We reported U.S. net product revenue of $35 million for the fourth quarter and $102 million for the full year 2025. As David noted earlier, the launch continues to progress very well. And based on current trends, we believe EMPAVELI is on a clear path to blockbuster status. For operating expenses, we continue to maintain a highly disciplined approach to cost management. Operating expenses were $251 million in the fourth quarter compared with $239 million in the same period last year. For the full year 2025, operating expenses were in line with our expectations and consistent with 2024 levels. In 2026, we expect operating expenses to be modestly higher with incremental investment in the newly initiated pivotal trials for FSGS and DGF as well as certain milestone payments, largely offset by a decrease in SG&A, reflecting ongoing operating efficiency and resource optimization. We ended the year with $466 million in cash and cash equivalents, which we believe provides us with substantial flexibility and the resources to fund the business to profitability. As a reminder, Sobi recently received European Commission approval for Aspaveli in C3G and primary IC-MPGN, which triggered a $25 million milestone payment to Apellis during the first quarter of this year. We also remain focused on prudent capital structure management. We have approximately $94 million of convertible debt outstanding, which matures in September of this year, and we are actively evaluating a range of alternatives to address this obligation in a thoughtful and disciplined way. And with that, I will now turn the call back over to Cedric. Cedric Francois: Thank you, Tim. As we move through 2026, our priorities are clear. We are focused on disciplined execution across our commercial portfolio, advancing initiatives that support long-term growth and continuing to deliver meaningful impact for patients. EMPAVELI is gaining traction in C3G and primary IC-MPGN, while SYFOVRE provides a durable foundation as we position the franchise for its next phase of growth. Supported by a strong balance sheet and financial rigor, we are operating from a position of strength and remain confident in our ability to create durable value for patients and shareholders. And with that, I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jon Miller of Evercore ISI. Jonathan Miller: On the progress throughout '25. I'd like to use my one question to ask about EMPAVELI launch as we get into '26. You mentioned opening to broaden the accounts there and improve patient identification, diagnosis and all of that. But I noticed that one of the things that you didn't mention when you were listing the indications where there was strong growth potential was IC-MPGN, where obviously you have a differentiated label, but historically, it's been a little bit more challenging to find those patients. Can you talk a little bit about the breakdown of different indications throughout 2026, where you think the low-hanging fruit is, where we can see real growth in the near term and what it will take to break open some of those indication subsets that are a little bit tougher to diagnose and get on treatment? Cedric Francois: Thank you so much, Jon, and great hearing you, and thank you, everyone, for joining. So EMPAVELI is on a clear path to blockbuster status. And as you correctly outlined, John, there's not just IC-MPGN, there's also the fact that in the VALO study, we studied EMPAVELI in the pediatric population as well as in a post-transplant setting as well. Now specifically as it relates to IC-MPGN, we believe that the epidemiology in total between the 2 indications is approximately 5,000 patients in the U.S., split more or less 50-50 between those 2 indications. While we're not providing exact breakdowns as to where in the population, things sit at the moment, it is worth noting that in the pediatric population, the IC-MPGN in the post-transplant segment, we see important pickup and differentiation. And that, of course, contributed to achieving more than 5% penetration after the first full quarter in Q4 and contributes to our confidence of reaching up to 50% of those 5,000 patients at peak. Jonathan Miller: But I guess if you're going to see 50% penetration at peak and IC-MPGN is 50% of the U.S. population, I guess I'm asking, are you going to see equivalent penetration across those different subpopulations, those different subindications by the end of the day? Or are there places that are going to remain more difficult to penetrate? Cedric Francois: It's a little early to say that exactly, I think, at this moment in time. It's also important to note that there's quite a bit of overlap between these 2 indications. There's not kind of a hard separation between them in the sense that you can have a patient with a biopsy one day that is more leaning towards C3G and on another biopsy can mean more towards IC-MPGN, which is why it is so important to have covered all phenotypes of the disease -- of these diseases in the clinical trials that we ran. So it's a little bit too early to provide more specifics on that. Operator: Our next question comes from the line of Anupam Rama of JPMorgan. Anupam Rama: For SYFOVRE, you've got the 5-year GALE data this Friday that you guys highlighted. What would you have us focus in on within these data? Cedric Francois: Thank you so much, Anupam. Well, the important benefits and the continued safety profile that SYFOVRE provides to patients with geographic atrophy, right? So it is by far the largest data set ever generated in geographic atrophy. And what we found through the course of following these patients for a full 5-year period is that patients who are on treatment for 5 years can save as much as 1.5 year of tissue. So as I think you can appreciate, that's an enormous benefit to 70- or 75-year-old individual who obviously, in the twilights of their lives depends so much on their vision. So we're incredibly proud and incredibly happy with the data that we have generated and look forward to presenting it on Friday. I don't know, Caroline, if you would like to add something. Caroline Baumal: Thank you, Cedric. I think what will be meaningful for retina physicians is that we have this extended trial with 5 years of data that we continue to show increasing effects over time and that retina tissue can be meaningfully saved. And these findings might lead to earlier treatment for patients with geographic atrophy. So we really look forward to presenting this data. Thank you. Operator: Our next question comes from the line of Tazeen Ahmad of Bank of America. Tazeen Ahmad: I maybe wanted to follow up on that 50% penetration for EMPAVELI. How long do you think it's going to take to reach that? I know that a big point of discussion among investors is like the ramp of your launch. Is it going to be more steady? Or could it accelerate and become more steep? So any thoughts you can provide on patient finding efforts and what you think realistically the time to onboard patients will take? That would be helpful. And then can you just talk about what the competitive dynamics are so far relative to how doctors are viewing EMPAVELI versus FABHALTA? What are the types of patients that they might still be waiting to see if EMPAVELI might be better than relative to FABHALTA? Cedric Francois: Thank you so much, Tazeen. Well, as it relates to the ramp, I think you correctly outlined that we should expect steady ramp and steady growth as is quite typical in rare diseases. And again, I think we have seen that happen in the past couple of months and expect that to continue to be the case. Competitively, as already outlined when Jon asked the question, there is kind of the clear differentiation that we have and kind of the unique positioning without competition right now in the pediatric segment as well as in IC-MPGN -- that is, of course, a huge advantage. Also in the pediatric population, I think the disease tends to progress more quickly. And what you see in the field based on what we have seen since the launch is that the appreciation for the efficacy and safety profile of the drug really stands out. Also in the post-transplant segment, of course, that is a very important place. Most -- majority of patients with these diseases will have a relapse because this is a genetic condition at the end of the day. Operator: Our next question comes from the line of Timur Ivannikov of Cantor. Timur