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Dominik Prokop: Ladies and gentlemen, may I welcome everyone cordially. My name is Dominik Prokop. I represent the Investment (sic) [ Investor ] Relations department. This is a conference devoted to results of the fourth quarter as well as the whole of 2025. The first part of the meeting will be devoted to the results of the bank as well as the trends. And this will be headed by the President, Piotr Zabski, who will sum up the most important trends and will tell us about the results in the business area. We will have also Marcin Ciszewski, who will present the risk; and Zdzislaw Wojtera, our Deputy President, who will tell us about finance. After the presentations, we will then have a Q&A session. Before I hand over to President, Zabski, let me encourage all of you who are listening to us to ask questions already in the first part of the presentation, which will enable us to smoothly continue with the Q&A. That is all from me. I hand over to President, Zabski. Piotr Zabski: Ladies and gentlemen, good morning. May I welcome everyone cordially at the results publication. The Supervisory Board approved our financial statement yesterday. So we can tell you about what has happened in the fourth quarter of 2025, but also in the whole of 2025. So there will be a lot of figures devoted both to the fourth quarter and the whole of the year. It is a special moment for us because this is the first full year when we can present the results, which we had forecast and delivered, which you will see in a moment. But it's also a very good stage for our development, we are in the new headquarters of our bank. There was a move to the new headquarters in September, and this is the first conference in this new beautiful headquarters, Varso Tower. Moving on to the bank results. Let me point to some important aspects. In the fourth quarter, as far as revenues are concerned, we had a very good result, almost PLN 1.5 billion revenues, PLN 1.26 billion is in interest income, which is by 4% less year-on-year. But if we compare the quarters -- if you compare the quarters, but the commission income is very good, PLN 240 million, which is by 9% higher than the fourth quarter of the previous year. And so the revenues of the whole year reached PLN 6 billion for 2025, which was forecasted in our strategy. There was a great contribution in the new sales. The interest income is PLN 5.13 billion, 1% drop year-on-year. Obviously, there was a drop in interest rates, and that translates into this decreased results by the commission income for 2025 is by 4% higher and translates into PLN 900 million. Net profit in the fourth quarter is PLN 688 million by 12% higher than the previous quarter -- the previous year's quarter, so quarter-on-quarter, and PLN 2.35 billion (sic) [ PLN 2.37 billion ] net profit for 2025, which is a decrease by 3%, which we consider a good result considering the interest rate drops. This was delivered in very high ROE ratios, 21.7% in the fourth quarter and 19.6% for the whole of 2025. We forecast 18%, if you may remember. In the lower left-hand corner, a number of good details. We continue the drop trajectory in our cost of risk ratios and the drop in our NPL ratio. The cost of risk quarter-on-quarter is below 1 percentage point and 0.13 percentage points drop for 2025. So another good year when we improved the ratios there. And the NPL ratio today is a very important element of our dividend decision. That is 5.64%. Our promise and the strategy is, therefore, continued. We plan to go down below 5% of the NPL ratio. We will hear later about the significance of that particular drop. As far as customer relations are concerned, we keep growing. The relational customers are now 1.7 million. We kept selling more, but we had a considerable churn, which will later be commented upon. There were individual promotional activities finished and some of the customers moved to other banks. We put a lot of stress on relational customers, and we grew there by 107,000 customers. As for mobile app users, there was a considerable growth, the fastest growth in the sector, 17%. There was an improvement in our application where we were able to offer it as a product to the customers at a more professional level. The sales, which were considerable and improved our results, was PLN 8 billion in the fourth quarter '25, which was an increase of 12% year-on-year. In the whole of the 2025, there was a growth of 17%. Together with the leasing sales, it was about 20%, which is very good because our promise of growth is, therefore, materializing. What is also crucial is how to deal with the churn, but that is the task for this current year. There's been a growth in the deposit portfolio. We grew alongside the market at the level of about 7% year-on-year. The value of our portfolio at the end of the year was PLN 82.6 billion. What is worth noting is that it's been a very good quarter in early leasing, the fourth quarter. But the whole of the year was good as far as the leasing activity is concerned. For the business customer, the leasing product is our flagship product, especially for small- and medium-sized enterprises. PLN 7.2 billion is the portfolio, which is 9% growth year-on-year. In the fourth quarter, we had 14% growth year-on-year. We are not present in all the segments, mind you. So this is especially good in that context. Now a few bits of information which may be new to you. What is of paramount importance? We are now part of the top tier as far as financing, like I said, we are above PLN 100 billion, which is a growth of 9% of our assets year-on-year. The working loans translates into 5% growth and a 7% growth in deposits, which is PLN 82.6 billion. And as I already mentioned, PLN 1.1 billion in assets. As for our other figures, we show you in the first line, the fourth quarter compared to the fourth quarter of the previous year. Cost-to-income ratio around 38% annually and quarterly, the costs have grown. Zdzislaw will refer to that later. As for the NIM ratio in the fourth quarter, the lower interest rate translates into this result, but we have 5.38% level. And as for ROE, I already mentioned a very good result above our strategic forecast. As for cost of risk, not 0.29% and 0.49% for the whole of the year. So there's been an improvement in each of these indices. As for the capital, we are at the level where we can be confident in developing our scale and the NPL 5.64%. So our promise has been delivered. We want to be a dividend bank. We want to be able to pay even more than 50% of our income, but we would have to go below 5%. Marcin will tell you about that later. Now a few words about the customer side, 107,000 new customers, 240,000 mobile app. New users, about 5% of the mobile app users are banking with us. We are catching up on the slightly worse results in the previous stages in a very dynamic way. Now a few words about what is happening on the deposit side. This is top left-hand corner. The structure of our assets of retail customers is presented there. There's been a growth of 13% across the year in all the constituent parts of this portfolio, which makes us very happy. We're happy to see the investment funds grow because this is a considerable part of our commission revenue. And investments, as you can see, are also going up. On the right-hand side, you can see the gross loans to retail customers divided into the consumer loans and the real estate loans, both the guaranteed and non-guaranteed ones. In the fourth quarter, you can see that there was almost a parity as regards both the guaranteed and non-guaranteed loans with an increase on the side of the real estate loans, the longer tenor guaranteed loans, but with lower risk and greater markup. So we are slightly changing the product mix in our portfolio in the direction of the better products with lower levels of risk. At the bottom, you can see the loans which are shown in the dark red color in the top slide. There's been a growth of 14% in the non-mortgage loans to retail customers. That is the growth of sales, not of the portfolio. The both parts the cash loans and the consumer finance behave according to our forecast. What I would like to comment on is the right-hand side bottom corner, the growth in the mortgage loans, 36% growth of sales year-on-year. If you consider that 2024 saw 1/4, as far as I remember, of the sales on the BIK A2 if we decrease that, then the increase would be almost twofold. We increased the sales by 100%, and we keep growing it quarter-on-quarter. Our share is higher than it would seem from the analysis of our share in the whole of the loans balance in the sector. What I mentioned previously is the importance of the mobile customer. We have a new application, which is going very smoothly. It does not crash. There is easy access to all the features. There's been a great improvement there. The assessment of the customers is very positive, as you can see. So we are improving the -- as far as the application is concerned. As regards to the business customer, let me focus on this. Now in the top left-hand corner, you can see that there's been a drop by 5% in the portfolio size, but a few words of explanation are on order. In this particular portfolio, we have the micro segment and small, medium-sized and large companies. As for the micro sector, this will keep growing because we have the largest NPL ratio there, and we have to get rid of that portfolio, which we are doing step by step. So this part is decreasing definitely. And the difference as regards to the sales is about 32% drop year-on-year. At the same time, we keep improving in the segments where we are a good player, where we are confident and competent in the medium -- small and medium-sized enterprise. And there's been a growth of 32% there. So if you consider that we are getting rid of what's in the top right-hand corner of the nonworking, nonperforming portfolio. And if you put all these together, plus the new sales, which has grown by 40%, has not yet translated into the growth of the whole portfolio. So in the middle of that portfolio, there are all kinds of things happening, sometimes contradictory in different segments, different things are happening, but we hope that the trend will reverse and the small and medium-sized companies is not the segment where we will see the huge increases, which in previous stages saw an increased level of risk. So this time has passed. For our business customers, they've got deposits here, 3% increase year-on-year. We are especially happy about the fund of a new system that we have launched as far as IT is concerned, very much focused on our mobile app, has been taken advantage of vastly by our customers. So our customers do their banking online, in the digital channels, which is something that make us very content about. Now leasing is our response to the needs of micro customers, but also given the fact that the banking sector may also ensure funding to micro companies that have been there for less than 2 years. Leasing is a very nice response, 9% increase year-on-year. As far as the sales go, 13% in quarter 4 [indiscernible] and 14%. So this portfolio has increased by 9 percentage points. We do not play on all the segments. We only service most promising sector that is the light vehicles. Light vehicles is not our specialization. Machinery and heavy-duty vehicles is where we have most competence. This is where we keep growing, and this is our response, manifesting how we can secure it and grow in the business sector. So much for a very short commentary to rather general results of the bank. And now Marcin will tell you more about the risks. Marcin Ciszewski: Piotr, thank you very much indeed. I welcome you all. What is our capital standing of the bank? It is very safe and sound in T1 and TCR. The ratios are 17 -- 73 which makes us having a nice buffer regulatory minimums. And this gets translated in PLN -- into PLN 4.8 billion. And we are very consistent in our operations. We issue further installments of bonds. The year was closed at 21.43%, 257 bps higher compared to the regulatory minimum that is imposed on the Alior Bank Group. For the liquidity indicators, long-term and short-term liquidity ratios are equally safe and sound, exceeding regulatory minimums at a safe level, 245% and 49% for the other ratio. As Piotr has already told you, our assessment is this. We very much comply with the requirements that enable to have a distribution of 50% dividend, and we are awaiting other orders, no decisions have been taken as of now. To make a reference to what Piotr has said already, this slide stands to reflect the way we manage risk, both with regard to core as well as NPL ratio. CoR was standing at 0.49%. So this is yet another period, consecutive period we've been dropping this particular index. And please pay attention. This index is very much impacted by the sales of other portfolios like performing loans. This is one of the constituents that is taken advantage of as far as cleaning the portfolio is concerned. And we do clean it in terms of sales. And at the same time, we have managed to maintain our directional CoR that we have otherwise shaped the level, not exceeding 0.8%. And as I have already said, we are very much pursuing our strategy, our operations, which targets at nonperforming ratio at a level below 5% threshold. Our strategy says this particular ratio towards the end of the year will get below the 5% level. So we keep pursuing this path, and we will manage to decrease the set index below the level of 5% beyond by the end of this year. Gradual improvement of the quality of the loan portfolio, PLN 3.6 billion, that's the final value of the year as we discussed at our previous conference. Towards the end of quarter 3, we had one substantial default in our sector of business customers. But in spite of all that factor, there's been a further decrease of nonperforming loans. NPL ratio for retail customers. Well, it stand very confident level, especially when it comes to business customers are concerned, still, there is a lot of work to be done in the micro segment because that respective index is still 2 digit. On the right-hand side, top of the page, we can see what was happening in quarter 3 and 4. NPL sale affected significantly the level in quarter 3 and 4, respectively. You may want to see the level of CoR, which has been generated on our end without one-offs. That would be relevant to mention. And now Zdzislaw will hand -- will take the floor. Zdzislaw Wojtera: Thanks a lot. Now it is my time to discuss the financial results. Let us first look at our revenue side between 2024 and 2023, 1% drop, PLN 49 million. So we have managed to maneuver well in the environment of decreasing interest rates and significant costs very well indeed because the revenues are well comparable between 2024 as well as 2025. The commentary from [indiscernible] development of our business volumes made us capable of compensating the decrease of index rates by the growth of business. Let us now have a look at our growth. There is a drop of 3%, yet these quantities are where comparable between 2024 and 2025. So we must consider 3 factors, indeed, one of them being interest rate cuts. Secondly, BFG costs decreasing. And third, a one-off event that is tax asset. The impact of the revaluation of the net tax asset, I will discuss it further. Quarter 4 2024, 2025, if we put them all together in 2024, we accounted the cost from the whole 2024, whereas as regards to 2025, I will show it to you in the next slide, we cared that there is a linear growth materializing. So this basically explains the difference of 13% between quarter 4 2024 when compared to quarter 4 of 2025. Now let me discuss in detail our income statement. The first column that you see marked in yellow, these are quarterly results, which have already been well commented by Piotr. Now please bear in mind a stable interest result. There's been a stability because in quarter 3 already, we have reflected all the impact of the interest rate cuts to reserve positions that I would like to comment on. One concerning free of charge credit sanctions. So there has been a reserve in quarter 3. And the difference is the outcome of the change of the quantity of cases that come in and also our model approach is taken into consideration, but this isn't troubling by any means. Another position, EUR 50 million cost of risk of mortgages in foreign currencies that is in euro, [ EUR 50,151 ] million in the whole of 2025. So we are screening every senior for both these positions that is the sanctions and mortgages in foreign currencies to be manifesting a conservative stance so that the whole of the risk against -- reflected in the relevant manner. We had 110 more court cases. There's been a growth in this respect. This isn't significant. However, I wouldn't expect any increase in the current year. I suspect we should talk about the quantities that will be lower when compared to 2025 as regards to the reserve. Tax assets, that is income tax, there has been a substantial difference, especially if you pay attention to in quarters 3 and 4 here, there's been a plus paradoxically enough. But there's been a discussion on that by other colleagues of mine. So there's been the introduction of tax as of January this year. Therefore, we must do other estimates based on another interest rate PLN 9.5 million on the plus side that was accounted for in quarter 3. Yearly results are pretty solid on the interest rate side and loans side. Marcin was already speaking about that EUR 2.337 billion, a very solid closing of the year, including all the factors that Piotr was speaking at length about. Now let me move on to yet another look at our costs and interest costs. This comes as no surprise, especially if you consider the medium part of the graph. Our quarterly statements manifest a decrease of 10%, stemming from lower interest rates, 22% on the side of the interest costs. By and large, it gets reflected in our decrease of our margin, interest rate margin. It used to be 6%. Now it got lower to 5.38%. Please note the impact of the low interest rates. That is number one factor, but there is also another factor that is a change in structure of our statement, which is the product of us selling other products that is mortgages. If we get back in time mortgages, given interest rates reality, well, the margin was pretty high, but the mortgages are being sold more dynamically. They've got other profit characteristics and therefore, the margin has been a little bit more sluggish. So the margin is very impactful as regards to the margin that you will get to see in quarter 4 2025 on the one hand, but on the other hand, if you have a long-term perspective, we are building up a very stable portfolio of revenues in the longer time horizon for the bank. So the whole banking industry has been learning lessons around the ease of mortgages. This has been included in our contracts and all the clauses which are relevant. This is precisely how we wanted to mirror also the guidelines of the Polish Financial Supervision Authority. So our portfolio is this. It is looking into a longer time horizon. So my take is it is a very positive trend. The very interest rate profit, it has dropped by 2%. Also taking into consideration the credit [indiscernible] that happened in 2024 is by no way surprising because this is clearly our response to the result of interest rates given the dropping of the interest rates. Now about commission as you look at the first quarter and results concerning the first quarter. And there were questions about this would not be our case here and whether we will manage in the subsequent quarters. We said, yes, we will want to improve it. And here, you can see the result of our activities. If you take year-on-year results, you see that there has been an improvement by 9% in the commission income. And the source of that income is also important. It stems from the activity of retail customers and the activity of customers who use different products of Alior Bank, but also the brokerage commission, which stems from the activity of our customers, the development of our TFI participation in investment funds, the individual advisory services to customers. All this has translated into these improvements and these activities will certainly be continued. There's been stabilization of operating expenses in 2025. We are quite happy that we managed to optimize the operating costs of the bank. If we deduct the BFG costs and focus on the Alior Bank internal costs, the costs have grown by 5%, which is below what I had communicated a few quarters before. We talked about 6% to 7%, but we've managed to keep it at the level of 5%. So that's a very good result. Another important element, which I want to draw your attention to and which was also forecast by us, we wanted the growth to be foreseeable and comparable and we've delivered that aspect. If you look at the first quarter, we see a one-off BFG cost there. There was a one-off event which affected the raise. But other positions are quite well comparable, and we will keep maintaining the cost discipline so that they can be compared quarter-to-quarter. I am convinced that we'll be able to continue with that in 2026. And we want to have the rise of costs even below the 5%. The cost/income ratio is very good, 37.9%. And the quarterly ratio and 39% in the annual result. So that is also a good indicator for the development and for the cost structure of Alior Bank. And I hand over to Piotr. Piotr Zabski: Thank you, gentlemen. Just to sum it up, I would like to say that our business agenda, the one that we've addressed in our strategy is working according to our expectations. We announced 3 pillars in our strategy that we want to focus on. And they are connected strongly to the development of the bank. The first one is the growth of scale, entering the top tier, PLN 100 billion, a leader in consumer finance. We are definitely a leader there. No one is ahead of us as yet. We keep growing in relationship customers. That's our focus, 107,000 new customers. There's been a certain level of churn, which we are struggling with. But the rise in the transactional ROIs, a record growth in sales by 17%. If we divide the BFG, it's almost 20% of growth, especially driven by the consumer -- by the mortgage loans. Deposits are growing. So the scale is materializing and the figures speak for themselves. The second pillar is the high resilience. I want to focus on the change of structure of our balance sheet. We go toward long-term loans, which are guaranteed rather than the non-guaranteed at a lower margin level, but they bring a lot of stability to our portfolio. But we are not slowing down as far as consumer finances is concerned. We are a leader there. We are experiencing very good sales, high margins, low risk. As far as the business customer is concerned, we keep growing in the segments in which we are confident and competent as far as micro enterprises are concerned and where we are not able to finance the loans. We have a leasing offer, which is also growing in a very stable way. Coming back to the resilience, the commission result is very good. It keeps growing. There's also a growth in terms of income from investments, which is seen in the market in general after a certain period of stagnation. And we are also more resilient technologically. Our systems have considerably improved compared to the previous periods. The mobile app is very stable. The accessibility of the service remains at a very high level. And the third pillar that we mentioned in the strategy is the operational excellence. What I want to stress in this regard is that we are changing in terms of technologies. We are becoming an advanced business. We're introducing a new app, both on the retail and the business customer side. We are also developing the agile model, AI coded and the whole organization, all the employees of our headquarters are now able to work in the agile system, which we have scaled up this year, and we work in the system, which brings concrete results. A very strong cost discipline. After the BFG deduction, the 5% cost growth compared to the whole of the sector places us in a very good position. The costs are well managed by us in a foreseeable way even in the quarter-on-quarter results. We don't have the volatility, the ups and downs that we used to have. The risk and the figures that Marcin mentioned speak for themselves. All the graphs, the results show a very good trajectory. There are very good results. We improved the risk situation. We want to get below the 5% ratio in the NPL, which will allow us to pay out a 75% dividend. We improved the KNF ratios. We are waiting for the individual decision regarding the dividend for 2025. But that will take some more time. And all this has brought us to the results that we have, the revenue above PLN 6 billion, net profits PLN 2.5 billion, a very good indexes of cost to income and cost