Ivannikov: This is Timur on for Steve Seedhouse. For EMPAVELI launch, I think you mentioned strong momentum in C3G in 2026 with quarter-to-quarter variability. Could you talk about some of the variability factors? And do you expect to provide start forms again at some point or any other form of guidance? Cedric Francois: Thank you so much, Timur. I will hand that question over to David Acheson. David Acheson: Hope you're doing well. Thank you for the question. So on the variability, it's just -- it's ultra-rare disease. I think it's important to note that you'll see an influx of potential patients coming in on start forms. That does vary week over week, month over month. So I think it's just something that we need to pay attention to. But I feel very good about the momentum that we came into 2026 with -- from the launch last year on the strength of the product and the patients that we're getting on the brand, which is very positive. And can you repeat the second part of your question for me? Timur Ivannikov: Yes. I was just wondering about the start forms or any other type of guidance for the product? David Acheson: Yes. So moving forward, we continue to report on revenues for sure and start forms, but we're not going to give any additional guidance on start forms that we had in the third to fourth quarter. Operator: Our next question comes from the line of Yigal Nochomovitz of Citigroup. Yigal Nochomovitz: Could you talk a bit about the prefilled syringe? I just want to get a sense of how much it matters for the retina docs in terms of the practice flow and efficiency. And when you say renewed growth in 2027 for SYFOVRE is the driver behind the statement, the launch of the PFS. And then more specifically on the practice dynamics, since the space is very limited for the physicians, for the fridges to store the drug, is there an advantage to the PFS in terms of practice dynamics in storing the drug with that presentation? Cedric Francois: Thank you, Yigal. Those are excellent questions, and the PFS will make a huge difference for us. And we have, of course, our Chief Medical Officer with us here, Caroline, to speak a little bit more towards that. Caroline Baumal: Thank you. So the prefilled syringe is really a practice-enabling innovation, and this is going to offer convenience and efficiency to retina physicians. And from my experience as a clinician and also from being heavily involved in development of our prefilled syringe, this is going to support the ease of clinical use in patients with geographic atrophy. So we really think that this is going to be transformative for physicians and their patients. When it comes to specifics about the design, I think that retina physicians put their input heavily into how we design this, including the box, the complete package, and we'll be very, very pleased with how it fits into the refrigerators. We also have some other things that will be helping be transformative for SYFOVRE with renewed growth, and that's functional OCT, which was mentioned in the call. Operator: Our next question comes from the line of Salveen Richter of Goldman Sachs. Salveen Richter: I was wondering if you could provide any further color on the recent improvement in co-pay dynamics for SYFOVRE and how you think about the quarter-over-quarter cadence of sample use and kind of the sales trajectory as you input this into your trajectory? Cedric Francois: Thank you so much, Salveen. Tim, can you elaborate? Timothy Sullivan: Sure. So as you probably saw, Salveen, the Patient Assistance Organization is open for reimbursement for co-pay assistance with geographic atrophy patients. At this time, we don't really have any sense of what that means in terms of dynamics from a free goods perspective. As you'll recall, last year, we had 12% to 14% fluctuating on a quarterly basis. But really, what this represents is an important advance for the patients who have been unable to pay for their treatment in geographic atrophy. Operator: Our next question comes from the line of Colleen Kusy of Baird. Colleen Hanley: Congrats on all the progress. I realize for the nephrology Phase III studies are just recently coming up and running now, but any color you can provide on the expectations for enrollment there? Do any of these centers have preexisting experience with EMPAVELI? Just how that enrollment might pan out. Cedric Francois: Thank you so much, Colleen, for that question. So we're very excited about these 2 Phase III clinical trials in FSGS and DGF, where we think EMPAVELI's potential can make a huge difference as it did in C3G and IC-MPGN. It's a little bit early to give projections on what the enrollment will look like, but the excitement around kind of continuing the trajectory in the kidney is very strong. What really stood out from the VALIANT study is the exquisite target engagements and the control of the complement pathways that we see in the glomerulus, which we believe will translate in a similar efficacy profiles in these conditions. Operator: Our next question comes from the line of Phil Nadeau of TD Cowen. Philip Nadeau: We wanted to focus on SYFOVRE revenue trends for Q1 and 2026. Tim, putting your comments together, it sounds like you expect typical seasonal factors. For Q1 last year, sales were down $37 million quarter-over-quarter in Q1 '25 versus Q4 '24, although there was a big impact of free product in that downtick. So how will the seasonal factors in Q1 of '26 compare to Q1 of '25? And then more generally for 2026, it sounds like you guys are suggesting relatively stable revenue for SYFOVRE. So I want to make sure I understand that we should be modeling something, full year 2026 similar to full year 2025? Timothy Sullivan: Sure. So yes, I think the one thing to remember, there are a couple of seasonal dynamics in the first quarter, one of which we tried to manage a little bit. So as you'll recall, last year, we had a fourth quarter spike in revenue that was as a result of some inventory build across the channel. So that included at the physician offices as well as the distributor. We really did our best to manage that this year. So we think there may be a bit of a modest swing in the first quarter, but much more muted than last year. We also typically have some seasonal dynamics like weather and reverifications in the first quarter. So bearing that in mind, we think across the year, that's the main seasonal quarter for us. There is a little bit at the end in the fourth quarter. But as you rightly point out, we expect sort of a modest cadence to growth over the course of the year. Operator: Our next question comes from the line of Annabel Samimy of Stifel. Jayed Momin: This is Jayed on for Annabel. I just want to revisit the SYFOVRE doses delivered. It was flat quarter-over-quarter, I think you mentioned due to some seasonality. But there was an improved split favoring commercial doses. Agnostic of the pay -- the co-pay assistance funds coming back, do you expect that split to be more favorable towards commercial doses going forward in 2026? Timothy Sullivan: Sure. So thanks for the question. So what we really felt happened in the fourth quarter was a touch of seasonality. When you look at the amount of doses we had, it was 89,000, and sort of there are roughly 90 days in a quarter. We had a couple of a longer holiday stretch that may have impacted things. So it was really not a significant change from a commercial doses perspective in the context of that seasonality in our view. But from the free goods perspective, we saw a range of 12% to 14% over the course of 2025. That bounced around. And so this was, I think, pretty much in line with what we expected in the fourth quarter. As you may recall, sometime in the third quarter, the patient co-pay assistance organization was open for existing patients, and that may have led to a small downtick in the total free goods in the fourth quarter, but it's really hard to say. Operator: Our next question comes from the line of Ellie Merle of Barclays. Eliana Merle: Two for me. I guess, what are you looking to see in the Phase II data, SYFOVRE in combo with APL-3007 next year? And how you're thinking about what would be meaningful there? And then just a clarification on the C3G IC-MPGN comments. The 50% penetration that you mentioned, I'm sorry if I missed this. But I guess, is this the base case that you'll treat 50%? Or are you saying that half the population will become challenging to treat? Just trying to understand that 50% comment. Cedric Francois: Thank you, Ellie. Great hearing you. So the GALLOP study is a study we're really excited about. What we do there is a subcutaneous injection with an siRNA product against C3. And that lowers the systemic levels of C3 by approximately 90%. What that does is it translates to actually a lowering of the C3 levels in the eye as well. And it gives a stchiometric advantage to SYFOVRE to do its job. We believe that this study, if successful, will allow us to treat every 3 months instead of every 2 months, and to increase the efficacy, which is already important, of course, from SYFOVRE to numbers well above that. What well above that means, we will define at a later time point. But I think, again, kind of really, really exciting study for us, where I think we can again change the paradigm in geographic atrophy as we have done before. As it relates to the C3G and IC-MPGN population, so we said we believe that up to 50% of the epidemiology would be patients that could end up being treated with EMPAVELI. What I think is important in that context is, again, that we -- I think we're very good at having a conservative estimate of the epidemiology for C3G and IC-MPGN. It is noteworthy that our only competitor in this space has an epi that is meaningfully higher. And the fact that we have more than 5% penetration in the fourth quarter, which means that we had a very, very strong launch, among the strongest launches in rare diseases. And maybe a conservative epi on our side or a combination of both. So again, we feel very good with where EMPAVELI is headed with what we did in Q4 and the trend that we continue to see as this launch progresses. Operator: Our next question comes from the line of Lachlan Hanbury-Brown of William Blair. Lachlan Hanbury-Brown: I guess for EMPAVELI, you've previously talked about there being an initial bolus of patients and then it sort of settles down into more of a steady state, monthly or quarterly growth in new patients. I'm wondering, sort of where are you at that? Are you through that bolus and into the steady state now? Or are you still working through some of that initial bolus of patients that you're expecting? And maybe you reach steady state later this year? Cedric Francois: Yes. Thank you, Lachlan. I will hand that over to David Acheson to answer. David Acheson: Thanks for the question. So yes, like we talked about last year in the Q3 launch through Q4, that bolus of patients typically hits early in the launch and get on product shortly after the launch. And we saw that happen in the fourth quarter. So -- which was great to see. Now we're at that steady state place that we talked about in prepared remarks and what Cedric mentioned in the opening portion of some of the questions here. So I would be confident in the continued steadiness of what we're going to see moving forward. Operator: Our next question comes from the line of Judah Frommer of Morgan Stanley. Judah Frommer: Maybe just one on the commentary around the ability to fund yourselves through to profitability. Just curious how pipeline could impact the timing and trajectory of that, specifically maybe 9099 and 3007, what are the pushes and pulls there that could move that profitability closer or further out? Timothy Sullivan: Yes. Thank you, Judah. That's a great question. At least for the moment, we've incorporated all of that into our thinking when we talk about the fact that we may have a small increase in total operating expenses this year, as you'll see in 2024 and 2025, it was pretty flat overall. We have a -- may have a solid increase over the course of this year with the -- our FSGS study and our DGF study really ramping up and then some of these new programs that you mentioned like the Beam program coming online towards the end of the year in terms of potential larger cost structure. But ultimately, we've been pretty good about managing our operating expenses, and it really comes down to the revenue growth that will make that happen. We look at the world at least today from an operating expense and net revenue perspective. And if you look, taking -- adding back stock-based compensation, we've been pretty close to an operating adjusted EBITDA neutral level over the last year, and we expect that to come more into focus over the course of this year. Operator: Our next question comes from the line of Douglas Tsao of H.C. Wainwright. Douglas Tsao: Just on SYFOVRE, David, just a couple of questions. I think you indicated there was sort of an initiative to help patients sort of end up on the right plan which sort of improves their coverage of SYFOVRE. I'm just curious sort of as you come into the new year, if you've sort of seen meaningful progress on that. And then also, I'm just curious in terms of the free goods, are you seeing those patients sort of typically sort of get dosed with free goods and then they see that they can't get covered or can't get patient assistance and drop off? Or are you seeing sort of a persistence of it? I'm just sort of trying to understand that in terms of understanding sort of how patients are coming in and sort of identification for the market. Cedric Francois: Thank you, Doug. David will answer the question on SYFOVRE, and I will -- the first question, and I will then talk a little bit about the free goods. David Acheson: Doug, thanks for the question. So on the reverification piece and just kind of patients coming over on insurance plans and what we did last year. So we put a lot of effort in last year with our field reimbursement team to make sure that we can help offices get educated on which plans would be specific to patients that have a gap, right, where they couldn't get covered for a geographic atrophy treatment or specifically, SYFOVRE. So we did a lot of work on that. Our Apellis Assist, which is our hub, has also been integral and playing a part of making sure education to both the patients and the offices during the reverification period of their insurance, which happened in the fourth quarter coming into this year, helps them understand where they've got opportunities for benefit -- for treatment for benefit and payment. And all of that happened coming into this year. And I can tell you, the reverification process is winding down. It's been relatively smooth. I cannot tell you how many patients actually changed plans or moved over. But we did what we could to continue to educate so people had access to additional information. And I'll hand it back over to Cedric. Cedric Francois: Thank you, David. Well, as it relates to the free goods, I kind of want to highlight something that is really important, and that is that in 2025, we made a deep commitment as a company to support the retina practices to deal with, at the end of the day, a lot of patients being in a position where they could not afford the co-pay on their products and to make sure that these patients would not go without treatment, right? So that is our medical commitment to patients, and that is what we did throughout the year last year, but we will always continue to do when it is needed. So that is really important and will continue to be important for us. I think within the context of next year as well, I think it is hard to overstate how impactful the disruption was on the workflow in the retina practices when this occurs, right? So that is something that needs -- had to find a new place of settlement that was important. And during that period, there was inevitably kind of, I would say, a lowering of how many new patients would come on treatment with geographic atrophy because within these retina practices, that is easy to essentially punt, right? So that dynamic is also something that you should expect to see change over time. I think what is really important and gratifying to see right now is that within the retina world, we're starting to find a new cadence and a new place of stability after what was a very difficult year for these physicians and patients. Douglas Tsao: Great. And it's great to hear about the commitment to providing drug to patients. Operator: Our next question comes from the line of Derek Archila of Wells Fargo. Derek Archila: You made some comments on kind of the patient pipeline for EMPAVELI in C3G and IC-MPGN. And I guess, what level of visibility do you have there? Is it as granular as understanding where the