of risk and NPL 5.6%. That is all a very good result in the environment of low or definitely lower interest rates. They went down at a faster rate than we forecast. So it means that our business strategy is working, and I want to take this opportunity to thank all the employees for this excellent result. And thank you for the dedication, for the effort and for working together to develop the Alior value, which we have described to you. That is all as far as the formal side is concerned, and I believe we can now move on to the Q&A session. Dominik Prokop: Thank you very much. So we can now start with questions. The first question, what was the impact of the NPL sale on the fourth quarter 2025? Marcin Ciszewski: In the fourth quarter, we recognized a sale of the second important portfolio that was sold in the previous year. In the fourth quarter, the income from that sale was PLN 110 million. Dominik Prokop: Thank you. The next question to Marcin. What sensitivity to interest rate changes can be expected after 2025? What is the current SOT ratio and the NII sensitivity to a rate cut by 100 points? Marcin Ciszewski: Well, as you realize, when interest rates are going down, there is a greater pressure to manage that particular ratio. We assume in our plans that this particular ratio will be maintained at the regulatory level. At the end of the year, we assume that it will be at the level of 4.5% in T1. And as regards the sensitivity, which was mentioned in the question, 100 bps should have an impact of PLN 120 million. Dominik Prokop: Thank you very much. And the next question about the dynamics of the loan portfolio in 2026. What do you expect? And is there a possibility of an increase in the business sector? Piotr Zabski: Let me start with the retail customer. We expect a positive dynamic as concerns consumer loans. The increase that we forecast not necessarily in the installment loans because there's a trend that we need to grapple with. But as far as mortgage loans are concerned, there will be a definite increase. And as far as the corporate sector is concerned, we have sold more year-on-year, but we need to see what's happening within the corporate sector portfolio. I already mentioned that in the micro enterprises, we have a considerable debt to be paid off. In the small and medium-sized companies, we are growing. As far as the leasing sector is concerned, there's a considerable growth of 16% year-on-year. So in the corporate sector, yes, there will be growth, the growth in the sectors where we are a good player. We want to grow in the micro sector as well, but in a safe way so that we don't experience the kind of crisis that we have as regards to risk and the debt that we keep having paying off still today. The large deals that are more and more present in the Polish market, we will certainly see our presence. But considering our scale, this is not our core activity. Dominik Prokop: Thank you. The question about the free loan sanction. What trends can be expected in the SKD sector? Can we expect that the target reserve level will represent 100%? Piotr Zabski: Well, I think Zdzislaw would be able to comment on that. SKD is a problem of all the sectors, including us, of course. We recognize the dynamic and want to reflect it in our reserve structure. Will it be 100%? Well, I don't think that SKD goes the same way that the French -- the Swiss franc loans because the regulatory authorities have taken this seriously on board. And I believe that the new law, which is being worked on and the Office of Consumer Protection will not translate into a modus operandi for all kinds of cowboy companies, legal firms, which are really the real beneficiary for this solution. And as far as the reserves are concerned, we want to reflect them in our books. Zdzislaw Wojtera: Indeed, for the model, it is impacted by 2 factors that is the incoming clashes and the number of cases that will get lost. The majority of cases is where we are, on the winning side. So if we look from that perspective, we don't see the need to create any further reserves or increase that often in 2026. Our point of assumption is much is going to be determined by the European Court of Justice. So we believe the trends we have spotted already are rather positive, and they have only gotten confirmed in the court adjudications, that is the bank expecting more -- the sustaining trend in the currency portfolio. In 2025, we had a rather conservative stance, but we don't think, given the number of cases which are coming in and the recent trends that we would have to create at the same level of reserve. It'll be smaller compared to 2025 in the current year. Dominik Prokop: Another question on the value of NPL portfolio. How much of that are balance positions and nonbalance positions? Marcin Ciszewski: As I said beforehand, this is one of major components as far as the whole management of NPL goes. I do not have at hand, however, so -- such details. We do not disclose this kind of detail. Dominik Prokop: Another question. The churn of Alior Bank customers, is it in any way different to the market average? And if so, where does that difference stem from? And how is the bank planning to manage, to cope with the churn? Piotr Zabski: Our difference is by no means different to the market average. Our customers, by and large, are not only loyal to one bank only. Most of our customers, except for the youngest ones have accounts in other banks. So the churn stands where it does. It is by no means satisfactory to us. However, what I stressed was certain marketing campaigns that we launched in 2024. They have already been brought to a close, resulting in the outflux of customers. The activity as I said was already concluded. What we did in 2025 does not come with this particular risk. But the impact was eventually be seen in 2024. Dominik Prokop: Than you. We will ask another question on the value of the mortgage currency portfolio towards the end of 2024 and 2025, respectively. What are the statistics of the legal actions here? Zdzislaw Wojtera: Towards the end of 2024, we had PLN 39 million gross value of Swiss franc. Later, a year after, it was only 7 -- the account statement towards 2024 was equivalent to PLN 1.4 billion, whereas towards the end of 2024, it was equivalent to PLN 1.3 billion. Euro mortgages is about PLN 1 billion, 3% thereof is within a certain legal action. To estimate the reserve the way we described in the financial statement, our assumption was that the target here for legal disputes as concerns the euro mortgages will be equivalent to 9%. Dominik Prokop: Thank you very much for that. Another question on the expected dynamics of the result of interest rates from commissions as well as operating costs in the current year. Zdzislaw Wojtera: For the interest rate result, it is quite a challenge to face to make it stable at the level it used to be, we would need to employ a more holistic view on that. Our ambition is to shape the revenue stream in 2026 in a manner to enable us to have amounts that would be very much aligned with what we had in 2025. So we assume that the growth of the new business will be enough to compensate for the effect of cut interest rates. So that's our stance. This is our working strategy for 2026. For the costs, our ambition is to make them stay at where they were in 2025, well beyond the 5% level, including the [ BFG ] cost, and I assume that we'll manage to curb them below the 5% level. Dominik Prokop: Thank you very much. Another question. After a 4 percentage point growth of credit in 2025, can we expect a 30% increase in the strategy perspective? An increase of strategy in 2026, is it going to surpass what we saw in 2025? Piotr Zabski: Possibly, this 4 percentage point increase give us a straightforward answer. Nevertheless, this concerns the way we sell. Well, the sales have increased without [ BIK A2 ]. This accounted for 20%. BIK A2, 17%. What we grappled with was churn. Essentially, it was pretty unique. So the portfolio could stay on sales only. Now being mindful of the strategy for mortgage sales, well, they stand depending on segment between 12% or 10%, 15%, 16% in some areas, especially the ones that we feel particularly confident. So we intend to grow. Are we going to achieve a 30% increase? Well, we are firm believers, we will. Dominik Prokop: Another question. To what a degree the growth of our mortgage portfolio is the result of the refinancing of credits, and to what extent does it stem from new credit loans? Piotr Zabski: Most of the sales are made up by new loans, yet the market trend is this. The majority of increase of sales on the market in the whole banking sector is very much the outcome of refinancing. In our case, however, it is mostly determined by the new loans as such. Dominik Prokop: Another question, what is the expected dynamics of the number of employees in 2026, a further drop of 5% in the course of 2025? Piotr Zabski: Well, we don't have these figures at hand. Employment we retain. Well, it is managed on an everyday basis, and it largely depends on the solutions we adopt. Obviously, with a view of automation will adjust our processes, taking advantage of the benefits of artificial intelligence, which the odds are we might want to reduce the size of employment, which doesn't preclude new jobs from popping up somewhere else. So I want to give you any straightforward answer to that question because we are here in a very dynamic environment. Dominik Prokop: The question on the cost of investments that are forecast for 2026 when compared to the level of 2025. Piotr Zabski: If I remember correctly, on a year-on-year basis, we've been stable. We have capped the leveling target. However, principle is, we don't disclose this particular data. The technology, by and large, is the last resort where we wouldn't want to invest. The bank badly want improvements in spite of the fact it's 17 years old. Well, by mergers and acquisitions, some systems did 10 years ago. So the growth of technology, making it more sophisticated is a priority to us. Savings may be allocated somewhere else wherever we can, but we'll also invest. Dominik Prokop: We have exhausted the questions. Thank you very much to the Board for the presentation, for your questions, and we'll see each other on the occasion of another quarterly meeting. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to JBT Marel's Earnings Conference Call for the Fourth Quarter and Full Year 2025. My name is Ellen, and I will be your conference operator today. As a reminder, today's call is being recorded. [Operator Instructions] I will now turn the call over to JBT Marel's Senior Director of Investor Relations, Marlee Spangler to begin today's conference. Marlee Spangler: Thank you, Ellen. Good morning, everyone, and thank you for joining our year-end 2025 conference call. With me on the call is our Chief Executive Officer, Brian Deck; President, Arni Sigurdsson; and Chief Financial Officer, Matt Meister. In today's call, we will use forward-looking statements that are subject to the safe harbor language in yesterday's press release and 8-K filing. JBT Marel's periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available on the IR website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found on our IR website. With that, I'll turn the call over to Brian. Brian Deck: Thanks, Marlee, and good morning. What a remarkable year 2025 has been as we completed our first year as JBT Marel. I can proudly say we are meeting our commitments we made and are realizing the tremendous benefits of the JBT and Marel combination. As a combined organization, we posted strong revenue growth and significant margin expansion. We capitalized on the anticipated recovery in protein demand with robust investment from the poultry industry. At the same time, we took decisive actions to improve the profitability of our meat and fish businesses. We realized meaningful synergy savings. Additionally, we saw an acceleration in our ability to capture order synergies over the course of 2025 as we integrated our complementary product and service capabilities. On the financial side, we achieved our goal of delivering adjusted EPS accretion within the first year of the transaction, and we exceeded the targeted deleveraging of our balance sheet. Looking ahead, we believe our continued strong orders reflect the exceptional value proposition JBT Marel brings to our customers. I'll let Arni elaborate. Arni Sigurdsson: Thanks, Brian. From a demand standpoint, we benefited from our diversified portfolio and attractive end market exposure with full year orders of $3.8 billion and more than $1 billion in the fourth quarter. As anticipated, that performance was led by exceptional strength in orders from the protein end markets, especially poultry, which has seen a sharp recovery following roughly 2 years of underinvestment. For the year, meat, beverages and pharma were also strong growth contributors, while Prepared Foods showed improvement in the fourth quarter compared to previous quarters. Geographically, we enjoyed gains across all regions in 2025. From a consumer and secular perspective, poultry continues to be a winning food category due to its affordability versus other proteins, its versatility in flavor adaptation and overall health benefits. In response to strong consumer demand and good economics from price/cost spreads, our global processing customers invested in core JBT [indiscernible] solutions that enhance production performance, improve yield and reduce labor costs. We are pleased that our customer-focused go-to-market strategy coupled with our comprehensive solutions spanning integrated lines, service, aftermarket support and digital connectivity led to order synergies. In fact, our ability to capture cross-selling benefits accelerated over the course of the year as our organizational design, product training, unified marketing and branding efforts took hold. For example, our complementary technology in Prepared Foods allowed us to secure orders that included integrated JBT and model solutions for chicken nugget and hamburger processing lines. Our ability to provide leading technology across these full value chains is a key differentiator, helping customers create high-quality products with enhanced uptime and efficiency. As such, an important part of our strategy is to invest to strengthen our offering to provide integrated solutions across all key product lines. All in, we captured $30 million in order synergies for the full year with more than half realized in the fourth quarter. Those orders are then expected to convert to revenue in 2026. Let me turn the call over to Matt to discuss our earnings performance in 2025 and provide guidance for 2026, which reflects another year of solid growth. Matthew Meister: Thanks, Arni. As Brian said, 2025 was a year of strong growth and excellent overall performance for JBT Marel. And as previewed last quarter, we recently released our new segment reporting, reflecting our go-forward organizational structure. The Protein Solutions segment includes businesses serving the initial stages of processing and harvesting of animal proteins. Prepared Food & Beverage Solutions segment predominantly focuses on downstream value-added preparation, preservation and packaging of foods and beverages into ready-to-eat or drink products. Now moving to a discussion of our results. Full year consolidated revenue of $3.8 billion exceeded the high end of our guidance as we successfully converted backlog to revenue, experienced solid demand for service and aftermarket solutions and continue to benefit from recovery in the poultry industry. The favorable year-over-year foreign exchange translation impact of $77 million was in line with our expectations. On a segment basis, revenues were $1.7 billion for Protein Solutions and $2.1 billion for Prepared Food & Beverage Solutions. For the year, we generated consolidated adjusted EBITDA of $600 million, representing a margin of 15.8%, which was at the midpoint of our guidance. On a segment basis, adjusted EBITDA margin for Protein Solutions was 20.1% and Food & Beverage Solutions margins were 17.2%. Overall, we delivered synergy savings as forecasted, realizing a $43 million year-over-year benefit, while we exited the year with run rate savings of approximately $85 million versus our 2024 baseline. Our savings were primarily driven by the initial efforts related to streamlining our organizational structure, optimizing public company and overlapping third-party costs and consolidating our spend with our supply base. Based on our solid execution for the first year, we are confident in our ability to achieve our goal of generating $150 million of run rate synergy savings as we exit 2027. Offsetting some of the synergy benefits was the impact of the higher tariff environment that we have experienced since April 2025. The cost to JBT Marel for the year was approximately $43 million, which is net of $15 million of cost avoidance through supplier negotiations and other cost mitigation efforts. After pricing actions, we estimate tariffs had an approximately 50 basis point impact on adjusted EBITDA margins in 2025. As forecasted, fourth quarter adjusted EBITDA margin of 16% declined sequentially due to the acceleration of tariff costs, along with investments we made to support our growth plans for 2026. Full year 2025 adjusted earnings per share was $6.41. As Brian pointed out, we are extremely pleased as this represents first year earnings accretion relative to legacy JBT's 2024 adjusted earnings of $6.15 per share. Turning to the balance sheet. When we completed the JBT Marel transaction in January 2025, our leverage ratio was just below 4x. At that time, we had a goal of bringing the leverage ratio down to 3x at year-end 2025. In fact, we ended the year with a leverage ratio of less than 2.9x, demonstrating the earnings and cash flow power of the combined company. Looking ahead to full year 2026, we expect healthy year-over-year growth in revenue, margins and earnings. Our consolidated guidance includes revenue growth of 5% to 7%, including a 1% foreign exchange benefit. Adjusted EBITDA margins are estimated at 17% to 17.5%. That represents year-over-year improvement of 145 basis points at the midpoint, with margin progression anticipated for both Protein Solutions and Prepared Food & Beverage segments. Included in our adjusted EBITDA guidance is the ongoing impact of tariffs, including Section 232, which remains in place. With the recent Supreme Court news on base reciprocal tariffs, we have begun to assess the potential impact this will have on our cost structure in 2026, and we will continue to monitor what appears to be a constantly moving target. Currently in our forecast, we have included approximately $45 million of higher full year tariff costs before pricing actions, with most of the increase occurring in the front half of 2026. Independently, we will continue to execute on our synergy savings, which we expect to realize year-over-year benefit of approximately $60 million. With that, we project adjusted earnings per share of $8 to $8.50 in 2026, a year-over-year increase of 29% at the midpoint, driven by EBITDA improvement and lower interest expense from the successful deleveraging of our balance sheet and low-cost capital structure. GAAP earnings per share guidance is expected to be $4.70 to $5.15. For the first quarter, which is typically our seasonally slowest, we are forecasting revenue of $920 million to $940 million and adjusted EBITDA margin of 14% to 15%. At the midpoint, this represents year-over-year growth of 9% in revenue and adjusted EBITDA margin improvement of 150 basis points. With that, let me turn the call back to Brian. Brian Deck: Thanks, Matt. As Arni and Matt detailed, we executed well against our synergy plan for 2025. Looking forward, we expect to realize incremental benefits from supplier consolidation and value-add engineering projects designed to take out parts complexity and cost. We will also continue back-office resource optimization and have a road map for select manufacturing and distribution footprint rationalization. This allows us to leverage previous investments made in state-of-the-art distribution and low-cost manufacturing, further improving customer service and our cost position. We got off to a great start in 2026 with our presence at IPPE, the world's largest poultry expo. For the first time, JBT Marel's full integrated solutions were on public display, which demonstrated the value of our comprehensive product portfolio. Customers' response to the benefits of our integrated systems, service connectivity and know-how was very positive. Given the conversations about demand trends with poultry industry leaders, we have confidence in the continued investment momentum, including renewed investment on the prepared food side. That, combined with favorable economics of the industry, makes us optimistic that the strength in poultry equipment demand will continue into 2026. As you can see, we are excited about the growth path ahead. We plan to provide further details on our strategic growth priorities and financial targets at our upcoming Investor Day, which will be held on Thursday, March 26 in New York City. A live stream webcast and replay of the event will be available on our IR website. Meanwhile, I am very proud of the progress our organization has made in achieving our first year goals for the integration of JBT and Marel. We are capitalizing on our enhanced customer value proposition and scale. And financially, we achieved the objectives we established. Of course, none of this was easy, requiring hard work and deep commitment at all levels of the organization. To our teams across the globe, thank you. Together, we are transforming the future of food. Now let's open the call to questions. Operator? Operator: [Operator Instructions] Our first question comes from Ross Sparenblek with William Blair. Ross Sparenblek: Maybe just starting off with the order dynamics in the fourth quarter. Can you give us a sense of what end markets stood out? It seemed like AGVs are maybe flat in the third quarter. We're starting to kind of turn into 2026, whereas the fruit and vegetable looks like it's down for the year. I don't know if that's expected to continue. Brian Deck: Sure. I would say, generally speaking, poultry remains the leader across all of our categories. and I would say, followed by beverages in 2020 -- as we ended the year 2025. Meat remains supportive as does fish. And we're starting to see some real momentum on the pet food side as well. And as you suggested, we do expect a nice recovery in AGV as we go into next year. So as we think about our ending backlog, we feel really good about the position we're in. And to further emphasize the poultry side, so when you look at our poultry orders, typically, and it was a very strong year, as you saw, Typically, that's somewhere in the range of 75% that goes to the poultry segment and then about 25% typically would go to the Prepared Food and Beverage segment. So it covers both segments just for informational purposes. And again, I think what we're going to see is continued investment on the front end and increased investment on the back end on the Prepared Food side. Ross Sparenblek: Okay. That's helpful. And then maybe just, Matt, in the fourth quarter, did you guys call out the synergies between the R&D and SG&A? And then also, can you just maybe provide the expectations for R&D and SG&A for 2026? Matthew Meister: Yes. We did not call out the synergies specifically to either R&D and SG&A. I mean -- but in general, the synergy savings that we saw in 2025 was predominantly in the SG&A part of OpEx, not in R&D. Going forward, our -- we split out SG&A and R&D in our segment disclosures. So you'll see that in the K going forward, but we aren't providing that guidance as a percent for 2026. Brian Deck: The one thing I would just add on the -- sorry, just real quick, Ross, one thing that we are doing on the R&D side is harmonizing the accounting treatment between the 2 businesses, legacy businesses. So you'll see a little bit different structure. Quite a bit of JBT's -- legacy JBT's R&D, if you will, was in cost of goods sold. and whereas Marel is kind of all in one spot. So we're going to re-harmonize that according to GAAP. We made that change in Q4, and we'll make that adjustment quarterly, yes. Ross Sparenblek: Okay. So this is the first quarter where we're going to have a full apples-to-apples as we think about... Brian Deck: Yes. Q4. Operator: Our next question comes from Mig Dobre with RW Baird. Mircea Dobre: Just looking at the new segment reporting structure, maybe a couple of points of clarification here. I don't know if I missed this, but when you're thinking about the top line growth for '26, is there a way to differentiate between Protein Solutions and Prepared Food & Beverage? And related to this, I would imagine that a lot of the margin expansion that's