patients are at certain sites, outreach of those patients? And then just a second question on PFS. Just kind of curious, is it more of expand the market? Or is it also share gains against the other competitor? Cedric Francois: Thank you so much, Derek. Well, first of all, as it relates to the pipeline, I think that is one of the most -- one of the more gratifying aspects of the launch that we have seen. First of all, of course, there was the epidemiology, which, as you all know, was difficult to estimate and feeling that we really kind of hit the bullseye in terms of estimating that and arguably conservatively estimating that. Then, of course, the very good -- one of the best rare disease launches that we are having in the kidney here with that penetration within the first full quarter. But then, as you mentioned, also the pipeline. So if you take the number of patients that we actually identified, which then flow into start forms and from start forms into being on treatment, that upstream pipeline today is larger than it was before the launch. In spite of course, many of these patients now having transitions to start forms and being on full treatment. So that tells us that, again, we got the epi rate. We continue to identify these patients and why we expect this launch to be one of steady growth. And then as it relates to your second question with the prefilled syringe, I think it will be a very important driver of share. We have plenty of examples from the wet AMD space with anti-VEGF products, where it has been proven over and again that having a prefilled syringe on the market makes a very important competitive advantage for a product. That is one that we are working towards. Of course, we expect our competitor at some point to come out with a prefilled syringe as well. But right now, we have a head start that we're very happy with and that will allow us to position ourselves well. As it relates to share, it will also make a difference. The fact that you fit better into the workflow of the retina practice makes it much easier for physicians to treat these patients. Makes it also much easier, quite frankly, for physicians to just try the products, right? I mean, it is not -- instead of taking something, having to draw it from vial in -- through a filter needle into a syringe, et cetera, you take it out of the fridge and you try it, right? So important differences, and I don't know, Caroline, if you want to elaborate on that, but we're very pleased with where we are. Caroline Baumal: Yes. This is a real innovation, and this will be highly meaningful to physicians to have this way to treat their patients efficiently. So I speak from my personal experience and what I've heard from colleagues that I think that this will help to expand the market for geographic atrophy. Cedric Francois: Thank you, Caroline. And worth noting is that the prefilled syringe that we have from a CMC perspective, from a quality, from -- is absolutely has been spectacular for us and outpaced our own high internal expectations. We're really happy not just with the pace at which we're bringing into the market, but also with the quality of the prefilled syringe. Operator: Our next question comes from the line of Ryan Deschner of Raymond James. Unknown Analyst: This is Anthony on for Ryan. So we wanted to ask, can you walk us through how retina specialists can potentially use OCT-F in their practices, how this could increase the size of the GA market? And then if you have like an approximate time line for when you anticipate having appreciable amounts of real-world OCT-F data for analysis? And if possible, I have a follow-up. Cedric Francois: Thank you so much, Anthony. Well, we're touching on Caroline's favorite subject here. So for those on the call not familiar with OCT-F, OCT-F is functional OCT, and it is a technology that we developed in collaboration with University of Bonn in Germany, where we used our -- what is the largest data set of microperimetry data ever generated in the retina, where we use that technology to essentially take an OCT and translate an OCT image into what a real functional mapping of the retinas. In other words, what is the retinal sensitivity in the patient across the retina. And what really stands out when you analyze patients with geographic atrophy over time is the impressive loss of retinal sensitivity that these patients experience. And from a timing perspective, what you should expect to see this year -- and it started at Angiogenesis 2 weeks ago -- is that we will redefine for retina specialists and for family members of patients, what it means to have this disease. And why is this so important? Because right now, a lot of people believe that geographic atrophy happens on the border of a lesion. And that is not the case. It is really a pan-retinal neurodegenerative condition, and we can now image that. And commensurate with that, of course, we can image and quantifiably visualize what the benefit is of being on treatment with SYFOVRE. In the first step this year, we will be focused on, again, as I mentioned, raising the awareness around how impactful geographic atrophy is on patients. And then it becomes our mission to make this available in the retina practice so that a physician in a one-on-one interaction with the patient can actually do that analysis, assess the patient and again, track what the benefit is of being on treatment with SYFOVRE to that patient. Caroline is in love with this technology, speaks about it at every retina conference. And maybe you want to add a couple of words? Caroline Baumal: Physicians are really excited for this technology finally to have a way to link structure to function. This was shown at our recent presentation at Angiogenesis, and I had multiple people reaching out to me after. But what I would say is that this will help with earlier diagnosis of GA. It will help position -- support the patient's journey. It will help physicians better understand this disease. And we expect this to support adoption of SYFOVRE, which is the currently approved agent with every other month dosing, support their use in patients and help keep patients on their treatment schedule with up to every other month by showing them and showing their family members how they're doing, we also hope that it helps highlight other diseases, including wet AMD and other things that we're evaluating as a research tool. Operator: Our next question comes from the line of Douglas MacPherson of Mizuho. Douglas Macpherson: I'm interested in the sort of competitive dynamics of the market. Firstly, are you seeing the complement inhibitor class to treat GA, seeing that hold steady or perhaps growing modestly? And then I think you're holding pretty solid at 60% market share. As far as new patient starts, what proportion are you seeing versus competitor? And have you seen any impact of the 5-year GALE update in November? You see any impact on that on new patient starts or on compliance? Cedric Francois: Thank you, Doug. Good hearing from you. So as a class, we believe that -- it's hard to believe that it's still the early days of what can be done for patients with geographic atrophy. And of course, with the differentiation of our product and the enormous amount of data that we've generated, including over, as you mentioned, the full 5-year period, we are really well positioned to continue to shine competitively. I will hand it over to David Acheson to talk a little bit more about market share. David Acheson: Yes. Thanks for the question. So you're correct. We're holding steady at 60% market share, which we're confident in. And we feel really good about where we're coming into 2026. I can tell you that we're really confident in the competitive strength that we have, including the GALE data that we just talked about and came out this week. I think it's important for us to note that nobody else has that data, and it's a big strength for us to have that kind of data with the patients that are in the long-term study. And our focus, quite frankly, is really being disciplined on execution and to continue to innovate with what we're doing with the brand and continue that leadership reinforcement moving forward within the space. So the market share is part of that, but certainly, driving innovation is a part that we'll continue to drive uptake, market growth and our share growth as well. Operator: Thank you. I would now like to turn