factored into the overall guidance would flow through the Protein Solutions segment just because optically, it looks to me like this is where a good chunk of the Marel business is now housed. Do correct me if I'm wrong there? And maybe you can comment a little bit about margins perhaps for both segments. . Matthew Meister: Yes, Mig, on the first part of your question on revenue for 2026, again, we're guiding to a 5% to 7% range overall. And for Protein Solutions, it's probably at the higher end of that range and for Prepared Food & Beverage, probably at the lower end of that range, which kind of gets you to that midpoint that we have in our forecast. And then from a margin perspective, we're expecting to see margin improvement in both segments, obviously, from the benefit of the higher volume as well as from the continued benefits from the synergy actions that we are taking. To be honest, they're relatively the same in terms of improvement with slightly higher improvement actually in Prepared Food & Beverage just because of some of the impacts that we saw at the end of 2025. We're correcting some of those issues and getting a little bit better flow-through in 2026. Mircea Dobre: Got it. And you anticipated something else I wanted to ask about. You called out some -- maybe some inefficiencies in prepared food and beverage. Can you put a finer point on this in terms of what's been going on there? Is this the legacy JBT business? Is there something else? And what's the line of sight on getting that improvement operationally there? Matthew Meister: Yes. As we somewhat forecasted in the last call that we had after Q3, we did have some challenges primarily on the AGV side. And we did see that impact us in Q4 as we predicted. And A lot of that is driven by some of their impacts from the end market from the higher tariffs, and that's impacting them more significantly just because they have a little bit of a more broader end market focus than the rest of the business. But we expect to see our ability through that -- those issues through Q1 and early Q2. So it should be relatively contained the first quarter, maybe a little bit bleed into the early part of the second quarter. Mircea Dobre: All right. My final question on tariffs. So you sized the drag for 2026, but that was, as I understood it, sort of the gross number, it's ex pricing or any other mitigation. And I'm sort of curious, how are you thinking about pricing? I mean, are you in a position where a good chunk of this figure can actually be mitigated as the year progresses or not? Brian Deck: Yes, Mig, it's Brian. So we have included in our forecast some mitigation on the pricing side. We do think that there will be still some net negative benefit perhaps in the 25 basis points range for the full year, maybe somewhere between 25 and 50 basis points. It really kind of depends on the status of the markets, right? We don't feel it's 100% on the customers' backs to take on these cost increases. So we're doing everything that we can on the cost side to mitigate that. So we'll continue to do that. But we are intentional -- we'll be intentional on select price increases where we think it's supportive from the market perspective. Operator: Our next question comes from Justin Ages with CJS Securities. Justin Ages: Just a question on capital allocation. Good progress on getting leverage below the target for the first year here. Just wanted to know how you guys are thinking about what to do with the capacity with the convertible coming up in May. Any detail there would be helpful. Brian Deck: Yes. Well, let me start. I'll just say this, we are laser-focused on completing the integration, right? We still have some time to go there. So we don't want to get ahead of ourselves. We certainly want to get into that 2 to 2.5x leverage range before we start thinking seriously. That said, and I'll let Arni elaborate a little bit, there will be a time when we think we can get some of the benefits of what we've done on the protein side in other areas of the business. Arni Sigurdsson: Yes. And I mean, how we are thinking about it and it kind of feeds through our messaging all along and the strategic rationale for the merger of JBT and [ Marel ] is, we see a lot of benefit when we have a broader portfolio that is serving an end market or a particular customer. So those kind of integrated lines and integrated solutions, that's where we see where the customer needs are, the opportunity to improve the operation of our customers and improve the value proposition. So kind of as things evolve and kind of we feel the timing is right, kind of as Brian said, kind of you can -- that's kind of an area that we'll probably be very much focused on to look at kind of where are the opportunities to strengthen our value proposition and be able to work better with our customers to partner with them on their journey. Matthew Meister: Justin, just to touch on 2026 specifically, we did the convertible in September of 2025 to prefund the financing to retire the notes in May. So we're in a really good position here. We expect to be able to leverage the liquidity that we have on our revolving credit facility to be able to take out the convert that plus the cash flow that we will generate this year, we do expect all things sort of staying the way they are, that we'll be in the range of 2 to 2.5x leverage by the end of 2026. And then we'll see where we go from there from an M&A perspective, like Brian and Arni discussed. Justin Ages: Very helpful. And then switching to tariffs. Can you give us a little more detail on where you are in the supply chain regionalization? I know you mentioned looking at some factories in the U.S. And then along with that, can you also comment on -- and I know it's a moving target, customers and their orders being impacted by this kind of moving tariff regime? Brian Deck: Sure. So from a supply chain perspective, it's still relatively early days. We have already started moving parts suppliers. to -- from Europe to the U.S. where it's feasible. That takes a little bit of time just with product testing and first articles, et cetera. So that's further along, if you will. From a manufacturing side, we certainly are very busy filling our backlog. So we are starting that process as well. So that will be a continuum during the course of 2026. But I don't think we will be complete with that until more likely the 2027 time frame. Arni Sigurdsson: Yes. And just to kind of emphasize like we do have, for example, on the poultry side, we do have a plant that kind of mirrors in the U.S. that mirrors a plant in Europe. So that's where we can kind of move faster, which is kind of really good because of how the poultry market is evolving. So that's kind of an area that we can maybe get some short-term benefit. But obviously, if you want to do more structural things, it will take longer. And then we also have strong distribution centers regionally in the U.S. that we're leveraging more and more directly for the local market. Brian Deck: On the parts side, in particular. Operator: Your next question comes from Walter Liptak with Seaport Research. Walter Liptak: I wanted to ask about the sales synergies for 2025. Was that to your expectations at $30 million? And do you have a guidance number or an expectation for 2026? Brian Deck: Sure. As we mentioned on the prepared remarks, it did -- the benefits on the synergies revenue side did accelerate through the year. And it's essentially as you might think, right? You get the organizational structure in place first, then you start training, get marketing, and it really did pick up through the course of the year. So again, $30 million with approximately half in the fourth quarter alone. So I would -- and that will convert to revenue in 2026. So I would say we are ahead of pace on our original $75 million cumulative revenue synergies by 2027. We haven't put a new number out there, but we will as part of the Investor Day at the end of March. But clearly, we're ahead of pace. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back to Brian Deck for closing remarks. Brian Deck: Thank you all for joining us this morning. As always, the IR team will be available if you have any additional questions, and I look forward to seeing you at our upcoming Investor Day. Operator: This concludes today's call. Thank you for attending. You may now disconnect. f
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the FIBRA Prologis Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Alexandra, Head of Investor Relations. You may begin. Alexandra Violante: Thank you, Colby, and good morning, everyone. Welcome to our fourth quarter and full year 2025 earnings conference call. Before we begin our prepared remarks, please note that all information disclosed during this call is proprietary and all rights are reserved. This material is provided for informational purposes only and is not a solicitation of an offer to buy or sell any securities. Forward-looking statements made during this call are based on information available as of today. Our actual results, performance, prospects or opportunities may differ materially from those expressed in or implied by the forward-looking statements. Additionally, during this call, we may refer to certain nonaccounting financial measures. The company does not assume any obligations to update or revise any of these forward-looking statements in the future, whether as a result of new information, future events or otherwise, except as required by law. As is our practice, we had prepared supplementary materials that we may reference during the call as well. If you have not already done so, I will encourage you to visit our website at fibraprologis.com and download this material. On today's call, we will hear from Hector Ibarzabal, our CEO, who will discuss our strategy and market conditions; and Roberto Girault, our CFO, who will review results and guidance. Also joining us today is Federico Cantu, our Head of Operations. With that, it's my pleasure to hand the call over to Hector. Hector Ibarzabal: Thank you, Violante, and good morning, everyone. 2025 marked the first complete year with Terrafina fully reflected in our numbers. And once again, we delivered excellent performance. This year, we successfully acquired more than 99% of Terrafina. And last week, we completed its delisting fully aligned with our original plan. We issued our first international bond, achieving the tightest spread ever for FIBRA, a strong validation of our credit quality and balance sheet strength. We delivered solid operational and financial results, maintaining high occupancy levels and capturing meaningful rent growth on rollover. Jorge will provide further details shortly. Last quarter, we noted that if tariff uncertainty continues, companies would still need to move forward to serve their end market. That is exactly what we are seeing. Customers are maintaining and, in some cases, expanding their operations with an important long-term conviction. This is reflected in the strong retention we had for the full year, a weighted average lease term of over 5 years and an expansion driven leasing activity in Guadalajara, Reynosa and Monterrey. Mexico City and Guadalajara remain our strongest markets, supported by domestic consumption. We saw particularly strong activity from 3PLs, electronics, retail and e-commerce customers. In the border markets and Monterrey, demand remains concentrated in logistics, electronics, furniture and home goods. From an industry standpoint, new leasing activity totaled 11.9 million square feet up from 10 million last quarter and above the 8.6 million of the last 12 months. Mexico City led with an outstanding 6.1 million square feet while the rest of our markets performed broadly in line with recent averages. Net absorption reached 8.3 million square feet, slightly above the $8.1 million recorded in the third quarter as Tijuana returned to positive absorption. New supply remained elevated at 11.8 million square feet, primarily driven by Monterrey. This led to vacancy across our markets increasing 80 basis points to 6%. Construction starts declined to 6.7 million square feet with virtually no new starts in the border markets. Developers appear to be adjusting appropriately to current supply conditions, which should help rebalance markets going forward. In terms of rents, manufacturing markets experienced modest declines, while consumption-driven markets continue to post high single-digit annualized rent growth reinforcing the strength of domestic demand fundamentals. The path ahead may include volatility, but we remain constructive on Mexico's long-term outlook. The country's and strategic role within North America supply chain, combined with the structural nearshoring trends and resilient domestic consumption continues to support demand for high-quality logistics real estate. We remain focused on disciplined execution, maintaining a strong balance sheet and driving sustainable rent revenue growth. With that, I'll hand it over to Jorge. Jorge Girault: Thank you, Hector, and good morning, everyone. Despite regional uncertainties in the context of the USMCA, we delivered a strong quarter and an outstanding year. We grew earnings, maintain high occupancy and further strengthened our balance sheet. In December, we reached 99.8% ownership of Terrafina. And last February 18, we received authorization to cancel its CBFIs. Terrafina is now fully integrated into FIBRA Prologis. This will enhance our scale, liquidity and efficiency, generating synergies that benefit -- that will benefit our holders. Moving to our financial results. FFO was $94 million in the quarter and $376 million for the year or $0.2339 per certificate, up 20% year-over-year. This reflects the Terrafina acquisition and our ability to capture rent to market. AFFO totaled $64.4 million for the quarter and $307 million for the year, up 36%, a record and clear evidence of the strength of our platform. Let me go to the operational fundamentals. We leased 2.2 million square feet during the quarter. Our occupancy average and period end was approximately 97%, in line with expectations. Net effective rent change on rollover was almost 65% in the quarter and 59% for the last 12 months. Same-store cash NOI grew -- growth was 9.4% and GAAP almost 14%. This is a result of capturing markets and market rents as lease roll over, supported by annual escalation and stronger peso. Turning to the balance sheet. We continue to operate with a conservative financial profile. For example, late in '25 and early this year, we issued two $500 million international bonds. Both transactions priced below Mexico sovereign and were significantly oversubscribed, which marks an important milestone. I'm proud and humbled by these results. Not many publicly traded companies in Mexico have achieved something of this nature, certainly not in the FIBRA sector. Proceeds were used to refinance short-term debt and repay Terrafina's bond resulting in a debt neutral transaction. As a consequence, we're maintaining a healthy loan-to-value, extended debt maturities and preserve strong credit metrics. With Terrafina full integrated, we now have greater financial flexibility and enhanced liquidity while remaining disciplined on leverage. Moving to 2025 taxable distribution. Taxable income increased materially during 2025 due to inflation and FX appreciation. As a result, we distributed more than twice our guided amount. The guided portion was paid in cash and the remainder in kind through CBFIs, fully complying with FIBRA requirements. Now let me move to guidance. Looking ahead and based on current visibility, we expect year-end occupancy between 96.5% and 98.5%. Same-store cash NOI growth between 9% and 13%, annual CapEx between 10% and 12% of NOI. G&A expense between $65 million and $70 million. Full year FFO per CBFI to be between $0.24 and $0.26. We are setting our guided distribution per CBFI at $0.17 which represents more than a 13% increase when compared to our 2025 dividend guidance. We expect $200 million to $500 million in acquisitions while maintaining balance sheet discipline. On the disposition front, we will continue to execute our strategy by exiting noncore markets on our own terms and at the right time. As a result, we will not provide guidance on disposition. I want to emphasize that our strategy remains clear. We are focused on delivering long-term value, executing with discipline and leveraging our position as Mexico's largest industrial FIBRA by market capitalization, supported by a strong balance sheet and world-class platform. I want to thank our teams on the ground and across Prologis for exceptional work on strengthening the balance sheet while maintaining operational excellence. I'll now pass it to Hector for closing remarks. Hector Ibarzabal: Before closing, I would like to address our previously announced management succession. As you know, in early January, we announced my retirement as CEO of FIBRA Prologis, effective June 30. Jorge, our current CFO, will assume the role of CEO. This succession plan has been thoughtfully developed over time, and I have full confidence in his leadership, strategic clarity and deep understanding of our business. Alexandra, currently our Head of Investor Relations, will step into the CFO role. She brings a strong financial expertise and capital markets experience, ensuring continuity and discipline in our financial management. This transition reflects the depth of our team and the strength of our organization. You should expect seamless execution and continuous focus on long-term value creation. Finally, I want to thank our team, our customers and our shareholders for their continued trust and partnership. It has been an honor to lead this company, and I remain fully confident in its future. Now let me open the floor for Q&A. Operator, please go ahead. Operator: [Operator Instructions] Your first question comes from Adrian Huerta with JPMorgan. Adrian Huerta: Hector, best wishes on whatever you do, and thank you very much for all these years -- in the future and congrats on the rest of the team. For Jorge and Alexandra. My question has to do with the maintenance cost. We saw a large increase in the quarter and overall in the year, they were significantly higher than what they were in 2024. Any color on this line and what we should expect going forward? Federico Cantú: Adrian, this is Federico Cantu. Thank you for your question. So if you look at the numbers, we had increases in operating and maintenance costs, primarily driven to -- by inflation and wage increases. We also had property taxes increase, which are noncontrollable. If you look at for the full year, we came out at 87%, and we expect going forward to be in terms of our NOI margin between mid-80s to upper 80s in terms of margin. Operator: Your next question comes from Pablo Ricalde with Itau. Pablo Ricalde Martinez: I have 1 question on the CapEx line. We saw -- I think this quarter. I did want to see how should we see that line going forward? I know there was an issue with the core assets and assets related to Terrafina, but I just want to understand further how should this line going forward. Federico Cantú: Okay. So thank you, Pablo, for your question. This is Federico. So we did have, towards the end of the year, a catch-up in the property improvement investments, plus we had higher TIs and leasing commissions, primarily driven by increased leasing activity in the second half of the year. However, I'd like to encourage you to look at the full year, the trailing fourth quarter average, which came out to 10.7%, which is in line with our expectations. Operator: Your next question comes from the line of Andre Zini with Citigroup. André Mazini: Yes. Congrats Jorge and Ale on the new roles and Hector, I know we have at least 1 more earnings call but really hope to keep interacting after that. So the question is on the geographical breakdown of the $200 million to $500 million acquisition guidance, if you could pretty much guide us to where you think you're going to be deploying this capital in terms of geography, maybe the recent events around Guadalajara and that region change anything? And is the breakdown in manufacturing in logistics. And in this point, given all the trade volatility, is it fair to say that you guys are more excited with logistics over manufacturing or not necessarily? Hector Ibarzabal: Thank you very much, Andre. Going forward, as you know, we have full visibility to -- about what PLD is developing. The most important market today, as I mentioned, in my opening remarks, is Mexico City, where, by the way, and it's not a coincidence, we have our largest exposure. So most of the opportunities are coming from Mexico City market, particularly in Toluca, where we are having a very successful development going on. Talking about the future, I'm very comfortable because the sentiment that we received from our customers in the border is not negative. Our customers keep on operating business as usual. There's very isolated cases of companies shutting down, but that's far away from being a trend. I would highlight that most of our customers are expecting positive news by the end of the second quarter on the USMCA renegotiation, but the leading companies are already commencing to start operations, understanding that uncertainty on this regard might be a constant going forward. So we are very positive about the fundamentals. The fundamentals is still very solid. And the conversations that we have with the authorities make us be optimistic as well on a final resolution. Guadalajara is a market that we like a lot. And it's a market where we are focusing potential future acquisitions. Federico Cantú: Just if I may add, to your question, Andre about manufacturing and logistics. So if you think about our business, roughly half of it is manufacturing, half is logistics. During last year, we had about 1/3 of our transactions for manufacturing and 2/3 logistics. And bear in mind that we design our buildings to be agnostic so we can have our users, our customers use them for logistics or manufacturing and so we like them both, and we feel very positive going forward on both sectors. Operator: Your next question comes from the line of David Soto with Scotiabank. David Soto Soto: Just a quick one regarding to your acquisition guidance. Should we expect a larger share of the transaction to come from third-party acquisitions? Or should we expect a higher portion from your parent company? Hector Ibarzabal: Thank you, David. We have much better visibility to what is happening on what PLD is developing and we know for sure what is going to be happening on that regard. On the third-party front, we are permanently looking for our potential opportunity that would help us to create value. When we buy from third parties, it's not the objective of trying to be bigger or trying to have a higher penetration. When we buy from third parties it is because we are positive that with that acquisition, we will be creating value. In other words, we buy high-quality real estate and such quality of real estate need to be at the right price in order to be something of our target investments. For us, it's always the most difficult part of our guidance, try to anticipate how many of these opportunities are going to be finalizing on FIBRA Prologis. But we are positive because we know for sure the different opportunities that will be out of the market and understanding the low cost of capital and the very precise view that we have on the potential behavior of our markets going forward, we feel positive that we will be able to land some of those opportunities with us. Operator: Your next question comes from the line of Jorel Guilloty with Goldman Sachs. Wilfredo Jorel Guilloty: So I wanted to focus on the acquisition and disposition guidance. So just to understand you have $200 million to $500 million in acquisition guidance, but you have 0 for disposition. So I was wondering, what makes 2026 more of an acquisition market year for you versus a selling market for you? Is it that there's more attractive acquisition pricing versus disposition? Is it due to, I guess, better visibility of what's coming to market from potential sellers versus the possibility of buyers. Just trying to understand why you have -- which is quite different from where we were, I guess, at the very beginning of last year, where we have an acquisition disposition guidance that was sort of balanced out. Hector Ibarzabal: Yes. Thank you, Jorel. And let me start by the disposition front. As I mentioned in my opening remarks, this is the full year where we have all the numbers in Terrafina incorporated in our P&L. I need to mention that it's not a surprise, but we are very pleased with the performance that such assets has -- they have had with us. The disposition portfolio that we have has importantly increased above 30% on all the renewals that we have had, and its vacancy has been above what we were