the conference back to Cedric Francois for closing remarks. Sir? Cedric Francois: Thank you very much, and thank you all for your thoughtful questions. We look forward to updating you on our progress, and I believe that we're speaking with many of you later today as well. Thank you so much, and I hope you have a great rest of the day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Ziff Davis Fourth Quarter and Year-End 2025 Earnings Conference Call. My name is Tom, and I will be the operator assisting you today. [Operator Instructions] On this call will be Vivek Shah, CEO of Ziff Davis; and Bret Richter, Chief Financial Officer of Ziff Davis. I will now turn the call over to Bret Richter, Chief Financial Officer of Ziff Davis. Thank you. You may begin. Bret Richter: Thank you. Good morning, everyone, and welcome to the Ziff Davis Investor Conference Call for Q4 and fiscal year 2025. As the operator mentioned, I am Bret Richter, Chief Financial Officer of Ziff Davis, and I am joined by our Chief Executive Officer, Vivek Shah. A presentation is available for today's call. A copy of this presentation and our earnings release is available on our website, www.ziffdavis.com. You can also access the webcast from this site. When you launch the webcast, there is a button on the viewer on the right-hand side, which will allow you to expand the slides. After completing the presentation, we'll be conducting a Q&A. The operator will provide instructions regarding the procedures for asking questions. In addition, you can e-mail questions to investor@ziffdavis.com. Before we begin our prepared remarks, allow me to read the safe harbor language. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that could cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our SEC filings, including our 10-K filings, recent 10-Q filings, various proxy statements and 8-K filings as well as additional risks and uncertainties that we have included as part of the slide show for this webcast. We refer you to discussions in those documents regarding safe harbor language and forward-looking statements. In addition, following our business outlook slides are our supplemental materials, including reconciliation statements for non-GAAP measures to their nearest GAAP equivalent. Now let me turn the call over to Vivek for his remarks. Vivek Shah: Thank you, Bret, and good morning, everyone. For the full year 2025, Ziff Davis grew revenues 3.5%, adjusted EBITDA grew slightly, and the company generated almost $290 million in free cash flow. Given the headwinds that some of our businesses experienced, we're glad to have produced a year of growth, however, modest. We deployed $174 million, about 60% of our free cash flow in share repurchases throughout the year as we continue to view our own stock as a highly attractive investment. In the fourth quarter, we experienced a 1.5% drop in revenues and a 5% decline in adjusted EBITDA due to an 18% decline in our Tech & Shopping segment, offset by growth of over 6% in our 4 other segments. Tech & Shopping's revenues declined largely due to a drop in web search traffic, which had a meaningful impact on our affiliate commerce revenues. As a reminder, we earn affiliate commissions when a user clicks from one of our sites to a partner merchant site and makes a purchase. The highest quality referral traffic for an affiliate commerce business comes from search engines, which are generating lower referrals for us. We believe we can contain the damage through alternative sources of engagement over time as well as growing our video advertising and licensing businesses. In fact, the CNET Group saw video and social views grow 100% in Q4 and over 80% for full year 2025 to 1 billion views. Gaming & Entertainment revenues grew 1.5% in the fourth quarter, consistent with its full year growth rate. Humble Bundle Storefront had its best revenue quarter in 5 years. Humble Bundle achieved a huge milestone in Q4, celebrating its 15-year anniversary and over $275 million raised for charity to date. IGN Entertainment social growth and engagement continued in Q4 with Facebook views up 22% to 300 million and views on X up 19% to $45 million. IGN Store, which sells collectibles and gaming-related products, saw its total sales tripling. Between the store and Humble Bundle, our direct-to-consumer revenues reached almost $90 million in 2025. The Health & Wellness segment finished a year of record revenue and adjusted EBITDA with a strong Q4, growing year-over-year revenues 8.6%. Our AI-powered data activation tool, Halo, has now become a standard part of all of our pharma RFPs. Halo audience insights are used to inform campaign design to better engage target audiences, which leads to improved campaign performance. And it's all accomplished in a privacy safe way. Our Consumer Health business grew due to increased ad spend from core pharma clients, including new GLP-1 campaigns and growth in subscriptions for our Lose It! weight loss app. We believe that our Lose It! business is benefiting from the rapid market penetration of GLP-1 prescriptions as it's seen as an adjunct therapy to promote healthy eating. Our Professional business also had a strong quarter, driven by growth in the prime continuing medical education business. Connectivity also had a record fourth quarter with revenues up 11%. Speedtest, Downdetector and RootMetrics all experienced strong year-over-year growth in Q4, driven by new customers and increased service adoption by existing customers. Ekahau also produced solid year-over-year growth in Q4 with both enterprise and broadband service providers. Connectivity rolled out a major new product, Speedtest Pulse in the fourth quarter. Pulse is a handheld diagnostic device that empowers field technicians to instantly validate network installations and troubleshoot complex WiFi issues on the first visit, driving operational efficiency and reducing costs. This launch follows the introduction of Speedtest Certified, an independent network verification program that awards a globally recognized badge of excellence to commercial venues, allowing them to monetize their superior connectivity performance as a marketing asset to attract high-value guests and tenants. Both products are expected to contribute to meaningful growth in 2026. Cybersecurity & Martech revenues grew 2.7% in Q4. Growth was driven primarily by the cybersecurity vertical with strong organic performance from consumer VPN and cloud backup. Our momentum in cybersecurity reflects product enhancements, including the addition of threat protection and secure browsing to the IPVanish VPN and the launch of VIPRE integrated e-mail security, which is powered by an AI engine that detects threats such as e-mail compromise. Within the Martech vertical, we see opportunities to help brands profitably acquire and engage customers. Our e-mail business with its focus on first-party data and e-mail and SMS communication and Semantic Labs with its focus on efficient customer acquisition from paid traffic are both working to deliver on this value proposition. As we disclosed in our last earnings call, we have engaged outside advisers to assist us in assessing how certain potential transactions could unlock greater shareholder value. Our evaluation of potential strategic opportunities remains ongoing. As a result of that process, we have decided to defer issuing formal guidance at this time. But I do want to share some high-level thoughts about the outlook for our businesses in 2026. First and foremost, we are intently focused on delivering profitable growth and strong free cash flow generation in 2026, building on 2 consecutive years of great cash generation. While we expect Tech & Shopping revenues to continue the trend of double-digit revenue decline in the first half of 2026, we are forecasting improvements in the second half of the year via a combination of favorable year-over-year comps and benefits from increased off-platform engagement and growth in our licensing activities. For the year, we are expecting Tech & Shopping to be down mid-single digits in revenue. While we work to turn Tech & Shopping around, we're confident in our ability to continue to generate growth in our 4 other segments. In Gaming & Entertainment, Health & Wellness and Cybersecurity & Martech, we expect revenue growth of low to mid-single digits for full year 2026, and we anticipate continued double-digit revenue growth at Connectivity. Adjusted EBITDA margins for the Company should continue to hover around 34%. I know there's a great interest in updates regarding AI content licensing, and I wanted to share some observations. We are actively engaged in discussions with key players and the nature of these dialogues reinforces our confidence in the future revenue opportunities for content licensing. However, we are taking a deliberate principled approach to execution. The market is still defining the framework for appropriate compensation, specifically distinguishing between content used for model training versus content used for retrieval augmented generation or RAG. Our position is consistent. Both use cases require proper licensing. We will not enter into RAG-focused agreements that compromise our rights to fair compensation for foundational training. These are separate use cases with distinct value propositions, and our authoritative content must be valued accordingly in both contexts. We anticipate greater clarity on these fundamental licensing questions following the resolution of our ongoing litigation. Once established, we believe this clarity will unlock licensing opportunities and allow us to move forward with agreements that appropriately reflect the full value of our content across all AI applications. With that, let me hand the call back to Bret. Bret Richter: Thank you, Vivek. Let's discuss our financial results. Our earnings release reflects both our GAAP and adjusted financial results for Q4 and fiscal year 2025. My commentary will primarily relate to our Q4 2025 adjusted financial results and the comparison to prior periods. Let's turn to Slide 5 for the summary of our Q4 2025 financial results. Fourth quarter 2025 revenue was $406.7 million as compared with revenue of $412.8 million for the prior year period, a decline of 1.5%. Fourth quarter 2025 adjusted EBITDA was $163.2 million as compared with $171.8 million for the prior year period, reflecting a 5% decline. Our adjusted EBITDA margin for the quarter was 40.1%. We reported fourth quarter adjusted diluted EPS of $2.56. This figure reflects the impact of our active share repurchase program. Turning to Slide 6. Let's review our fiscal year 2025 results. Fiscal year 2025 total revenue increased 3.5% to $1,451.3 billion as compared with the prior year. Fiscal year 2025 adjusted EBITDA increased year-over-year to $495.1 million. Our adjusted EBITDA margin for fiscal year 2025 was 34.1%. Adjusted diluted EPS was $6.63, up slightly as compared with fiscal year 2024. During a number of our recent quarterly calls, we have discussed how our Games Publishing business has negatively impacted our recent financial results. This was true again in the fourth quarter of 2025 as Game Publishing contributed negative net revenue of $2.5 million. However, during the fourth quarter, we took action and sold our Game Publishing business in a transaction that allowed us to recognize a book and cash tax savings associated with the loss related to the sale of the business while maintaining the right to certain future payments tied to the performance of the assets under their new management. We did not attribute a value to these payments at closing. And as a result, we will recognize them as investment gains if and when we receive them in the future. Our exit from Games Publishing achieved multiple benefits, including the elimination of the distractions associated with this noncore business line, which has also caused significant volatility in the quarterly results of our Tech & Shopping segment. Please note that this exit has no impact on the Humble Bundle Storefront in our Gaming & Entertainment segment. Slide 7 reflects performance summaries for our 2 primary sources of revenue, advertising and performance marketing and subscription and licensing. Q4 2025 advertising and performance marketing revenue declined 4.4% as compared with the prior year period, while fiscal year 2025 advertising and performance marketing revenue increased 5.9% as compared with 2024. Q4 2025 subscription and licensing revenue increased 4% as compared with the prior year period and fiscal year 2025 subscription and licensing revenues increased 2.2% year-over-year. Q4 2025 other revenues declined by $600,000 year-over-year, and fiscal year 2025 other revenues declined by $9.2 million. These changes both primarily reflect the impact of the Games Publishing business. Slides 8 through 12 reflect the quarterly and full year financial results for each of our reportable segments, which Vivek has already discussed in some detail. I will note a few additional items. 3 of our 5 segments grew full year revenues in 2025 and 4 of our 5 segments grew revenues in the fourth quarter. The now exited Games Publishing business reduced Tech & Shopping segment revenues by $2.5 million in the fourth quarter and by $4.9 million in full year 2025. However, the 2025 year-over-year revenue decline associated with the Games Publishing business was approximately $14 million, reflecting an approximately 1% drag on consolidated revenue growth. This revenue decline also had a high negative flow-through impact to adjusted EBITDA. Please refer to Slide 13 to review our balance sheet. As of the end of 2025, we had $607 million of cash and cash equivalents and $93 million of long-term investments. We also have significant leverage capacity on both a gross and net leverage basis. At year-end, gross leverage was 1.8x trailing 12 months adjusted EBITDA, and our net leverage was 0.5x and 0.3x, including the value of our financial investments. During the fourth quarter, we bought back 1.75 million shares for $60.6 million. In fiscal year 2025, we deployed nearly $174 million to repurchase approximately 4.8 million shares. And during the course of 2025, we reduced the number of shares outstanding by more than 10%. Since January 1, 2026, we repurchased approximately 740,000 additional shares, and we believe that at the current valuation level of Ziff Davis' stock, share repurchases continue to offer an attractive use of our investable capital. Our recent share repurchase activity nearly exhausted our existing stock repurchase authorization. However, this week, our Board of Directors increased our stock repurchase authorization by 10 million shares, bringing the total amount currently available for repurchase to 10.7 million shares. This authorization is valid until February of 2036. Please note that given our current active review of potential value-creating opportunities, there may be periods of time when we are not able to repurchase shares under this authorization. During 2025, we closed a total of 7 acquisitions across our businesses, investing a total of $68.7 million net of cash received to support our M&A program. We anticipate we will continue to be an active and disciplined acquirer in 2026 as opportunities arise to add capabilities to our businesses in an accretive manner. Looking ahead to the balance of 2026, we are intently focused on delivering profitable growth, robust adjusted EBITDA margins and strong free cash flow generation. As Vivek discussed, due to our current review process, we are not providing formal full year 2026 guidance at the present time. However, I'd like to offer some insight related to our expectations for the first quarter of 2026. We expect first quarter 2026 consolidated year-over-year revenue growth to be relatively flat or slightly negative. as the continued headwinds in the affiliate commerce revenues in our Tech & Shopping division that Vivek noted earlier are expected to largely offset the growth in the balance of our businesses. Given seasonality, our Q1 adjusted EBITDA margins are typically lower than our fiscal year margins and Q1 2026 margins are expected to be about 3 points lower year-over-year, primarily reflecting an anticipated year-over-year decline in Tech & Shopping revenue, a lower margin revenue mix at Health & Wellness and the continued investment in growth at Connectivity. However, Q1 adjusted diluted EPS will benefit from year-over-year drop in our shares outstanding due to our active buyback program. Our supplemental materials include reconciliation statements for our non-GAAP measures to their nearest GAAP equivalents. Please see Slide 25, which includes a reconciliation of free cash flow to net cash provided by operating activities. Our businesses continue to produce robust free cash flow. 