expecting. We tried to launch the first dispo portfolio last year, and I think that we learn a lot from that process. Our dispo strategy is more regional and being a regional strategy, we need to do a better job on sizing such portfolios. In other words, we are positive about the quality of the properties that we are selling. Number two, we have no urgency to sell those properties because we know today better than ever the quality and the value that those properties have. This is why we are not guiding on dispositions. We will sell the properties at the right timing and in the right conditions. And in the meantime, it's going to be positive for a P&L to keep those assets on board. We are showing that we have good performance on operating those properties, and we will keep on doing them until we reach the right conditions in order to sell them. Talking about acquisitions, through PLD, we have full visibility on replacement costs as of today, and we have full visibility as well on market trend conditions. We have very strong information about the forecast that we do see on market threats. The combination of all these with a low cost of capital, allow us to be a very competitive buyer for the different opportunities that might arise in the market. We anticipate that there's going to be 3 or potentially 4 different sectors that are going to be getting maturity on this year and some of they have interesting properties that eventually we will be analyzing and if we reach the right price and the right conditions, we will be executing on them. Operator: Your next question comes from the line of [ Jorge Vargas ] with GBM. Unknown Analyst: Thank you for the call. You achieved nearly 40% rental spreads in the quarter, with vacancy trending upwards and rent growth moderating, what is a sustainable spread assumption for 2026 and 2027. Jorge Girault: Thank you, Jorge, this is Jorge Girault. Your question, if I heard it right, I have to do with late spreads for '26. That was your question. We don't guide on -- necessarily on rent spreads. What we tell you is where our mark-to-market is today. And you're right, in some market trends have come down, but we still have a nice spread in those mark-to-market spread. Overall, for the whole portfolio on a weighted average basis is around 40%, a little bit less than that, but we feel comfortable to capture that spread during 2026. What will be? It depends on the market, the tenor of the contract, et cetera. But the short answer to your question is we will have -- we do see a nice mark-to-market lease roll during 2026. Federico Cantú: And if I may add, just would like to highlight the remarkable job that our teams on the ground do every day and taking advantage of our location, the quality of our properties, the quality of our service as well and making sure that we're marking to market and then we're capturing the highest value -- providing the highest value for our customers. So that is something that we'll continue to do. And we expect, despite the challenges in some of our markets to be able to capture good leasing spreads. Operator: Your next question comes from the line of Alan Macias with Bank of America. Alan Macias: Congratulations for the new positions. Just on funding for acquisitions, what should we be thinking about what level adjusted FFO payout ratio? And what leverage target would you be willing to reach if you do not do any dispositions of assets during the year? Jorge Girault: This is Jorge. Look, what we have said in the past is our loan-to-value, our feeling, it would be 35%. Right now, we're in the mid 20. We have just above $1 billion of capacity on the line. We still have $1 billion. We will use the line for any acquisitions that may come during the year. And we have many levers to pull down the road. If we do some dispositions, obviously, we can use part of those proceeds to do these acquisitions. So there are many levers. I can tell you that the balance sheet has the liquidity and the strength today to take care of at least the guidance that we have in place. Operator: [Operator Instructions] And with no further questions in queue, I'd like to turn the conference back over to Hector Ibarzabal, CEO, for closing remarks. Hector Ibarzabal: Thank you very much, everyone, for your time devoted to our call this morning. I am very excited about what we have achieved so far, and I'm convinced that the best is yet to come. Our current foundation will bring amazing opportunities going forward. Rest assured that we will remain focused on creating value for our investors. Talk to you in the next opportunity. Thank you. Operator: This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to Haverty's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Tiffany Hinkle, Assistant Vice President of Financial Reporting, Investor Relations. Thank you, you may begin. Tiffany Hinkle: Thank you, operator. Good morning, and thank you for joining our fourth quarter earnings call. I'm here today with our President and CEO, Steve Burdette; and Executive Vice President and CFO, Richard Hare. Before we begin, I'd like to remind everyone that today's conference call may contain forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those made or implied in such statements, which speak only as of the date they are made and which we undertake no obligation to publicly update or revise. Factors that could cause actual results to differ include economic and competitive conditions and other uncertainties detailed in the company's reports filed with the SEC. A replay of this call will be available on our Investor Relations website this afternoon. For commentary about our business, I will now turn the call over to Steve. Steven Burdette: Good morning, and thank you for joining our 2025 fourth quarter and 2025 year-end conference call. We are excited to report an increase in both written and delivered comp sales for Q4, marking our second consecutive quarter of positive comps. Our net sales for Q4 were $201.9 million, which was up 9.5% with comps up 8.2%. Total written sales were up 3.5% with comps up 3.2%. Gross margins for the quarter came in at 60.4% versus 61.9% last year. However, we did incur $3.9 million in LIFO charges during the quarter. Pretax income for the quarter was $10.8 million or 5.3% operating margin versus $9.6 million or 5.2% operating margin, resulting in a $0.51 a share versus $0.49 a share. For the calendar year 2025, our net sales came in at $759 million, which was up 5% with comps up 2.1%. Gross margins for the year were flat with last year coming in at 60.7%, including $4.6 million in LIFO charges. Pretax profits were $26.8 million or 3.5% operating margin versus $26.2 million or 3.6% operating margin, resulting in $1.19 a share, which was flat with last year. Richard will provide additional details regarding our SG&A expenses and LIFO impact in his discussion. During the quarter, we saw our written sales fall off as the quarter progressed. However, it was nice to see our after Thanksgiving sales up 6.2% with strong average ticket in design at approximately $8,500 and our overall average ticket at $4,400-plus. For Q4, our average ticket increased 10.9% to $3,759 with design average ticket growing 11.9% to $8,072. Our design business accounted for 33.3% of our sales, driven by our upholstery special order business up 14.8%. Traffic for the quarter followed our written sales trend during the quarter, ending with a decrease in the low single digits for the quarter overall. It is important to remember for comparison purposes that we had just experienced our first positive traffic increase in November and December of 2024 following the presidential election in several years. Conversion rates remained slightly down for the quarter. For the calendar year, our written business was up 2.8% with comps up 0.7%. Our average ticket came in at $3,530, up 4.7%, and our designer average ticket was $7,781, up 9.7%. Traffic was up in the mid-single digits with conversion rates continuing to show improvement. Our merchandising and supply chain teams continue to partner with our outstanding vendors to ensure that our products are flowing consistently to avoid any disruptions for our customers. Our merchandising team continues to challenge our assortment to make sure that we are testing new styles, new colors, new price points and new categories, which creates excitement for our teams and customers by helping to differentiate ourselves from our competition. From a category perspective, for the quarter, bedroom and upholstery were up mid-single digits, followed by occasional up low single digits; and dining, mattresses and decor coming in flat. Our inventories are in a great position as we continue to focus on having best sellers in stock for immediate gratification for our customers. At year-end, our inventories were up $12.7 million versus last year to $96.2 million. We do expect to see this drop over the next 6 months as we had to get in front of some of the most recent tariffs in Q4 with our inventory purchases and new product arrivals. We did get some good news late December when the administration delayed the additional 5% tariff on Section 232 upholstered wood furniture, leaving it at 25%. However, last Friday, we finally heard from the Supreme Court as they ruled that the IEEPA tariffs were illegal. As we heard over the weekend from the administration, and we verified this morning effective at 12:01 a.m. today, a 10% worldwide tariff has been issued through Section 122 of the 1974 Trade Act. This tariff to understanding will replace the IEEPA tariffs and the fentanyl tariffs and these Section 122 tariffs are not stackable on Section 232 tariffs or applicable under the current USMCA agreement; however, they are stackable with the Section 301 tariffs. Haverty's will be thoughtful and deliberate in our approach with the continuing tariff adjustments so that we have a minimal impact on our customers, team members and shareholders. Our marketing, creative and media plans continue to resonate with our customers through broadcast, connected TV and digital marketing channels. We saw web traffic and key site engagement increased double digits year-over-year, contributing to our in-store success, and our written e-commerce sales increased 12.3% for the quarter. We ran our second direct mail campaign in late October in preparation for the after Thanksgiving shopping period. It was a 16-page piece mailed to approximately 750,000 new customers that highlighted our product assortment and design capabilities. We refined our targeting models based on results from the first campaign and added pricing, which we believe helped contribute to an improved conversion rate. Our marketing dollars were down slightly for the quarter as a percent of net sales, as we were able to leverage the increase in sales. We continue to emphasize 60 months no interest for competitive reasons in our promotions, creating an increase in our credit costs for the quarter. However, these credit costs remained slightly down for the year. We ended the year at 129 stores, but already have plans for 5 new stores in 2026. Four of the stores have been announced in St. Louis, Nashville and 2 in Houston. We are excited to announce today that we will be entering Pennsylvania, which will be our 18th state. We will open in Q4 in North Pittsburgh across from the Ross township mall. We are currently in lease negotiations on several other locations that we hope to be able to announce by next quarter's call. The opening of 5 new stores in 2026, along with 4 planned remodels, a refresh of the mattress and design areas in our stores, of which approximately 35% will be done, will push our CapEx budget to around $33.5 million, which Richard will cover in more detail. After careful evaluation, we have decided to close our Alexandria, Louisiana, location in March. This decision to close was driven by significant demographic shifts in the market, stagnant housing growth and the need for a major remodel. We wanted to thank all our team members who have served the Alexandria customers and surrounding markets for over the 40-plus years. Our dedicated distribution, home delivery and customer service teams continue their wonderful work serving our customers across our 17, soon-to-be 18 states. All of our new store growth will be served by our current distribution network, requiring no new investments. The ability of the teams to adjust the business to the current demands is outstanding, allowing us to provide our customers with a memorable experience on each and every encounter. The industry continues to face ongoing challenges. But even with all the uncertainty, our optimism remains high as we rebounded in 2025, feeling like we hit an inflection point in Q3 with the momentum continuing into Q4. Our push in 2026 is to continue our focus on testing new ideas and processes along with continuing our organic store growth. Thank you to all our Haverty team members for your dedication to our customers and our company's success. Our people define us, and I am proud to be a part of this great team. I want to continue to repeat that our debt-free balance sheet, our Haverty-branded products, our operational consistency, our integrity, our consumer focus, our design services, our commitment to quality and our regret-free experience provides our customers with the comfort and confidence to know that furnishing their homes with Haverty's is a great long-term investment. I will now turn the call over to Richard. Richard Hare: Thank you, Steve, and good morning. In the fourth quarter of 2025, net sales were $201.9 million, a 9.5% increase over the prior year quarter. Comparable store sales were up 8.2% over the prior year period. Our gross profit margin decreased 150 basis points to 60.4% from 61.9%. Excluding the impact of the $3.9 million LIFO expense in the fourth quarter of '25 and the $925,000 LIFO pickup in the prior year quarter, our adjusted gross profit margin increased 100 basis points to 62.4% from 61.4%. Selling, general and administrative expenses increased $6.6 million or 6.3% to $112.5 million. As a percent of sales, these costs approximated 55.7% of sales, down from 57.4% in the prior year's quarter. We experienced increased selling, occupancy and administrative costs during the quarter. Other income expense in the fourth quarter of 2025 was $29,000, and interest income was approximately $1.2 million during the fourth quarter of 2025. Income before income taxes increased $1.2 million to $10.8 million. Our tax expense was $2.3 million for the fourth quarter of 2025, which resulted in annual effective tax rate of 26.5% for the year. Net income for the fourth quarter of 2025 was $8.5 million or $0.51 per diluted share on our common stock compared to net income of $8.2 million or $0.49 per share in the comparable quarter last year. Now turning to our balance sheet. At the end of the fourth quarter, our inventories were $96.2 million, which was up $12.7 million from December 31, 2024, and up $3.7 million versus Q3 of 2025. At the end of the fourth quarter, our customer deposits were $35.5 million, which was down $5.2 million from the December 31, 2024, balance and down $8.4 million from the Q3 2025 balance. We ended the quarter with $125.3 million of cash and cash equivalents, and we have no funded debt on our balance sheet at the end of Q4 of 2025. Looking at some of our cash flow usage. Capital expenditures were $4.4 million for Q4 2025 and $19.7 million for the calendar year. We also paid out $5.3 million of regular dividends in the quarter and $20.8 million for the calendar year. We purchased $2.8 million of common stock during the quarter at an average price of $22.63. During the calendar year, we purchased a total of $4.8 million of common stock, representing 216,482 shares. On February 20, 2026, our Board of Directors approved an additional $15 million authorization for our share buyback program. We currently have approximately $18.3 million of existing authorization in our buyback program. Our earnings release lists out several additional forward-looking statements, including our future expectations of certain financial metrics. I will highlight a few, but please refer to our press release for additional commentary. On February 20, 2026, the Supreme Court invalidated certain tariffs imposed by the administration under the International Emergency Economic Protection Act during 2025. The administration announced its intentions to impose new tariffs under different regulations. Our 2026 guidance includes the impact of the new tariffs announced by the administration. We continue to monitor tariff developments and assess their potential impact on our business. We expect our gross margins for 2026 to be between 60.5% and 61%. We anticipate gross profit margins will be impacted by our current estimates of product freight and LIFO expenses. Our fixed and discretionary type SG&A expenses for 2026 are expected to be in the $307 million to $309 million range. The increases over 2025 are primarily related to store growth and modest inflation. The variable-type costs within SG&A for 2026 are expected to remain in the range of 18.6% to 18.8%. Our planned CapEx for 2026 is $33.5 million. Anticipated new or replacement stores, remodels and expansions account for $27.2 million. Investments in our distribution network are expected to be $3.2 million, and investments in our information technology are expected to be approximately $3.1 million. Our anticipated effective tax rate in 2026 is expected to be 26%. This projection excludes the impact from vesting of stock awards and any potential new tax legislation. This completes my commentary on the fourth quarter financial results. Operator, we would like to open up the call for any questions at this time. Operator: [Operator Instructions]. First question comes from Anthony Lebiedzinski with Sidoti & Company. Anthony Lebiedzinski: Certainly nice performance here in the fourth quarter. Can you first just start us off with just some further details about your same-store sales trends throughout the quarter? If you could just kind of walk us through October through December, provide some additional color on that? Richard Hare: Sure. So in terms of the trend for the business. In terms of written business, we were up high single digits in October. We were -- in November, we were middle single digits up. In November and December, we were down low single digits. In terms of deliveries, we were up 10% in October, mid-single digits in November and up almost 15% in December. Anthony Lebiedzinski: That's very helpful. Okay. And then -- so I guess the other thing is as we look at the guidance for variable SG&A expenses for '26, it implies essentially flattish percentage from '25. You've talked about some sales momentum here that you had. I know there was a deceleration in the last month of the quarter, but nevertheless, the second consecutive quarter of positive same-store sales. So maybe if you could just kind of walk us through the different puts and takes in terms of what's affecting the variable component of your SG&A outlook for '26? Richard Hare: Sure. Anthony, so we came in, I believe, at 18.9% for the fourth quarter. We felt good about our guidance for 2025 being between 18.6% and 18.8%. Looking at this year, we felt like we needed to keep it in line, even though we anticipate having some leverage, we do anticipate having basically higher pressure on the selling cost in 2026 with higher sales commissions, and we need to remain competitive, so there could be some additional third-party credit costs going to the next year. So we wanted to keep that basically flat as a percentage. And then you noticed on the gross profit margins, we increased those. We had some significant pressure this year, as we called out in the press release, related to LIFO. As prices stabilize in 2026, we don't anticipate having that level of pressure. So we felt some confidence with our gross profit margin guidance going up. And then just overall, with the nonvariable piece. I mentioned in my remarks, that was primarily store growth and inflation. So I think that if you take to the -- we ended at $298 million and the middle of the estimate is $308 million, it's about a $10 million spread. About 40% of that increase is going to be occupancy cost as we grow the business and the rest is around about a 2% modest inflation on wages and incentives. And we don't really anticipate a great deal more of advertising cost. I think most of the pressure on the nonvariable is in occupancy costs and then just overall inflation with wages and insurance, et cetera. Anthony Lebiedzinski: That's very helpful. Okay. And then so with the evolving tariff environment, how do you guys think about as far as any additional potential new pricing actions? Is there anything already in the works or are you going to be holding off for now? Just wondering if you could speak to that? Steven Burdette: Yes, Anthony, this is Steve. We're going to be very deliberate in that process. Obviously, our current inventories already have the tariffs baked in them. So we've got to work through those inventories as well before we get any impact of the new tariffs and if they're -- how sustainable are they, right? I mean, we've already -- it's 10% now, but obviously, over the weekend, we talked about it going -- administration, moving it to 15%. Is that going to happen? When that will happen? So at this point, there's not going to be any actions or reaction off of it. We're going to wait and see how it kind of plays out over the next few months and as we work this inventory through. Anthony Lebiedzinski: Got you. And my last question here. So as we look to update our quarterly models, is there anything that we should be aware of in terms of seasonality or timing of expenses or anything related to recent weather events that you guys need to call out? Just would love to hear your thoughts on that. Steven Burdette: I'll say it and Richard can jump in here. I would say no, Anthony. And as far as weather events, we always have snow and weather in January and February, so that's not something that's unusual. So I don't see anything that would be a call out. Operator: Your next question comes from Cristina Fernandez with Telsey Advisory Group. Cristina Fernandez: I wanted to follow up on the tariff question. If the tariff goes to 15% from 10%, does that change the gross margin guidance you gave in perhaps a little bit more color on the timing of the inventory you have today, the tariff rate that was in effect in the fourth quarter, how long will it take to work through that inventory? Are we mostly looking at the first half or a little bit longer? Steven Burdette: Yes. As far as the guidance, I don't see there being any changes. We've got that baked in as to where it is, whether it's 10% or 15%, Cristina, as far as going forward. And then as far as working through the inventory, I think it will take us the first half of the year. But we will be strategic about it and if there are things that we need to address to be competitive in certain price points, we will move on those. But again, we will move on those and still be able to maintain the guidance that we've given on the margins as far as going forward. But we feel like at this point, it will be -- the current inventory where we are, probably we'll work through the first half of the year, and then we'll bring in, obviously, the newer inventory, the newer cost. And again, this new tariff is only for 150 days, so it expires on July 24, and we know the administration is aggressively looking at other alternatives under Section 232, Section 301 and how they can get further increases in the tariffs. So time will tell. Cristina Fernandez: And then I wanted to ask about the trends in the quarter that you talked about, specifically the written order trends that they decelerated a bit. Do you feel it's more a function of the year-over-year comparisons? Or do you notice any change, I guess, on the underlying, I guess, consumer behavior as you look at your regions or traffic or kind of what consumers were looking for when they came into the stores? Steven Burdette: I don't think there's any specific, but I will tell you, I don't think the government shutdown helped us. Being shutdown for almost 45 days-or-so, that didn't set a good precedent as we move forward and kind of created some unknowns out there. But we talked about traffic. When we compare back to '24, Cristina, we were up double digits in traffic in November and December of '24. So we're not concerned about the traffic, and we were not overly concerned. We were excited about the average ticket that we were able to continue to drive up, and we were able to drive it through design. We're actually seeing an increase in design and the number of pieces per ticket. So that's encouraging as we go forward. So nothing that is -- would be a call out or alarming to us in the overall trend. And obviously, we're happy with the numbers overall. Cristina Fernandez: And then my last question is regarding the mattress, the bedding refresh program. I think you tested it at a couple of stores. So can you talk about the lessons you've gotten and the stores that you tested it? And I guess what's changing the most? Is it the presentation, the merchandising? Maybe a little more detail on what consumers will see as you go through that program. Steven Burdette: Yes, it will take us to get through all the stores into next year to complete. As I said, we're doing about 35% of the stores this year where we do the mattress and design centers. We have seen traction with our bedding, an improvement. And I think more of it is more about -- it's more informational. It's easier for the consumer to understand what they're looking at with each mattress set, and it's also easier for our sales consultants on the information needed to provide for that customer. So it's just a better presentation. I think it calls out the brands, puts it more in the consumer's face when they come into the store, makes them aware that we're in the business where before we were a little subdued in our presentation. So I think calling out the brands has certainly helped attract the consumer attention to that area. And I do think -- I think some of the recent reports showed the mattress business -- some of the people have reported already that the mattress business was down in the fourth quarter in the mid-single digits, if not higher, and we were flat. So we feel good about our traction that we're having and in especially the stores that have gotten the redone bedding departments. Cristina Fernandez: And the last question I had was on the marketing and advertising side. You made some investments and changes through 2025. I mean I think you said fourth quarter spending was down, so as we look at 2026, do you expect, I guess, marketing and advertising to be flat as a percentage of sales? Or how should we think about those -- that expense item and investments there? Steven Burdette: Yes. In '25, we increased our advertising. I think it's up about $4 million for the year. And that was because we cut it too much in '24. But we do feel like we're at that level. And in 2026, we anticipate our marketing spend to be flat with 2025. Operator: I would like to turn the floor over to Tiffany Hinkle for closing remarks. Tiffany Hinkle: Thank you for your participation in today's call. We look forward to speaking with you in the future when we release our first quarter results. Have a great day, everyone. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Greetings. Welcome to Quaker Houghton's Fourth Quarter 2025 Results Conference Call. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to John Dalhoff, Investor Relations. Thank you, Mr. Dalhoff, you may begin. John Dalhoff: Thank you. Good morning, and welcome to Quaker Houghton's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining us on the call today are Joe Berquist, our President and Chief Executive Officer; Tom Coler, our Executive Vice President and Chief Financial Officer; and Robert Traub, our General Counsel. Our comments relate to the financial information released after the close of the U.S. markets yesterday, February 23, 2026. Our press release and accompanying slides can be found on our Investor Relations website. Both the prepared commentary and the discussion during this call may contain forward-looking statements, reflecting the company's current view of future events and their potential effect on Quaker Houghton's operating and financial performance. These statements involve uncertainties and risks, which may cause actual results to differ. The company is under no obligation to provide subsequent updates to these forward-looking statements. This presentation also contains certain non-GAAP financial measures, and the company has provided reconciliations to the most directly comparable GAAP financial measures in the appendix of the presentation materials, which are available on our website. For additional information, please refer to our filings with the SEC. Now it's my pleasure to hand the call over to Joe. Joseph Berquist: Thank you, John, and good morning, everyone. I am pleased with our fourth quarter results, which resulted in our second consecutive quarter of year-over-year EBITDA improvement. Adjusted EBITDA was up 11% and adjusted earnings per share increased 24% compared to the prior year. Our results were driven by new business wins in all regions highlighted by strong organic volume growth in the Asia Pacific region, where our planned strategic efforts continue to deliver consistently strong results. For the full year, net sales in Asia Pacific grew 13% while organic volume grew 5% despite persistent soft market conditions, demonstrating how our go-to-market approach and expansion of capabilities in the region are driving growth. Market conditions in the Americas and EMEA remain soft as uncertainty from tariffs and extended customer outage in North America and seasonal impacts affected us in the fourth quarter. Despite the challenging environment, our total organic volume was down less than 1% versus the prior year, but would have been flat if not for some operational challenges that occurred in our U.S. plants in December. Net share gains of approximately 4% mitigated the soft market and collective headwinds we experienced in the quarter, and we achieved slight organic volume growth for the full year. Gross profit increased by 6% compared to the prior year quarter. Gross margin percentage was flat with some variation in regional mix. Our EMEA region gross margins improved by 280 basis points due to favorable price/mix and lower raw material costs. And Asia Pacific had margin growth on an organic basis. This favorability was offset by negative impacts from absorption along with higher maintenance, repairs and raw material disposal costs in North America. Sequentially, gross margins were down 150 basis points compared to the third quarter but our product margins remained steady globally. Raw material costs stabilized in the latter part of the year, and we were able to successfully implement targeted price increases in parts of Asia Pacific in the fourth quarter. The company generated $47 million in operating cash flow in the fourth quarter, down from $63 million in the prior year period due to higher restructuring costs and negative impacts to working capital. For the full year, we generated $136 million in operating cash flow compared to $205 million in 2024. In addition to higher year-over-year restructuring charges of $29 million, the company made temporary increases to inventory in its EMEA segment in the fourth quarter as we begin to execute network optimization actions in Europe. We recently announced the closure of our German manufacturing facility in Dortmund as part of a broader set of network initiatives. The volume from the Dortmund plant will be absorbed into existing excess capacity in our European network. We anticipate cost savings of approximately $2 million from this action in 2026 with annual ongoing cost savings of approximately $5 million beginning in 2027. The company also booked approximately $7 million of costs related to the assessment of multiple acquisition opportunities in the latter part of the year. We do not anticipate that the acquisition-related work will result in specific transactions at this time. Focusing on the quarter, our performance was in line with expectations despite a persistently challenging economic environment. Year-over-year organic volumes fell less than 1% but outpaced our major end markets, which declined by a low to mid-single-digit percentage. Persistent tariff uncertainty continues to disrupt global trade flows and negatively influence our customers' operations. Net share gains, disciplined cost measures and a positive contribution from recent acquisitions helped offset market weakness. Our acquisition of Dipsol completed in the second quarter, continues to perform as expected, contributing $21 million to net sales in the fourth quarter. Organic sales volumes in Asia Pacific grew 4% in the quarter. This was the 10th consecutive quarter of year-over-year volume growth in that region. Asia Pacific growth offset organic volume decline in EMEA and the Americas, which was driven by overall market softness and an extended customer outage in North America. Lingering demand from tariffs were compounded by weather -- lingering demand impacts from tariffs were compounded by weather-related operational challenges in December. We believe total company organic sales volumes would have been flat to the prior year in Q4 when adjusting for these factors. The company continues to execute cost savings initiatives which led to a 4% year-over-year decline in organic SG&A at constant currency. Total SG&A costs increased 4%, primarily due to the impact of acquisitions and foreign exchange. Our previously announced complexity and cost reduction plan generated approximately $25 million of run rate savings for the full year. We will continue to evaluate additional cost savings opportunities and execute in a prudent and disciplined manner towards continuously improving our EBITDA margins over the long term. We made progress reducing complexity and transforming our cost structure in 2025. But there is more work to be done. We have identified specific new initiatives that will streamline and harmonize our global business processes, enhance and further rationalize our global manufacturing network and finish integration of past acquisitions. These foundational steps are already enabling better efficiency and more effective cross-selling across the portfolio. As we continue to sharpen and refresh our core portfolio of products and services, we have also begun to consolidate and strengthen our product brands across the organization. Our balance sheet is strong, gives us flexibility to continue to evaluate acquisitions that could expand our offering, increase our total addressable market, enhance innovation, add new capabilities and provide access to new customers and geographies. We completed 3 acquisitions in 2025, adding approximately $95 million of annualized revenue. We will continue to evaluate strategic acquisitions in a disciplined manner as M&A remains a core tenet of our capital allocation strategy that prioritizes investments for growth. Quaker Houghton continues to demonstrate operating resilience. Since 2020, we have weathered the COVID-19 pandemic, a global supply chain crisis, uncertainty due to tariffs and ongoing geopolitical instability. Our markets have not returned to pre-COVID operating levels, yet we have delivered profitable growth and are well positioned to sustain that momentum. As our underlying markets stabilize and improve, we will accelerate future growth by unlocking the leverage and strength that is inherent in our company. The cost actions we have taken over the past few years have positioned the company to strategically invest in our global team of technical experts, driving innovation and new capabilities. Quaker Houghton is poised to build upon our well-known reputation of differentiated customer service as we continue to evolve into an even more responsive, nimble and efficient company. We are excited about the strong momentum we have created in Asia Pacific where our intentional focus on high-growth markets and key market segments is paying off. Notably, we are winning with new metalworking customers and growing our share in the electric vehicle OEM and component sector. We have taken steps to proportionately scale our organization to achieve sustainable growth in Asia Pacific and we'll open a new manufacturing facility in China later this year. Our investments in emerging markets like China, India, Asia and Africa demonstrates our commitment to serving customers locally while delivering the full capabilities we have built as a leading process fluid and service provider to industrial manufacturing companies in the world. I am optimistic as we head into 2026 and excited about our momentum. In the past year, we have made substantial progress strengthening and stabilizing our customer intimate sales and service capabilities. Our service-intensive approach is clearly working. Our sales growth was bolstered by innovative progress achieved in the development of our fluid intelligence capabilities. Food intelligence is an evolution and enhancement of Quaker Houghton's service offering, empowered by new and innovative measurement, automation and digital tools. Our Fluid Intelligence offering is amplifying the impact of our technical teams and enabling customers to gain insights to optimize how our fluids perform. Looking forward, our external markets are not expected to improve in the near future. We anticipate underlying markets to remain flat in 2026 and with the potential for some incremental growth in the second half of the year. We remain confident in our ability to deliver net share gains within our target range of 2% to 4% as we execute our sales pipeline, benefit from the wrap of new business wins gained in 2025 and gain the full year impact of acquisitions, primarily Dipsol in our results. Our visibility into the sales pipeline and our recent history give us confidence that we will continue to win new business at rates that exceed underlying market growth. Our business foundation remains strong as we move into 2026. We do not expect operational issues that occurred in the fourth quarter in North America to carry into the first quarter. Raw material costs are expected to remain steady in the first part of the year, and we anticipate gross margin percentage will be within our targeted range of 36% to 37% for the full year. We will deliver positive share gains and organic growth in all our segments in 2026. On the cost side, variable compensation and inflation will result in higher SG&A year-over-year. We plan to partially offset this by continuing to execute transformational initiatives and making improvements to our cost structure to support our long-term goal of sustaining EBITDA margins above 18%. This journey has begun already, and we expect modest investment and careful planning will be required to fully reach our profitability margin target in the next few years. We anticipate our third consecutive quarter of year-over-year EBITDA improvement in the first quarter of 2026, which will come from share gains, gross margin improvement and run rate impact of acquisitions. For the full year, we expect to improve top line performance, leading to year-over-year adjusted EBITDA growth. I am proud of what we have accomplished and grateful for the contributions of our approximately 4,700 global employees delivered to our customers and Quaker Houghton's many stakeholders. Our people remain our greatest asset, and their unwavering commitment to serving our customers continues to drive our success. Even in challenging economic times, we stay grounded in our core values, and demonstrate our dedication to the communities in which we operate, reflected in recognition we received being named one of America's most responsible companies in 2025. We will continue to move forward together and are committed to driving growth and long-term value for our customers and shareholders. With that, I would like to pass it to Tom to discuss the financials in more detail. Tom Coler: Thank you, Joe, and good morning, everyone. Fourth quarter net sales were $468 million, a 6% increase from the prior year. Organic volumes declined less than 1%, but were boosted by share gains across all regions. In the fourth quarter, total company share gains were approximately 4%. Acquisitions contributed an additional 6% to sales primarily related to Dipsol. Selling price and product mix were 1% lower than the prior year, consisting of impacts from both product, service and geographic mix as well as pricing, largely associated with indexes. Gross profit dollars increased year-over-year on a non-GAAP basis, while gross margin was 35.3% compared to 35.2% in the first quarter -- in the fourth quarter of 2024. Product margins in the fourth quarter remained healthy in all geographies and increased year-over-year in both EMEA and Asia Pacific. Q4 2025 gross margin was impacted by seasonality and unfavorable manufacturing absorption as well as higher maintenance, repairs and raw material disposal costs in North America. On a non-GAAP basis, SG&A increased approximately $4 million or 4% in the fourth quarter compared to the prior year, mainly due to acquisitions and the impact of foreign currency. Excluding these items, organic SG&A was approximately 4% lower in the fourth quarter and 2% lower for the full year in 2025 as we effectively executed on our cost savings and optimization plan. We delivered $72 million of adjusted EBITDA in the fourth quarter, an increase of 11% compared to the prior year. Adjusted EBITDA margin of 15.3%, improved 75 basis points year-over-year but was lower than the prior quarters due to adverse impacts on gross margin in North America in Q4 of 2025. Switching now to our segment results. We continue to see strong positive momentum in our Asia Pacific segment, which delivered its 10th consecutive quarter of organic volume growth and has now experienced organic net sales growth in 9 of the last 10 quarters. New business wins continue to be the primary catalyst for this growth. Asia Pacific sales in the fourth quarter increased 15% year-over-year as the impact of our acquisition of Dipsol complemented organic volume growth of 4%, partially offset by unfavorable price and mix. For the full year, sales increased 13% as the impact of our acquisition and a 5% increase in organic sales volume offset unfavorable price and mix. Segment earnings in Asia Pacific increased approximately $3 million or 11% in the fourth quarter compared to the prior year. This was driven by higher net sales, partially offset by lower operating margin due to unfavorable impacts from product mix and service revenue. Fourth quarter net sales in the EMEA segment increased 7% year-over-year despite continued market softness due to an increase in sales from our acquisitions, favorable selling price and product mix and favorable foreign currency impacts. These items were partially offset by a 2% decline in organic sales volumes, which outpaced underlying market declines due to net share gains. Segment earnings in EMEA increased approximately $3 million or 17% in the fourth quarter compared to the prior year. This was the result of higher net sales and improved operating margin due to favorable pricing and product mix and lower raw material costs. Fourth quarter net sales in the Americas segment were flat to the prior year as an increase in sales from acquisitions and favorable impact from foreign currency were offset by lower organic sales volumes. Net share gains in the region during the quarter were offset by overall market softness and specific factors, including the outage at a major North American metal producer, impacts from tariffs on demand and several operational disruptions that delayed shipments in Q4. Segment earnings in the Americas were flat in the fourth quarter compared to the prior year as slightly lower sales volumes were offset by higher operating margin. Turning to nonoperating costs. Our interest expense was $11 million in the fourth quarter, which was consistent with the prior quarter. Our cost of debt remained approximately 5% in the quarter. Our effective tax rate, excluding nonrecurring and noncore items, was approximately 25% in the fourth quarter of 2025 while our full year effective tax rate was in line with expectations at approximately 28%. The Q4 effective tax rate was lower than the full year rate due to the timing of certain tax incentives related to our operations in China. In the fourth quarter, our GAAP diluted earnings per share were $1.18, and our non-GAAP diluted earnings per share were $1.65, a 24% increase year-over-year. For the full year, we had a GAAP diluted loss per share of $0.14, which included an $89 million noncash goodwill impairment charge and $35 million of restructuring charges related to our cost savings program. Adjusting for these and other non-GAAP items, our full year non-GAAP diluted earnings per share were $7.02. Cash generated from operations was $47 million in the fourth quarter and $136 million for the full year compared to $205 million for the full year in 2024. The primary drivers of lower cash generation compared to the prior year are higher net outflows from restructuring activities and an increase in working capital. The working capital increase was due to higher inventories related to operational issues in North America and the closure of our manufacturing facility in Dortmund, Germany, along with the timing of supplier payments and accrued liabilities in Q4. Capital expenditures were approximately $22 million in the fourth quarter, consistent with the prior year and were $56 million for the full year. This represents an increase of approximately $14 million over the prior year, mainly due to the construction of our new facility in China, which is on track to begin operations in the second half of 2026. Capital expenditures are once again expected to be between 2.5% and 3.5% of sales in 2026. This includes continued investment in organic growth initiatives, along with the completion of our China production facility and moving our corporate headquarters and combining our R&D labs in a new location in the Philadelphia area. During the fourth quarter, we paid approximately $9 million in dividends and repurchased approximately $5 million of shares. For the full year, we returned $76 million to shareholders through $42 million of share repurchases and $34 million of dividend payments, which reflects our 16th consecutive year of increasing our annual dividend payout. Our balance sheet and liquidity remains strong, our net debt at year-end was $691 million, and we continued to lower our net leverage ratio following the Dipsol acquisition, steadily reducing it to 2.3x our trailing 12 months adjusted EBITDA at the end of the year. We had another strong year in 2025. Despite continuing macroeconomic and geopolitical challenges, we continue to gain share and slightly increase organic sales volumes while executing on our cost savings actions. The 3 acquisitions that we closed during the year complemented our business results and continue to perform in line with expectations. We remain disciplined with our capital allocation strategy, and we'll continue to return cash to shareholders and work towards reducing net leverage following last year's acquisitions. With that, I'll turn it back over to Joe. Joseph Berquist: Thank you, Tom. We made significant progress toward achieving our strategic objectives in 2025, and we look forward to growing revenues and adjusted EBITDA in 2026. With that, we'd be happy to take your questions. Operator: [Operator Instructions] Our first question is from Mike Harrison with Seaport Research Partners. Michael Harrison: Joe, you mentioned the weather-related operational issues that impacted Q4, and it sounds like they're now resolved. I'm curious, is there -- can you help quantify that for us? And I guess, looking out to Q1, I'm sure you guys have a bunch of snow right now in the Philadelphia area. And I'm just curious, is it possible that we have some additional weather-related impacts to keep in mind as we start thinking about what Q1 looks like? Joseph Berquist: Yes. Thanks, Mike. Yes, in the fourth quarter, I think, particularly in December, we had some usual things that you see in plants, frozen pipes, issues with trucks and the like, a boiler, not to get too specific, but that if you think about the impact of that, did set us back a couple of days, I guess, in the month. And as we said in the comments earlier, you think overall, the impact of that was somewhere around 1% on our volume, and we would have been essentially flat. That's really been resolved as we head into the first quarter. Now we had this big snow event yesterday. Most of that was on the East Coast. And thankfully, our manufacturing is really in the center of the country in Ohio and Michigan, Illinois for the most part. So there is a ripple effect with these things as trucks and raw materials move around the country and it impacts our customers as well as us. But I don't expect that to be anything real impactful at this point, Mike. Michael Harrison: All right. And then you mentioned that you, it sounds like during Q4, you were getting some pricing in Asia which is good because I know that price/mix number has been under some pressure. But I was curious if you could give us a sense of your expectations for pricing there and maybe also wrap in some commentary on what you're seeing in raw materials, I believe, some of these oleochemicals that have been pressuring your margins back kind of in the middle of the year seem to have started to come lower, but maybe just some thoughts on kind of price versus raw