2025 free cash flow was $287.9 million, up $4.2 million as compared with 2024. Q4 2025 free cash flow of $157.8 million was up significantly from $131.1 million in Q4 2024. And fiscal year 2025 free cash flow reflects 58.1% of our 2025 fiscal year adjusted EBITDA of $495.1 million. Stepping back a bit, Ziff Davis has made considerable financial progress over the last few years despite a challenging operating environment. Since the end of 2022, the first full year after the Consensus spin-off, we have grown free cash flow by 25%, reduced our gross debt levels by nearly 14% and lowered our year-end shares outstanding by more than 18%. During this time, we also deployed more than $300 million for 13 acquisitions, adding capabilities across all of our operating segments. And as Vivek noted earlier, we are actively working to pursue opportunities that we believe offer strong prospects to realize additional shareholder value. Although there is no assurance of any future transactions, we continue to believe that our current trading levels do not fully appreciate the intrinsic value of our businesses. We will seek to provide timely updates as appropriate. With that, I will now ask the operator to rejoin us to host our Q&A. Operator: [Operator Instructions] And your first question this morning is coming from Rishi Jaluria from RBC. Rishi Jaluria: Maybe just one for me to keep it. But Vivek, I wanted to expand a little bit on some of the AI search tailwinds that you talked about on Tech & Shopping. Maybe can you expand a little bit in terms of how that's progressed? This is obviously a trend we've been discussing for a while. Some of the investments that you can make to maybe capitalize on the AI search opportunity and take that kind of segment back to a better growth trajectory. And then if we think about AI search throughout the rest of your businesses, are there other parts that have proven to maybe be a little bit more resilient, whether it's health care or gaming or whatever? Maybe any color you could give as it pertains to that would be helpful. Vivek Shah: Thanks, Rishi, for the question. And so yes, look, what I would say is generally speaking, a lot of traffic is fungible, meaning that lost search traffic can be and has been made up with other sources of engagement, apps, social traffic, video, programmatic traffic and e-mail. So the degree to which in any of our segments in the Gaming & Entertainment and Health & Wellness segments, in particular, we're able to offset search traffic declines. Where that has become really hard is within Tech & Shopping because the one type of traffic that really is hard to replace as high-intent consumers who arrive via search looking for a product or a service and then clicking through to make a purchase. That's the affiliate commerce and affiliate commission business. And so that particular traffic is harder to replace, though I'll talk about things that we're doing to offset. But that is harder to replace, and that is very much concentrated in our Tech & Shopping segment. In fact, just to dimensionalize it a little bit. So we did in 2025, roughly $90 million in affiliate commerce commissions related to organic traffic. That was down about $25 million year-over-year, and half of that $25 million was in Q4. So it gives you a sense of kind of the impact and what's going on within Tech & Shopping. From an offset point of view, and as I said, look, I think this is something that will start to materialize in the second half of this year, app traffic, browser extension traffic and then other forms of monetization outside of affiliate commerce around video, licensing, events and broader display. So a variety of things that mix. But the high level is where we're seeing search challenges show up, we're really seeing it within this Tech & Shopping segment. Operator: Your next question is coming from Ross Sandler from Barclays. Ross Sandler: Yes, that was really helpful on that $90 million. So that's about 25% of that segment's revenue in 2025. Can you just talk maybe about like the percent of traffic like and when we see -- it sounds like from your guidance, the kind of unwind of SEO traffic is peaking right now. And by the second half of '26, it should be less of a headwind. Is that the right way to think about it? And then the second question is just on the 300 bps of margin contraction in the first quarter. I guess just how do we think about in light of the declining kind of high-margin SEO-related traffic, how do we think about your ability to kind of contain the cost structure and these margins kind of moving forward? Vivek Shah: Yes. Thanks, Ross. I'll answer your first one and then ask Bret to share some comments on the second one. But -- so just taking a step back, Tech & Shopping, obviously, is the challenge, was the challenge in Q4, will continue to be the challenge in 2026. Don't want to lose sight of the fact that the other 4 segments grew nicely in Q4 of 2025, and we believe will continue to grow in 2026. Within Tech & Shopping, the affiliate commerce piece is one of what I would refer to as 3 challenges within the business and worth describing and talking about the other 2 for a moment. So remember, we have the B2B business that's inside of the Tech & Shopping segment. You'll recall that our strategy in 2025 was to intentionally contract revenue at a rate that would be less than the contraction of expenses. In other words, we would cut more expenses than revenues, and we did that. So in 2025, the B2B revenues were down $11 million year-over-year, but the EBITDA was up close to $6 million and positive. So that strategy of shrinking the footprint of that business, cutting out certain products and service lines has worked, but shows up as a revenue drag. I just want to point that piece out. The last one is the published -- the Game Publishing business that's still a residual business that stayed within Tech & Shopping, which Bret pointed out, we sold, we're out of. That was like a $14 million, $15 million -- $14 million year-over-year bad guy in 2025 as well. So those are just 2 things to just point out as we think about '26 versus '25 that as we lap these things are going to be beneficial. But then yes, look, I think the belief that the pain that we're seeing on the affiliate commerce side in Tech & Shopping will start to improve in the second half, both because of comps as well as other initiatives, again, video monetization, licensing, building out traffic in both the RetailMeNot app and browser extension. And that collection brings the overall challenge of Tech & Shopping to being sort of more of a -- from a full year point of view, kind of a low single-digit decliner, but still a decliner. Bret Richter: And Ross, I think on margins, I think what I'd say is almost widen the lens for a moment. If you look back over the last several years, despite various puts and takes in the business, we've been able to largely maintain margin. It's been a deliberate effort across the company, looking at the way we do business as business dynamics change. I think as Vivek pointed out, within Tech & Shopping, we've recently shown one, our ability to do that in B2B, which has been a consistent source of revenue pressure for the last several years and taking action to look at how we run the business and maintain margin and produce margin, taking some actions on some drags like Humble Games. And then in the first quarter, I think what we're largely looking at is just the flow-through impact of some of that revenue softness, coupled with a little bit of mix change in some of the other businesses. And then as we look at -- I'm sorry, as we look at the company overall for fiscal year '26, as Vivek noted, in our view, it's kind of a little bit of a first half, second half story. And overall, if we progress as sort of anticipated, we think we'll be in the range of delivering upon what we said. Operator: [Operator Instructions] And your next question is coming from Shyam Patil. Shyam Patil: I had one on Tech & Shopping and one on M&A. Just on Tech & Shopping, Vivek, I know you guys have talked about there being a lot of moving parts in that business for this year. But how do you think about kind of what's the right growth rate or growth range for that business going forward, not just in '26, but just from a high-level perspective, what kind of growth rate do you think that business should have margin