material cost dynamics into the next couple of quarters. Joseph Berquist: Sure, Mike. Yes, from a raw material standpoint, I mean, we're seeing things stabilize. Our outlook into Q1, Q2 at this point is relative stability. I think what you saw in the fourth quarter is timing of some of our contracts there. We had issues throughout the year last year in Asia Pacific particularly some of those issues just took a while to resolve because we had contracts and we had to negotiate new contracts in the fourth quarter and get some pricing. I am not really looking at pushing pricing right now. I think it's -- things have stabilized and overall should be a pretty flat market as far as that goes. Michael Harrison: All right. And then I guess just in terms of your outlook and expecting EBITDA growth in 2026, it looks like the sell-side consensus right now is looking for something close to 10% growth over 2025. And I'm just curious, is that what you're targeting internally? Or would you say that the market outlook at this point probably supports a lower growth rate than that 10% that's baked in the consensus? Joseph Berquist: Yes. I mean, we don't give specific guidance on that, but what I could tell you, Mike, is just kind of the algorithm that I think about the markets that we're in, are -- we're not expected to really grow. Like so underlying markets, I think, potentially could even be slightly down in the first half of the year, maybe slightly up in the second half of the year, but overall kind of flat. We have been very happy with how the share gain, the new business acquisition has gone over the past several quarters and feel pretty confident as we head into this year that we'll be able to continue that pace. We mentioned in the comments earlier, our target there is sort of 2% to 4% outgrowth of the market, and we've been on the higher end of that. and I would expect that to continue with the visibility that I have to the pipeline and how things are looking on that end. We made some acquisitions last year. Those really didn't come into play until the second quarter, so we will have an extra quarter of those in our numbers. And so call that a 1% to 2% kind of tailwind. We think there's perhaps some percent favorability overall with FX for the year, some puts and takes there, so some higher costs, but also some translation that helps us. I do expect our gross margins to be -- to recover to -- from the fourth quarter to be in that range of 36% to 37%. And then overall, I think we mentioned also there is a little bit of variable comp rebuild, a little bit of inflation. We have some -- Tom mentioned in his comments, the new Radnor facility or the new facility here in Philadelphia. So some depreciation and things like that coming online. But overall, really the algorithm that we're shooting for is a sort of mid-single-digit volume and revenue growth. If we could do a little bit better than that, great, and then get that leverage, as you said, to the high-single digits on EBITDA as we kind of scale everything into the business. Operator: Our next question is from Laurence Alexander with Jefferies. Laurence Alexander: Could you characterize the M&A pipeline? And I guess also, can you give us some sense of the regional mix in the pipeline? Joseph Berquist: Yes, Laurence. I think we mentioned earlier that we had -- we did have some activity in the fourth quarter. Really, it was related to kind of second half of the year, multiple opportunities that we looked at. Those were not really regional opportunities, I would call them multiregional or global opportunities. They were larger and as I also mentioned, we don't anticipate any of those to lead to a transaction, nothing is imminent. The overall pipeline itself remains healthy. I would say, Laurence, there's always a balance for us. We look at things in kind of 2 different angles, right, where we've had a good track record of doing these bolt-on type of transactions, things that add, help us grow our total addressable market, give us capabilities that we don't have, really expanding that wallet that we could sell to our customers transformational things. I think they come along few and far between. When they do come along, we like to participate. Our balance sheet is strong. We have the ability to do those types of things, but we're also going to be very disciplined and not do something that doesn't make sense for our shareholders. Laurence Alexander: And similarly just I guess on a regional basis, can you give a sense for -- are your share gains fairly evenly distributed? Or is it kind of more in one region? Is it tied to a particular customer end market mixes and customers with end markets or competitors of certain end market exposure? Just trying to get a sense for whether there's any kind of generational or limiting factor on the share gains that we should be aware of? Joseph Berquist: I mean I'd say the share gains themselves have been pretty broad based. It's been all 3 regions, so Americas, EMEA and Asia Pac. The basis of it, Asia Pac is definitely higher than EMEA and Americas, I mean, call it on almost a 2x basis higher in Asia Pac versus those other regions. Some of that is just what's happening there, right? You have a lot of growth in markets like India, China is not growing the way it used to in the past, but it's still growing, right? And relative to the Americas and EMEA, that means new lines coming on, even new customers that didn't exist, and we make it an intentional part of our strategy to be the incumbent when these new plants come online. So that really speaks to some of the reasons why we're seeing higher conversion rates in Asia Pac than the other parts of the world. But overall, it's all 3 regions. And I think the sales engine is working pretty well for us right now. Operator: Our next question is from David Begleiter with Deutsche Bank. David Begleiter: Joe, you mentioned you expect some markets to be maybe down slightly in the first half of the year. Which markets are those? Which markets could be up in the first half of the year? Joseph Berquist: Yes. I mean I think -- I would say the Americas and EMEA both were sluggish toward the end of the fourth quarter, and we've seen that carry into Q1. There may be some weather disruptions here in Q1 for Americas. I don't think that's going to be anything that's material. But we're just not seeing any kind of broad-based recovery in the manufacturing segment in Americas or EMEA right now. PMIs dipped below 50 and are hovering right around that number. So it's just there's not a lot happening, David, in those markets right now. And there's a normal seasonality that you have in Asia Pacific due to the Lunar holiday that happens in February. But on balance, I think when you put all that together, we think things are going to be relatively flat or if they are down, be very, very small incrementally down. The one area I would say is we have some specific customer issues in Americas that related to events that took place at their facilities last year. Those will probably carry into the second quarter as far as what we know right now. So that's an additional sort of headwind, I think, on Americas. But again, if I had to put a magnitude around it, I think it's very low-single-digit type of headwind. David Begleiter: Got it. And I was going to ask on that Americas volume being down 4%, can you parse out underlying growth -- underlying volumes in that business? And what that could be in Q1 and Q2 as well ex the customer outage? Joseph Berquist: Yes. Underlying growth for Americas, so the markets that we're in, the composite, I think we had it down about 1%. Metals market being up a couple of percent, but auto down. When we talk about the metals market, even though that metals market was up a couple of percent, there was the specific customer issue that then impacted us in North America. It's also a mix of the flat-rolled content versus construction, I-beams, rebar, we tend to participate a lot more on the flat-rolled side. So overall, down about 1% in the fourth quarter and a mix of different things there. The one other angle I would tell you, David, is just uncertainty around tariffs, I think, has impacted this USMCA region, Mexico, particularly with maybe a little bit lower demand down there just from the tariff impact. David Begleiter: And just to be clear, ex -- your Q1 -- our Q4 volumes in Americas would have been down roughly 1% ex the customer outage. Is that fair? Joseph Berquist: We think we have been flat, excluding the customer outage in North America. So there was organic share gain. Markets were down. We had organic share gains and then we had these operational issues as well as the specific customer outage. So all of that on balance, we think would have been flat. Operator: Our next question is from Jon Tanwanteng with CJS Securities. Jonathan Tanwanteng: I just wanted to clarify, you mentioned that you have these M&A expenses for diligence in several opportunities that aren't expected to close any or result in anything anytime soon. Does that mean you're still too early in the process? Or did they trip up in diligence for one reason or another? And what is the outlook for your M&A this year following that? Joseph Berquist: Yes, I wouldn't -- so I'm not going to say anything more specific on that, Jon, other than we don't anticipate any of those costs carrying into Q1. And there is no imminent transaction, nothing imminent unfortunately. Jonathan Tanwanteng: Okay. Fair enough. And then I might have missed it if you called it out specifically. I think you just talked about the customer plant fire. But I was wondering if you could quantify the gross profit or the EBITDA impact associated with that, the disposals and the weather in the quarter if you kind of have a normalized kind of earnings or profitability number. Joseph Berquist: I don't have that number. I think the impact on gross margin, I guess, or operating margin in the Americas was call it, a little over 1% on the gross margin percentage. The revenues, it's hard to quantify that, but it's less -- I'd say less than $10 million, somewhere between $5 million and $10 million in that range. Jonathan Tanwanteng: Okay. And that's for all 3 issues together? Joseph Berquist: Yes. Yes, Jon. Operator: Our next question is from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: So I guess I just wanted to understand the outlook for both Q1 and the full year. So I guess, for Q1, you mentioned for the first half, maybe you'd be flat to slightly down or you don't really see much change in the underlying markets? I guess you'll continue to see share gains and business wins in Asia Pacific, but would that be offset by weakness in the other regions or softness in the other regions? And then maybe could you see some improvement in growth in the second half. And so you would be up for the year? Or is the year-on-year growth mostly from the absence of maybe 5 to 10 one-timers? How should we think about the opportunity for growth in '26? Joseph Berquist: Yes. Thanks, Arun. No, I'd say overall, like all 3 of our segments, so all 3 regions, we expect to have positive share gains year-over-year, right? So it's not just Asia Pacific. Asia Pacific share gains are coming in at a higher rate maybe than those other 2 regions. But we do expect to perform in that 2% to 4% range. And we've been on a pretty good clip on the higher end of those ranges in the past several quarters. As you mentioned, not expecting much help from the markets, but if there was going to be underlying market growth that would happen in the second half as far as we could tell at this point in time. We do have the benefit now of full year run rate of these acquisitions that we made last year. So that's a 1% to 2% kind of tailwind there. And there's been business that we won last year, right, that sort of snowball effect as that rolls into the new year. So we're targeting to grow our business this year, have organic volume growth year-over-year, have revenue growth year-over-year and have EBITDA growth year-over-year in all 3 of our segments. And just other than that, just it's not coming from the market. It's really coming from our sales development in the pipeline and continuing to execute in that area. Tom Coler: Yes. And Arun, this is Tom. I would just add that remember, we acquired Dipsol, that deal closed in April last year. So we do have the benefit of 1 additional quarter of acquisition from Dipsol here in Q1 of 2026. Arun Viswanathan: Okay. And to clarify, what was the amount of nonrepeating items, I guess, in '25 that shouldn't be a drag for '26? Tom Coler: I don't think we specifically provided a number on that, Arun. I think what Joe had mentioned in his remarks is that our -- we believe our volume in Q4 would have been roughly flat had it not been for the weather-related items and the customer outage. Arun Viswanathan: Okay. And then could I just ask on margins as well? It looks like there were some -- again, maybe that was related to some of these extra costs. But I'm sure you're facing maybe some labor and benefits inflation, tariff uncertainty and so on. So from a margin perspective, I guess, would you still be on track at some point to get back to 18% EBITDA margins. I think you were down year-on-year in '25 versus '24, but do you expect margin growth in '26? And what would drive that? And do you need volume to, I guess, organic market-based volumes to improve in order to see that margin growth or other things that you can do to drive that? Tom Coler: Yes. Yes. Thanks, Arun. So what I would say specifically with respect to gross margin in Q4, I think what you mentioned is correct. There were some specific items that we had mentioned in our prepared remarks with respect to weather and some operational challenges that we had specifically in North America relative to production. I would say underlying that, our product margin remains healthy in all 3 regions. And so I would characterize some of the margin impact in Q4 of this year as operational in nature as we have transitioned even now through January here in 2026, we see that margin profile has recovered as some of those operational issues have been resolved. And then with respect to our longer-term goals around 18% EBITDA margin growth, I'll let Joe answer that. Joseph Berquist: Yes. I mean that's -- it's definitely still the target, Arun. We referenced the plant closure of Dortmund earlier. So that's something, as an example, we're looking at our network around the world. This is particularly in Europe, we have excess capacity, and we have too many nodes and that's an example of where on the manufacturing cost side, there's an opportunity for improvement. It's not just in North America. We think that will come in play in other regions as well. There's a line of sight to specific cost initiatives, mostly in these functional support areas. We're working on things like fixing our master data, streamlining our business processes, and integrating these businesses that we've acquired over the past few years. So there's still opportunities there, I think, to look at combining R&D operations, combining sales offices, looking at combining even the sales organization and getting some benefits there. So really, yes. I mean volume will help us get to 18%, but there's still some self-help, I think, in there that we think tangible actions that we could take that will make a meaningful movement in the next year or two. Operator: There are no further questions at this time. I would like to turn the call back over to Joe for closing remarks. Joseph Berquist: Okay. Thank you. Thanks, everyone, for joining our call today. We appreciate your continued interest in Quaker Houghton. I want to sincerely thank all of our colleagues around the world for their hard work in 2025 and their commitment to success in 2026. Please reach out to John, if you have any additional follow-up questions. Thank you. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Thank you for standing by, and welcome to the Black Stone Minerals Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Natalie Liddell, Vice President, Corporate Planning. You may begin. Natalie Liddell: Thank you. Good morning, everyone. Thank you for joining us for the Black Stone Minerals Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being recorded and will be available on our website along with the earnings release, which was issued last night. Before we start, I'd like to advise you that we will be making forward-looking statements during this call about our plans, expectations and assumptions regarding our future performance. These statements involve risks that may cause our forward-looking -- our actual results to differ materially from the results expressed or implied in our forward-looking statements. For a discussion of these risks, you should refer to the cautionary information about forward-looking statements in our press release from yesterday and the Risk Factors section in our 2025 10-K. We may refer to certain non-GAAP financial measures that we believe are useful in evaluating our performance. Reconciliation of those measures to the most directly comparable GAAP measure and other information about these non-GAAP metrics are described in our earnings press release from yesterday, which can be found on our website at www.blackstoneminerals.com. Joining me on the call from the company are Tom Carter, Executive Chairman; Taylor DeWalch, Co-CEO and President; Fowler Carter, Co-CEO and President; Steve Putman, Senior Vice President and General Counsel; Chris Bonner, Senior Vice President, Chief Financial Officer and Treasurer. I'll now turn the call over to Fowler. Fowler Carter: Thank you, Natalie. Good morning, everyone, and thank you for joining us on our fourth quarter earnings call. If you look at our earnings release from last night, you'll see that we had a great 2025 despite headwinds from production and oil prices. During the year, we achieved significant commercial milestones that will benefit our future production for years to come. We successfully signed development agreements with Revenant Energy and Caturus Energy. These deals place approximately 500,000 gross acres into development with minimum drilling commitments ramping up to 37 gross wells per year by 2031 from those programs and including Aethon, a total of 50 gross wells over the same period. Aethon also recently brought several new wells online in the Shelby Trough at about 25 to 30 MMcf a day with another 5 wells expected to come online in the first quarter. An additional 18 wells are expected to be drilled throughout 2026. Also in 2026, we expect that Revenant will spud more than its minimum 6-well commitment and Caturus plans to drill its initial wells, including a pilot well. We are also seeing increased activity from others in the Shelby Trough as the industry moves towards available inventory to meet the growing natural gas demand. In addition to these developments, we are building another new opportunity in our Haynesville expansion area that we believe will add significant inventory and scale to the current development. Based on existing subsurface analysis, we believe we can continue to expand the Shelby Trough and Haynesville Basin towards the Western Haynesville. With our continued focus of increasing production from existing assets and driving long-term value for our unitholders, we have also entered into an LOI with a reputable operator with experience in the Haynesville on a meaningful amount of acreage in the Gulf Coast region outside of our recent focus areas. Our acquisition program remains on track as well. Since launching the program in '23, we've invested about $240 million to add accretive mineral and royalty acreage across the Shelby Trough and Haynesville expansion area. We remain confident that the combination of these commercial initiatives will lead to significant growth and value for our unitholders. With that, I will hand the call over to Taylor. Taylor DeWalch: Thanks, Fowler. Good morning, everyone. Adding on to Fowler's commentary, we're excited about the increased activity and the ramp in production that we expect throughout 2026. We ended 2025 and begin 2026 at about [ 32,000 BOE ] per day, but we see that materially growing throughout 2026. So while production guidance is roughly flat year-over-year, we see solid growth from fourth quarter 2025 to fourth quarter 2026. Our fall investor presentation showed that 2026 is anticipated to be just the beginning of new activity in the Shelby Trough. We expect significant increases in natural gas production and distributions for BSM unitholders over the coming years. Because we have one substantial industry-leading inventory on our acreage in the Shelby Trough and Haynesville expansion and two, advantageous proximity to the Gulf Coast and key demand centers, we are optimistic about the long-term growth for our unitholders. The team has done a phenomenal job the last several years delineating and marketing the Haynesville expansion area and securing the development agreements. We are now preparing to manage the growth in activity through these development agreements with our operating partners. As noted in our release last night, we are strategically increasing G&A in 2026 to support this increase in activity. We remain focused on disciplined capital management and our comprehensive commercial strategy, including grassroots acquisitions, high interest development agreements, new development opportunities and proactive asset management across all basins. Those efforts support our goal of delivering near-term and long-term value for Black Stone's unitholders. With that, I'll handle the call over to Chris to walk through the financial details for the quarter and full year. Chris Bonner: Thanks, Taylor, and good morning, everyone. In the fourth quarter, mineral and royalty production was [ 30,900 ] BOE per day, a decrease of 11% from the prior quarter. Total production for the quarter was [ 32,100 ] BOE per day, and we completed the year at the high end of the updated guidance. As discussed in the release last night, our updated guidance last year reflected lower natural gas directed drilling activity and volume levels in the Shelby Trough over the last couple of years. We expect 2026 to be a turning point with new and increased development in the Shelby Trough and Haynesville expansion areas, along with high interest projects in the Permian Basin and ongoing development across our broader assets. We continue to monitor increasing activity levels in the Haynesville and commodity price dynamics as we look towards 2026 production and distribution. The partnership is also in the process of shooting two substantial 3D seismic surveys in the Shelby Trough and Haynesville expansion area, covering about 360,000 gross acres. While initiating and funding these surveys is not typical for Black Stone, we believe it allows us to control the timing, pace and focus of the data, highlighting our minerals and supporting their development under our contracted agreements. Most of the remaining costs for these surveys are expected to be incurred in 2026 with completion targeted for early 2027. They are subject to partial reimbursement with reported costs reflecting Black Stone's share while the partnership retains full ownership of the data. Over time, the proprietary nature of these surveys may provide opportunities to license the data to industry, potentially generating additional revenue. Together with these supplemental seismic purchases, these assets are expected to enhance subsurface evaluation, further unlock the value of our mineral and royalty acreage and accelerate development of that acreage. To better reflect how we view these investments, we've updated the presentation of adjusted EBITDA and distributable cash flow to exclude seismic acquisition costs. Turning to the quarter's financial results. Net income was $72.2 million for the fourth quarter with adjusted EBITDA of $76.7 million. 