profile as well? And then on M&A, where do you see opportunities this year for M&A? Just kind of curious which segments, which pockets? Vivek Shah: Yes. No, great question, Shyam. So I'll start on the long-term outlook on Tech & Shopping. And I don't believe it should be very different than our other Digital Media segments, principally Gaming & Entertainment and Health & Wellness. And so I think it should be a mid-single-digit grower. But again, I think we have to get through this phase where the search challenges within the affiliate commerce business that, by the way, was a business we created from scratch when we first bought the assets that make up a lot of this segment. And so look, we were very successful in creating a new form of monetization when we initially acquired a lot of the assets in this category. And I think we're very confident that we will find new forms of monetization within these brands. And by the way, when we talk about Tech & Shopping, we're talking about market-leading brands. CNET Group and RetailMeNot Group are leaders in their respective categories of Technology & Shopping. With respect to M&A, look, we believe that the market fear in digital media is actually presents us with a pretty unique opportunity to be an active buyer in this space. Look, the valuations are compelling. You see our own, and we're an at-scale diversified entity. You can imagine what businesses that don't have our scale of diversification, they ultimately trade for. And I think there's -- I think the fear is overly pronounced. And while there are certainly headwinds and we're experiencing those within our business, we've shown a fair amount of resilience in the face of these pressures and believe we've got a pretty good track record in business transformation and managing these really high-quality brands. And that's the key is going to -- our focus from an M&A point of view are really high-quality brands in high-value categories. So look, we've got the cash. We certainly have the free cash flow generation. And so we're going to continue to look for attractive opportunities. And so I think both things can be true, by the way, that we can be very focused on opportunities within the M&A landscape while we continue in the strategic review process to unlock value for shareholders. Operator: Your next question is coming from Danny Pfeiffer from JPMorgan. Daniel Pfeiffer: For the first, as you have discussions with outside advisers on the sale of businesses, can you provide any color on what divisions prospective buyers have been looking at the most? And then for the second, putting the AI headwinds aside, can you provide us with an update on the broader trends you're seeing in the ad market today? Vivek Shah: Yes. So listen, look, we wish we could share more. But look, as we said in our prepared remarks, it's an active process. We promise and we're going to provide updates as and when we're able to. But right now, that's all I can really say at this point. On your question about the ad market, and I often say, look, for us, at least the ad market is not 1 market, it's 3. And I would say that if you unpack each of those, so we take Gaming & Entertainment last year, roughly 5% ad revenue growth. I think that will be consistent going into 2026. Health & Wellness had a very strong double-digit advertising growth rate in 2025. I think that will moderate a bit, be more sort of mid-single-digit range. Remember, in 2025 for us, within the Health & Wellness business, we had some acquisitions that accelerated some of that revenue growth. So the organic, I think, is mid-single digits. So I think both Gaming & Entertainment and Health & Wellness, which is largely pharma, is good. And I think we're happy with where we are there. It's the Tech & Shopping experience, which, again, I would bifurcate kind of the affiliate commerce from the non-affiliate commerce. I think the non-affiliate commerce, we feel pretty good about. It's the -- and the non-B2B, I should point out. But it's the affiliate commerce piece that we're going to have to work through a couple of quarters of challenges before we get to kind of the other side of that. Operator: [Operator Instructions] Your next question is coming from Robert Coolbrith from Evercore ISI. Robert Coolbrith: Can you speak more directly to both the traffic and the value at risk in Health & Wellness from search in general as well as some -- there's some concerns, I think, in the market around AI-based competition on the clinician side. So if you can maybe talk a little bit about that as well. And then finally, just to go back to M&A as both a buyer and seller, just given the level of AI-related uncertainty as well as the embedded call option on AI licensing, do you see that sort of freezing up the market? Or are you and potential counterparties able to sort of see through that, work through that? Vivek Shah: Great questions, Rob. So with respect to the search dynamics within Health & Wellness, that's not an area that I'm really concerned. Much of the inventory within that segment is not search based. So we have our partnership, our hospital ad network, Mayo Clinic and Cleveland Clinic and hopefully soon adding some more to that network. We do these custom condition centers, which really don't rely on search engine traffic. We have our direct-to-provider business, which is largely e-mail and other forms of physician engagement. So with respect to H&W, Health & Wellness, I'm not concerned about whatever the search dynamics are. And so what I would say is that it's more of a pharma commercialization business where we work with pharma to commercialize their drugs and to drive patient adherence as well as helping influence doctors' understandings of the prescription opportunities that are available to them. I think with respect to your question on AI and M&A, look, I think that deals can be done, and I understand your point, which is some folks may be holding out just given that there could be a potential windfall on the AI licensing front and so may not be willing to transact right now. And I think it's a balance. Look, that's certainly a question that's out there that until we really understand what the revenue framework and potential is around licensed content for LLMs, you may have certain owners of content assets skittish about transacting. That's certainly out there. On the other hand, I think there are folks who just sit there and say, look, it's a difficult market, might be time for them to concede or to capitulate or they find it difficult to sort of bridge where they are to where they want to go, and that will be an opportunity for us. So look, I think it depends. I don't think there's one answer. That's certainly come up because people view it as "a free option" on AI licensing revenues in the future, but we'll see. And look, I think more broadly, I do think that there aren't as many buyers positioned the way we are positioned in terms of balance sheet capabilities, skill set, platforms and frankly, interest in these assets. Robert Coolbrith: Got it. And just if we could go back to the growing AI footprint or the footprint of AI tools on the clinician side. Are you seeing any impact there or no real impact? Vivek Shah: It's a good question. I mean I certainly believe that physicians like pretty much everyone else are using these AI tools in their day-to-day. And look, I think that obviously is something that will present, I imagine, marketing opportunities, et cetera. And so look, yes, look, I think that any and all tools that attract physician attention are valuable tools. And so we think we have valuable news, information, continuing medical education. The advantage of continuing medical education is providers need to get their CME credits. So we feel pretty good about a physician engagement platform that is tied to the need to get CME credits. Operator: And there are no further questions in queue at this time. I would now like to hand the call back to Bret Richter for any closing remarks. Bret Richter: Thanks, Tom, and thanks, everyone, for joining us today. We appreciate your ongoing investment and time, and we look forward to speaking with you in the next couple of months and in our upcoming Q1 earnings call. Operator: Thank you. This does conclude today's conference call. You can disconnect your phone lines at this time, and have a wonderful day. Thank you once again for your participation.