51% of oil and gas revenue in the quarter came from oil and condensate production. As previously announced, we declared a distribution of $0.30 per unit for the quarter or $1.20 on an annualized basis. Distributable cash flow for the quarter was $66.8 million, which represents 1.05x coverage for the period. As Fowler and Taylor mentioned earlier, the partnership's outlook remains strong, anchored by long-term contracted development in our high-interest Shelby Trough acreage as well as our core legacy assets across the U.S. With growing demand from LNG and electric power generation, the outlook for natural gas is increasingly constructive over the next decade. Our significant assets near Gulf Coast LNG facilities position Black Stone to benefit from the substantial call on gas supply, which we expect to increase over the coming years. In conclusion, we had a successful 2025 on many fronts, setting the partnership up for a great 2026 and beyond. We remain confident that our existing acreage positions across numerous basins, coupled with our commercial strategy and the expanded Shelby Trough will provide a strong foundation to deliver sustainable long-term value for unitholders. With that, I'd like to open up the call for questions. Operator: [Operator Instructions] Your first question today comes from the line of Derrick Whitfield from Texas Capital. Derrick Whitfield: Regarding guidance for the year, while I realize some of this is beyond your control, how should we think about the cadence of production from 4Q levels throughout 2026 based on the known developments? Taylor DeWalch: Yes, Derrick, this is Taylor, and I'll start out with that. I mean I think when we look back to 2025 kind of midyear and then along with kind of our investor presentation, we really pointed to where we thought production was headed based on the last couple of years kind of activity in the Shelby Trough and the decreased activity there. And so where we end 2025 is where we think we're going to start 2026, which is what we've kind of alluded to in the release last night and mentioned in our script this morning. And then I think that where that puts us for the full year is reflected kind of in the guidance. So again, we think we're going to be increasing materially throughout the course of 2026. And most of that is attributable to kind of new development agreements as well as Permian production and those high interest developments out West. Derrick Whitfield: And Taylor, would you expect it to kind of stall out at the kind of Q1 -- maybe Q4 level for Q1 and then kind of step up each quarter progressively? Or would there be more lumpiness than what I just suggested? Taylor DeWalch: No, I think that's right. You'll see it start to step up. We've -- as we've mentioned, we've got some wells coming on here in the beginning of the year, specifically related to Aethon and then we see activity increasing throughout the year. Derrick Whitfield: Great. And for my follow-up, in your commentary, you referenced efforts to build new opportunities to further expand your asset base and add new development agreements in both the Shelby Trough and Haynesville expansion area. I guess looking ahead, how would you characterize the pipeline of potential new development agreements? Are these conversations primarily with new operators in the basin or extensions with existing operators? And how should we think about the cadence and acreage scope of incremental agreements over the next 12 to 18 months? Fowler Carter: Derrick, I would tell you that we certainly don't discriminate against existing partners or newcomers. We welcome all parties. And while we enjoy the partnerships that are established, we are happy to continue to diversify our new developments with new partners or strengthen existing contracts with established partners. Operator: Your next question comes from the line of Tim Rezvan from KeyBanc Capital Markets. Timothy Rezvan: Changing gears to the Permian. We saw comments in the release about leasing outside of the Coterra development area. We also saw guidance for liquids down a bit in 2026 versus our expectations. So can you talk about kind of what you're pursuing in the Permian and kind of how -- just kind of the scale and the priority of that given everything that's going on in the Haynesville? Taylor DeWalch: Sure, Tim. This is Taylor, and I'll start there. I think we're excited to see activity in the Permian kind of in two different folds, if you will. We've got high interest activity from Coterra, and then we mentioned another large-scale kind of high interest development that's happening in the Southern Delaware. So that's a bit more proactive asset management, if you will, along with quite a bit of leasing throughout 2025 that we think points to increased activity across '26 and '27. I think if you look at the timing of some of this and when we see those volumes coming on, certainly, we'll see some of the Coterra wells continue to come on over the course of '26. Some of the other activity, I think, really is probably later on in '26 and more materially in 2027. So I think you'll start to see those volumes a little bit later on. But no, we're excited about what's going on. Certainly excited about some of the other folks in the industry and their excitement around the Barnett, which we've also seen leasing pick up. So I think there's a lot to be excited about in the Permian right now. Chris Bonner: Yes. The only thing I'd add there is -- so we know about these high interest developments that we can model. When we're looking at where pricing is right now in the Permian, we're being thoughtful on just the broader development there and not wanting to get ahead of ourselves when it comes to forecasting the broader Permian volumes. Timothy Rezvan: Okay. Okay. I appreciate the context. My next question, if we look at the Henry Hub strip this year, it's below $3.50 for a lot of the year into kind of the winter. And you've talked about sort of maybe a flattish start to the year growing. Do you feel comfortable you can fund your $0.30 distribution through distributable cash flow without sort of leaning on liquidity for the next -- I mean, 1Q will be a big aberration we know with $5 Henry Hub. But as we look to the summer, how confident are you that you can sort of fund that without leaning on liquidity? Taylor DeWalch: Yes. Good question. And maybe I'll start off and Chris, if you want to jump in. But I think it really just sort of following up on what Chris just said, we've taken a stance on being really thoughtful about where we see commodity prices and activity levels and where we think that we've got some pretty solid development that's going to happen, and we're confident in that development based on our agreements and our minimum commitments there. So along with the sort of ongoing activity and wells coming online. So I would say that we're confident that we can continue to fund the distribution and grow throughout the year based on those minimums. Chris Bonner: Yes. I would just concur with that assessment and then also note that we do have strong hedges in place for natural gas throughout the year. Timothy Rezvan: Okay. Okay. I just wanted to push on that. And if I could sneak one more in. I appreciate the prepared comments on the seismic, we saw that adjustment with your adjusted EBITDA in the fourth quarter. Should we assume that, that $30 million of exploration expense is all seismic? Is there a cadence to that? Is that a onetime expense? And do you expect to continue to kind of adjust that out for adjusted EBITDA? Chris Bonner: Yes, I can answer that. So it is expense throughout the year. We do expect more of it to hit when the shoot is actually taking place in the middle of the year. And it is the majority of the seismic that we forecasted. It's about 90-plus percent of the total. And we do expect the majority of the costs related to these two specific shoots to be completed in early '27, but primarily expensed in '26. And we don't anticipate additional significant seismic costs within this development area. Taylor DeWalch: Yes. I might just add on too and just take that question a little bit further, Tim. The seismic shoot is certainly something, I think, pretty unique for a company like us to do. But I think when you look back at the last couple of years, we have taken a stance of putting subsurface analysis and geology first, and we're pretty convicted in the Rock in the Shelby Trough and the Haynesville expansion. And I think these seismic shoots are just another data point for us to further that story and really build the foundation for our operators to come in and start to develop. And I think as Chris also mentioned in his prepared remarks, these are proprietary shoots. So we own them and look forward to, at some point, also potentially turning those licenses to industry and generating revenue off of them. So a couple of different ways we're thinking about the seismic. But excited to get those shot later this year and just keep on developing the Shelby Trough and the Haynesville expansion. Operator: And there being no further questions, I will now turn the call back over to Taylor DeWalch for some final closing comments. Taylor DeWalch: Thank you all for joining us this morning and look forward to speaking with you all again next quarter. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Sotera Health Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Vice President of Investor Relations, Jason Peterson. Jason, please go ahead. Jason Peterson: Good morning, and thank you. Welcome to Sotera Health's Fourth Quarter and Full Year 2025 Earnings Call. Today's press release and supplemental slides are available on the Investors section of our website at soterahealth.com. This webcast is being recorded, and a replay will also be available on the Investors section of the Sotera Health website shortly after the call. Joining me today are Chairman and Chief Executive Officer, Michael Petras; and Chief Financial Officer, Jon Lyons. During the call today, some of our comments may be considered forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to Sotera Health's SEC filings and the forward-looking statement slide at the beginning of the presentation for a description of these risks and uncertainties. The company assumes no obligation to update any such forward-looking statements. Please note that during the discussion today, the company will present both GAAP and non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, tax rate applicable to net income, adjusted net income, adjusted EPS, adjusted free cash flow, net debt and net leverage ratio as well as constant currency comparisons. A reconciliation of GAAP to non-GAAP measures for all relevant periods may be found in the schedules attached to the company's press release and in the supplemental slides to this presentation. The operator will be assisting with the Q&A portion of the call today. Please limit yourself to one question and one follow-up. For further questions, feel free to reach out to the Investor Relations team. With that, I'll now turn the call over to Sotera Health Chairman and CEO, Michael Petras. Michael Petras: Good morning, and thank you for joining us. This morning, we announced another strong year of performance, extending our track record of year-over-year revenue growth to 20 consecutive years. In 2025, the total company revenue increased 5.7% to $1.164 billion or 5.2% growth on a constant currency basis versus 2024. Adjusted EBITDA increased 8.2% or 7.8% on a constant currency basis, with margins expanding to 51%, an increase of nearly 120 basis points. We also delivered adjusted free cash flow of over $200 million in 2025. Our results demonstrate strong execution, growing demand for our mission-critical services and disciplined financial management. The team's performance in 2025 positions us well for sustained growth ahead. We also had several notable achievements during the year. Our customer satisfaction exceeded 80%, underscoring our commitment to delivering excellent service. We advanced our portfolio across several key areas, including our commercial initiatives continue to build momentum with revenue from XBU customers expanding 9% year-over-year. Sterigenics delivered approximately 8% constant currency revenue growth versus 2024, driven by improved volume and mix. Significant progress was also made on the EO facility enhancements program as well as the construction of the new X-ray facility, which is planned to open in 2026. Nordion delivered a strong year, achieving approximately 9% constant currency revenue growth. Also in the fourth quarter, the team signed a cobalt development agreement with Westinghouse and PSEG, and they secured a 25-year Class 1B license renewal for our Ottawa facility, which is the longest ever issued by the Canadian Nuclear Safety Commission. Nelson Labs delivered core lab testing growth during the year. They expanded margins by 312 basis points and made progress on clean room investment. On the capital markets front, we reduced borrowing costs by 75 basis points on our $1.4 billion term loan and paid down $86 million of debt, resulting in $13 million of annual interest savings. We also upsized and extended our revolver, increasing liquidity by $175 million. Sotera Health's public float increased to 80% of our outstanding shares during 2025. We continue to strengthen our corporate governance with the appointment of a lead independent director. Also, as you may have seen, we welcomed Richard Kyle to the Board earlier this month. Rich's leadership experience as a public company CEO and his extensive experience in operations and governance, along with a strong financial acumen will serve as tremendous assets as we continue to grow. Finally, we remain actively engaged with our shareholders on many corporate responsibility initiatives. 2025 was a strong first step in executing the 2025 to 2027 long-range plan we presented at our November 2024 Investor Day, and we expect this year to represent another meaningful year of progress towards those goals. Earlier today, we issued our 2026 outlook. For the full year, we expect total revenue to increase to a range of $1.233 billion to $1.251 billion, representing constant currency growth of 5% to 6.5% versus 2025 and adjusted EBITDA to grow to a range of $632 million to $641 million or 5.5% to 7% constant currency growth. Before I hand it over to Jon, I'd like to highlight a management transition. As you may have seen in our press release this morning, effective April 1 of this year, Senior Vice President and General Counsel, Alex Dimitrief was transitioned to an outside adviser to the company. I would like to thank Alex for his leadership and service in the past 3 years, and we are grateful that he will continue to support the company going forward as an adviser. We are excited to announce that Erika Ostrowski, who has served for the last 2 years as the Vice President, Deputy General Counsel and Corporate Secretary under Alex's leadership, will be promoted to Senior Vice President and General Counsel for Sotera Health after demonstrating strong leadership, sound judgment and a deep understanding of our business. Erika is well positioned for continued success in her new role. Now Jon will take us through our fourth quarter and full year 2025 financials and our 2026 outlook in more depth. Jonathan Lyons: Thank you, Michael. I'll begin with our consolidated fourth quarter and full year 2025 results and close with additional detail on our 2026 outlook. For the quarter, total company revenues increased 4.6% to $303 million or 2.5% on a constant currency basis versus Q4 2024. The year-over-year comparison reflects the expected impact of Cobalt-60 harvest timing at Nordion. Adjusted EBITDA grew 2.7% to $157 million or 0.5% on a constant currency basis, while adjusted EBITDA margins were 51.8% for the quarter. Interest expense was $35 million in the quarter, a $6 million improvement versus Q4 2024. Net income was $35 million or $0.12 per diluted share. Adjusted EPS increased to $0.26, up $0.05 from the prior year, driven by a lower tax rate as well as strong operating performance and lower interest expense, partially offset by higher depreciation. Now let's take a closer look at our segment performances for the fourth quarter as compared to the same period last year. Sterigenics revenue improved 10.6% to $198 million or 8% on a constant currency basis. Growth was driven by 4.3% favorable pricing, 3.7% volume and mix as well as a 2.6% foreign currency benefit. Segment income increased 10.4% to $110 million or 7.8% on a constant currency basis, reflecting favorable pricing, volume mix and foreign currency, partially offset by inflation. As expected, Nordion's revenue decreased 12.3% to $50 million as the timing of Cobalt-60 harvest schedules drove unfavorable volume and mix of 15%, which was partially offset by 2.4% favorable pricing. Nordion segment income decreased by 18.9% to $29 million. Segment income margins decreased 466 basis points to 57.5%, primarily driven by the lower volumes and unfavorable product mix. Nelson Labs revenue increased 2.3% to $55 million, which was nearly flat on a constant currency basis. Favorable pricing of 3.2%, foreign exchange of 2.5% and core lab testing growth were partially offset by lower Expert Advisory Services revenue. Segment income rose 1.9% to $18 million, a decline of 1.2% on a constant currency basis. Growth was driven by favorable pricing, growth in core lab testing and foreign currency, partially offset by lower Expert Advisory Services revenue and higher costs. Now let's turn to the full year 2025 results as compared to the prior year on a consolidated basis. We delivered revenue growth of 5.7% to $1.164 billion or 5.2% on a constant currency basis. Adjusted EBITDA improved 8.2% to $593.8 million or 7.8% on a constant currency basis, resulting in adjusted EBITDA margins of 51%, an improvement of 118 basis points. Interest expense improved $9 million to $156 million, driven by lower interest rates, the favorable repricing of our term loan and $86 million of debt paydown. Reported net income for 2025 was $78 million or $0.27 per diluted shares. Adjusted EPS for the year was $0.86 per weighted average diluted share, an increase of $0.16 versus 2024, driven by operational growth, a lower tax rate and improved interest expense, partially offset by higher depreciation. I will now turn to the balance sheet, cash generation and capital deployment for the full year 2025. Adjusted free cash flow was $210 million, putting us well on track to achieve the 2025 through 2027 cumulative goal of $500 million to $600 million we set at our November 2024 Investor Day. Capital expenditures totaled $138 million in 2025. The company continues to maintain a strong liquidity position. As of December 31, 2025, we had approximately $940 million of available liquidity, including $345 million of unrestricted cash and nearly $600 million of capacity under our revolving credit facility. Net leverage improved to 3.2x at year-end from 3.7x in 2024 as we continue progressing toward our 2 to 3x long-term target. Turning to our 2026 outlook. For the full year, we expect total company revenue to grow to a range of $1.233 billion to $1.251 billion, representing 5% to 6.5% constant currency growth and an estimated 100 basis point foreign currency benefit as compared to 2025. We expect adjusted EBITDA to improve to a range of $632 million to $641 million representing 5.5% to 7% constant currency growth and an estimated 100 basis point impact from foreign currency. The foreign exchange benefit is expected to be weighted towards the first half of 2026 with the largest impact expected in the first quarter. Total company pricing is expected to be approximately the midpoint of our 3% to 4% long-term range. For 2026, we expect Sterigenics to deliver mid- to high single-digit constant currency revenue growth year-over-year with the first quarter anticipated to grow in the mid-single digits range. We expect the first quarter revenue to be the lightest of the year. We expect Nordion to grow constant currency revenue in the low to mid-single digits in 2026. Nordion's first half 2026 revenue is expected to represent approximately 40% to 45% of full year revenue with Q2 '26 revenue expected to be heavier than Q1 2026. For Nelson Labs, we expect full year 2026 constant currency revenue growth to be in the low single digits with Q1 growth expected to decline low to mid-single digits versus Q1 2025. Additionally, Q1 2026 revenue is expected to be the lightest quarter of the year. For 2026, we expect interest expense between $135 million to $145 million based on the current forward rate curve. We are projecting an effective tax rate applicable to adjusted net income in the range of 27% to 29%. Adjusted EPS is expected to be in the range of $0.93 to $1.01, driven by operational growth as well as improved interest expense. We expect depreciation to increase in 2026, consistent with the step-up we experienced in 2025. We expect a fully diluted share count in the range of 289 million to 291 million shares on a weighted average basis. Capital expenditures are expected to be in the range of $175 million to $225 million in 2026. We expect to make continued progress in reducing our net leverage ratio again in 2026. Finally, as usual, our guidance does not assume any M&A activity. I will now turn the call back over to Michael for closing remarks. Michael Petras: Thank you, Jon. As we move into 2026, we are encouraged by our momentum, strengthened balance sheet, and we are confident in our ability to drive long-term growth, strong cash flow and shareholder value. We are on track to meet the commitments we made in our November 2024 Investor Day, and I'm confident in our team's ability to execute and deliver for our customers and investors. We remain focused on executing on the priorities we've laid out previously, which are excellence in serving our customers with end-to-end solutions, winning in growth markets, driving operational excellence to enhance free cash flow and disciplined capital deployment. At this point, operator, let's open the call for questions and answers. Operator: [Operator Instructions] Our first question comes from Sean Dodge with BMO Capital Markets. Sean Dodge: Maybe just starting on the guidance and the EBITDA margins at the midpoint implies about 20 basis points of expansion. That's on top of a pretty significant improvement you've drove in 2025. What you're targeting this year, is that all just operating leverage? Or is there any other dynamics kind of happening there worth calling out? Are you taking costs out, adding costs in anywhere? Are there any unusual mix impacts or anything else like that? I guess it looks like Nelson will be a little bit of a kind of a slower grower, so you get a little bit of a mix benefit from that, but anything else worth highlighting? Jonathan Lyons: Sean, thanks for the question. No, you're spot on with the midpoint of the guide and what it implies. And no, it's nothing abnormal going on, just normal operating leverage and running the business. Sean Dodge: Okay. Great. And then on Sterigenics, you mentioned recently you had one or at least one client that had been in-sourcing sterilization that's now chosen to outsource to you all. Is there any more background you can share on in their decision? Was that all because of NESHAP? Or were there some other factors driving that decision to finally outsource? And then maybe anything on like the magnitude timing of that shift. And I know you're not building these in numbers, but are we starting to see kind of ice break now and the backdrop being set for more of these decisions to happen? Michael Petras: Yes. Sean, this is Michael. I would say we don't see -- I think your words were ice breaking or we're not seeing significant shifts in that arena at this point in time. The compliance period is out for 2 more years. The one customer you're referencing that we've talked about in the past, will start to bring some volume in late this year, and it will roll in through '27 and '28. There's lots of factors that go into the decisions. That's ultimately the customer's choice. I'm sure the requirements of the new regulations was a factor. I can't speak on behalf of the customer and all the details. And also, I've got to respect some confidentiality we have in place with them. But overall, we're progressing as we told you previously that, that customer will be transitioning over to us with their sterilization volume. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Michael, maybe one for you on Sterigenics. Can you just talk about how you're thinking about '26, both on the volume and pricing side? Would love just a little color on areas like bioprocessing, MedTech, how you're thinking about just those categories improving throughout '26 and what you're seeing on the demand front? Michael Petras: Yes. Thanks, Patrick. I would say we've given out a long-range guide for the company of 3% to 4% price. Sterigenics came in, in '25 on the high end of that range, which is what we call for. We'd expect the same thing to happen in 2026. Bioprocessing, we have a very small base, but we had significant growth that we experienced last year. We'd expect that to continue as we move into 2026. and MedTech volumes, we saw growth in volume and mix as the year progressed, and we expect that to continue into '26 as well. And we're seeing across multiple categories as we referenced on our last call, and I'd say we're seeing the consistency there as well. We've got -- and the only other thing I'd call out, Patrick, as I think about it is the commercial segment has been a little bit more challenging, some of the volumes there as we wrapped up '25 looking into '26. But overall, the core volumes, which are really the foundation for the business is MedTech, and those are in a pretty good spot. Patrick Donnelly: Okay. That's helpful. And then maybe just Nelson Labs, I know you guys have the EAS headwinds, those are going to ease. It sounds like 1Q maybe down a little bit. How do we think about the progression through the year there and as that headwind eases? And then maybe for Jon on the Nelson margins, I know that's a big driver for margin expansion. Is '26 getting back to that low to mid-30% -- just would love some color there. Jonathan Lyons: Yes. I'll start with the second part of your question there, Patrick, on the margin side. We see Nelson solidly staying in the low to mid-30s again this year. Q1 being the lightest quarter. I expect on the lower side of the margin rate. And then the first part of your question, could you repeat again, was about Nelson progression throughout the year on the revenue side? Patrick Donnelly: Yes. Yes. Just with the EAS headwinds, how you're thinking about it. Jonathan Lyons: Yes. I would say the biggest headwind we have, the expert advisory comp actually has a little bit trailing into Q1 comp challenge. So we should improve from here, and this should be the last quarter where we faced that kind of headwind. It's a lower headwind than it's been, but still meaningful to the quarter. Michael Petras: And remember, as Jon stated, first quarter is typically our softest quarter in that business. Every year, it's like that. So margins and volumes will be softer in the first quarter. Operator: Our next question comes from Luke Sergott with Barclays. Unknown Analyst: This is [ Salem ] on for Luke. Maybe just piggybacking off of Patrick's question on 1Q guide. Sterigenics ramping a little bit throughout the year. I think you talked a little bit about how volumes are kind of accelerating out of the year. But if you could just talk about any dynamics at play there with the slightly slower start to the year for Sterigenics? Michael Petras: Yes. Thanks, Sam. Sterigenics, like Nelson, typically, the first quarter is the softest quarter. We also -- kind of where we sit today, we're seeing a soft start to the year. Some of that's shutdown related, some of but also there is some weather impact that we felt as well. But we're guiding towards mid-single digits as we kind of look at the first quarter for Sterigenics. Unknown Analyst: Got it. That's helpful. And then if you could talk a little bit about the X-ray facility and when exactly it opens in '26, maybe any tailwinds associated with the facility opening? And maybe just talk about a little bit on the strategy behind opening the X-ray facility and how bringing in that capability helps to serve customers and create new opportunities. Michael Petras: Yes. Sam, we're a full supplier across sterilization and all the modalities. We made the strategic decision over 3 years ago when we go through a 3-year strat plan every year with our Board. And in the process of that, Mike and the team laid out a strategic plan to build some more X-ray capability beyond the capability we already have today. We expect that to open up in the second half of this year. We're in qualification with our customers, just like any other facility that will have a ramp period over time. There will be a little impact in 2026, and then we'll start to see that accelerate in '27 and '28 and beyond. But this was a long-term strategic investment. We got to co-locate with the gamma facilities. We're working with some customers on qualifications now. But again, it's more part of our longer strategic plan to make sure we have full service offering across all modalities. Operator: Our next question comes from Brett Fishbin with KeyBanc. Brett Fishbin: Just maybe moving past the segment conversation. I think at a high level, you noted that revenue from the cross-selling or XBU customer base was up 9% year-over-year in 2025. So I was curious if you could maybe dive in a little bit. I'm curious how big that group of customers is as a percentage of total? And then maybe any other color on what you think drove that excess 400 bps of growth within that cohort relative to total company? Michael Petras: Yes, Brett, we've got several activities going on in across BU. We've got several hundreds of customers that are doing business across both platforms. And then we also -- within that, we have strategic pilots of some key segments that we're really looking to accelerate on. So we've seen significant growth, as I said, the 9%. But even within those pilots, it's even greater than that. The team is doing a really good job in leveraging the value prop across Sotera Health and being able to bring the capabilities end-to-end. We continue to look at our customer satisfaction scores. Sterigenics overall, I think, first of all, in the company, they're over 80% overall. Sterigenics numbers were even significantly higher last year, and the XBU customers continue to be above that average. So we'll continue to look for opportunities to accelerate that. We've got a lot of commercial work going on with the teams, and we're hopeful to see even more rewards from that in 2026. Brett Fishbin: All right. Great. And then for a follow-up, maybe just thought I'd bring up capital allocation. I think the story continues to get better here and net debt and net leverage are continuing to gradually improve. So just wondering if there's any slight marginal change in how you're thinking about further activity here in terms of like organic investment and debt reduction versus the potential to see maybe a bolt-on acquisition this year? Michael Petras: Yes. Thanks, Brett. Our priorities are staying the same as what we told you before. Our first priority is to fund organic investments and making sure we get the appropriate returns on that. We committed to a free cash flow target for the '25 to '27 period. We're still committed to that today. And the guide that we gave you an outlook for CapEx for 2026 fits within that framework. So the business will continue to do well and generate cash flow and being prioritized as we've talked about in the past. Operator: Our next question comes from Max Smock with William Blair. Christine Rains: It's Christine Rains on for Max Smock. Just hoping to circle back to your 2 active Sterigenics growth projects. On the X-ray facility, in the past, you pointed to a roughly 40% customer utilization target before breaking ground. And it says the project did not meet the threshold, but obviously, it's strategically important. So curious how much below that 40% typical benchmark you're currently seeing? And if you're assuming any margin dilution for the segment in 2027 until utilization ramps? And then also if you can give us some color on the sterilization modality for the other facility build. Michael Petras: Okay. I'm sorry, you've got like 7 questions within that one. Let me try to break this down a couple of perspectives. Yes. That's okay. Let me just walk through it. We've stated in the past, we target 40% before we put shovels in the ground, 40% utilization. That's what we hope to have committed with our customers. This one is a little bit lighter than that one. We've also said we target 20% IRR on our investments. Obviously, if we're putting cobalt in existing facility or an EO chamber in existing facility that's above the 20%, greenfields are below that. This one will be below that, obviously, because it's a complete greenfield. Strategically, it's important to us because we think there are some segments of the market that would like X-ray, and we're bringing that service to them. We still think that the other modalities will be, by and large, the largest segments in modalities. We will see this ramping up in the second half of the year trying to go through all your questions. On Sterigenics margins, so Jon mentioned that we'll have slight margin improvements in 2026, and that will be driven predominantly by Sterigenics where we sit today. That encompasses some of the costs that will come in with low volumes on the X-ray facility, and we'll see that phenomenon continue as we look into '27 as well. So I think I've addressed all of them. I don't know if I missed anything else. Christine Rains: Yes. No, I think you got the majority of them. I was just wondering if you have any color on the sterilization modality for the other facility. I think your deck pointed to 2 growth projects in Sterigenics. Michael Petras: The second facility, no, we have not gone ahead in detail. We're working with our customers on that facility, and we have not gone ahead and publicly released what kind of facility or where that's going to be at this point in time. Operator: Our next question comes from Casey Woodring with JPMorgan. Casey Woodring: Great. Maybe the first one, just any changes on how you're thinking about the competitive positioning in Sterigenics in light of NESHAP. I know that, that was a focus coming out of the last Analyst Day just in terms of opportunity to gain share from smaller players. And then maybe same question on the Nelson side. Maybe just walk us through the latest and greatest on the current competitive landscape there. Michael Petras: Thanks, Casey. On the Sterigenics competitive scenario, I would say, as I mentioned earlier in my comments, NESHAP has got a 2-year extension period. So we're seeing discussions about in-sourcing and outsourcing slowing down. That doesn't mean customers aren't having discussions with us overall on what their strategic plans on their supply chain. Those have always been ongoing. But I don't think there's the urgency that people saw when the April 2026 deadline was in place that's now been extended. We continue to compete very well. Our customer satisfaction scores were up significantly last year versus the prior year. We'll see how '26's are when we do the surveys here coming out shortly. But overall, I think Sterigenics is well positioned. And it's the strength of the business model. It's the global platform, it's consistency in our quality systems. It's our ability for our customers to contract with us on a global basis and us being a full-service provider that helps take care of in all modalities in all geographies. So I would say Sterigenics continues to be very well positioned. On Nelson Labs, Nelson Labs is a very fragmented market overall. but that business is really good at service and quality and the reputation is what really matters [ Eric ] with science. And the team continues to do very well. We've got pockets in that business. As you know, the core lab testing has improved over the last year. The advisory business has been a little bit more choppy because of some of the remediation projects that have come and gone based on some of the FDA activity. But overall, we continue to accelerate in the marketplace. Our customer sat scores are good. Our NPS, we also do an NPS, Net Promoter Score, and that continues to perform very, very well. So I'd say we're very well situated, but it's a different dynamic, Casey, in that market. It's a more fragmented market on a global basis. But we do 800, 900 tests in that business across our facilities around the world. Casey Woodring: Got it. Understood. And then maybe just a quick follow-up. Any update in terms of the timing of when we could expect any updates on the litigation front? Michael Petras: No. I mean there's nothing material change on timing. I think when I look at it, there's no trial set for this year other than the public nuisance case in New Mexico in the July time period. But other than that, there isn't any material change in time lines. Operator: Our next question comes from Jason Bednar with Piper Sandler. Jason Bednar: Michael, I wanted to come back to one of the comments you made just on your responding to the first quarter Sterigenics guide. Just to unpack the comment, if you could, around the slower start to the year and the weather headwinds on Sterigenics. Were those comments connected? Or was that something where you're saying demand was a little bit slower to start the year and weather has been creating some challenges as well? And then for the weather comment in particular, just if you can quantify how large is that headwind? Is that something that you feel like you can overcome here within the first quarter? Or does it take a couple of quarters to overcome and catch up on those -- that impact of those headwinds? Michael Petras: Yes, Jason, I would say a couple of comments. My comments were focused around -- we have some shutdowns in the quarter and weather has had some impact that we felt. The guide that we gave today of mid-single digits is consistent with what we feel we can deliver and also the guide for the year, mid- to high single digits is we're confident in our ability to deliver that as well. So I would say that's how you should think about it. Jason Bednar: Okay. Fair enough. And then maybe longer term or medium term to long term, I wanted to ask in the context of future CapEx and free cash flow. You have a couple of capacity expansion plans underway. We've been talking about those here today. I guess do you still feel comfortable with those long-term targets? I think you do. I just you're reiterating them today. But just how do you think about those in the context of medium-term, long-term planning for additional capacity expansion? When do those additional capacity expansions or greenfield opportunities? When do those discussions happen? How are you planning for those today knowing you're looking out to '28, '29 and '30. Hopefully, that question makes sense. Michael Petras: I think I got it, Jason. So as I mentioned multiple times as well as this morning, we do a 3-year strat plan with our leadership team and the Board every August, and we kind of lay out the next 3 years of where we see the capital demands. And that really was the foundation of the Investor Day presentation we gave for the '25 to '27 time period. As we continue to roll forward and look at opportunities beyond that, we continue to make sure that we've got the facility capacity in place to deliver the long-term growth that we need. So we will continue to refresh that and provide updates where appropriate on future outlooks. But for the time periods that we've given guidance around '25 to '27, we feel confident in our ability to deliver the free cash flow that we've outlined in that time period. Operator: Our next question comes from Ryan Halsted with RBC Capital Markets. Ryan Halsted: Maybe just to ask a question on the Nordion segment. Can you maybe provide a little more color on some of the headwinds you saw in the quarter, certainly, especially given that you were going up against maybe some lighter comps. You obviously talked about the timing of the Cobalt-60 harvest schedule. Maybe just any color around what were the drivers there, including that timing impact? Michael Petras: Ryan, I would -- this is Michael. I would just say it was driven by harvest schedules, right? That's -- we called this, we expected it to be down. It's really -- it's not a demand problem. It's a supply timing situation. So remember how this works, you get cobalt out of nuclear reactors, the primary purpose in life is to generate electricity for consumers and businesses. So we work with utilities on when they're going to do a shutdown so we could harvest the cobalt out of the facilities, out of the reactors. And that -- so we have very good visibility. That will shift every now and then a couple of weeks or a month here and there, but we have good visibility. So we anticipated this. We projected that to the investment community to make sure they understood it. So we're not concerned at all about the fourth quarter from a volume perspective. We knew that, and we had good visibility. And that's why we also give you visibility on how we think of first half, second half, so you could start to circle in and hone in on how those harvests will work in the year to come, right? So there was no surprise about that. Overall, it came in as expected, -- it's actually slightly better even. Ryan Halsted: Got it. That's helpful. And then for my follow-up, just any updated views on the potential impact of onshoring by your customers, especially given the dynamic environment with tariffs and the government maybe proposing some regulations with incentives for manufacturers to try to bring more of that manufacturing onshore. Just curious your thoughts on impact to your business. Michael Petras: Yes. Great. So remember, the majority of our business is service business. We're not really impacted by tariffs. The one place where we have product is the cobalt product that's USMCA certified. So we don't have any tariffs. I just want to kind of level set that. Now talking about the bigger macro environment. We have not seen a significant movement of the onshoring. But if that were to happen and customers are having discussions with us, but we're not seeing a significant investment commitment at this point in time. But if it were to happen, we'd be very well situated because we have a very significant position in the marketplace here in the United States where we anticipate that onshoring, if it were to occur, would happen here. Operator: Our next question comes from David Windley with Jefferies. David Windley: Michael, I was wondering in regard to the guidance, where are your areas of higher or lower visibility or said differently, what could firm up as the year progresses that takes you to the higher end of the range? Michael Petras: David, it's pretty consistent year in and year out. I sound like a broken record, but it's volume. It's the volume and mix piece that would tend us towards the high end. And as you know, Nordion, we have probably the best visibility. Sterigenics, less so, we've got a quarter or so out. And then in Nelson Labs is more transactional in nature and some of those validation projects could take a little longer. So I'd say in that order, but the biggest thing that could drive us to the higher end of that would be volume and mix in Sterigenics and Nelson Labs. David Windley: And if I ask you to take that down a level, would you -- like between -- you commented on this a little earlier in the call, but like med device versus bioprocessing, your kind of end markets is one of those firming up or accelerating more than the other vis-a-vis visibility? Michael Petras: I got to think about that. We're seeing bioprocessing with nice growth, but we're in a pretty small share position. Maybe we pick -- our sales guys really think we picked up a little share. I'm not sure we have. But we're seeing nice growth overall in that area, but it's a small category. I'd say they're both in a pretty good spot right now, David, but just recognize bioprocessing is a much smaller base for us. Operator: Our next question comes from Michael Polark with Wolfe Research. Michael Polark: One of the things I heard on Sterigenics was the commercial segment volumes are challenged. Michael, can you unpack that? Remind us what product categories are commercial? Is this food and consumer products or something else? And what those challenges are, why you perceive them to be? Michael Petras: Yes. So Mike, yes, that's reflecting on the comment I made earlier. Commercial is exactly what you talked about. There's some electronics in there. There's some food in there. There's some spice in there. There's some other categories as well that it's just been a choppy market. Coming out of COVID, it really hasn't been very stable. It's been moving around quite a bit. We continue to see that going forward here, and we're planning around that. But I would say that would be -- again, it's a small portion of the total. I think it's less than 16%. I can't remember the exact numbers. It's a small portion of Sterigenics in context-wise. Michael Polark: Helpful. And just a follow-up to that and then one other topic, please. When you say challenged, like growing, but just loan growth or shrinking? Michael Petras: Combination. I'd say more probably shrinking than growing. I mean it's been choppy. Some customers have redesigned products and don't have the need. I think -- as I say this, I think I have one customer that had some packaging product for the food market and they've changed their designs coming out of COVID. But again, that's not impacting 2026. That's just -- I'm looking backwards when I make that comment. So it's just been -- that there's a churn in that customer base, and we're seeing it's just a little heavier than we've seen in the past, but it's been like this since 2020, 2021. Michael Polark: 5 Helpful. I appreciate that color. And then the other one, also Sterigenics, just as you reflect on calendar year '25 and the performance and the acceleration in volume growth, the topic of tariffs we've discussed on prior calls, do you believe the tariff landscape contributed to customers kind of building some inventory out of that as part of their mitigation plans? Any -- what's the latest perspective on whether that was good neutral last year? Michael Petras: Yes. We see -- we've stated a couple of times, we've not seen a material impact from the tariff side that we've been able to detect. I referenced in the second quarter, there was a bump up in some stat volume in a particular facility I was in and I said, hey, what happened here? And they said, all the customer is trying to get some stuff in before tariffs. But that's not -- that's a facility that's got 50 customers. This was a customer that I happened to notice when I was going through some analytics with the team out there. We're just not seeing material impact from that, Mike. I know people have asked us that question, and there's nothing consistently shown up from our customers. We're seeing nice consistent volumes on the Sterigenics side as we wrapped up 2025, which was good. Operator: And I'm not showing any further questions at this time. I'd like to turn the call back to Michael for any further remarks. Michael Petras: Great. We thank you for your time this morning. Hopefully, you can see we had a nice finish to 2025. We're set up for a very strong 2026. And what I want you to take out of this is this business is built to perform. We've had 20 consecutive years of growth, strong cash flow generation, strong margins, sticky customer relationships. This business is built to run and perform. And what we're going to try doing is making sure you have transparency of what we expect out of the business, and we're just going to keep executing against it. So thank you for your time today, and I wish you all a good week. Bye-bye.
Operator: Good day, everyone, and welcome to today's AdaptHealth Fourth Quarter 2025 Earnings Release. Today's speakers will be Suzanne Foster, Chief Executive Officer of AdaptHealth; and Jason Clemens, Chief Financial Officer of AdaptHealth. Before we begin, I would like to remind everyone that statements included in this conference call and in the press release issued today may constitute forward-looking statements within the meaning of Private Securities Litigation Reform Act. These statements include, but are not limited to, comments regarding financial results for 2025 and beyond. Actual results could differ materially from those projected in forward-looking statements because of a number of risk factors and uncertainties, which are discussed at length in the company's annual and quarterly SEC filings. AdaptHealth Corp. has no obligation to update the information provided on this call to reflect such subsequent events. Additionally, on this morning's call, the company will reference certain financial measures such as EBITDA, adjusted EBITDA, adjusted EBITDA margin and free cash flow, all of which are non-GAAP financial measures. You can find more information about these non-GAAP measures in presentation materials accompanying today's call, which are posted on the company's website. This morning's call is being recorded, and a replay of the call will be available later today. I am now pleased to introduce the Chief Executive Officer of AdaptHealth, Suzanne Foster. Suzanne Foster: Thank you. Good morning, everyone, and welcome to the call. The fourth quarter of 2025 capped a tremendous year of transition for us. Over the course of 2025, we implemented a new operating model that drove standardization and process maturity across our enterprise. We closed the largest capitated contract in the history of the industry, and we honed our portfolio by disposing of noncore assets, using those proceeds and our strong free cash flow to pay down debt and strengthen our balance sheet. . The work we completed last year not only positions us for accelerated growth and improved financial performance in 2026 and beyond, but is essential to achieving our aspiration to become the most trusted and reliable partner in home medical equipment and services. In the fourth quarter, we continued that momentum, with broad-based patient census growth and strong revenue performance, along with meaningful operational improvements and commercial progress. Let me walk you through the details. Starting with the financial results. Full year revenue of $3.245 billion and Q4 revenue of $846.3 million, both exceeded the midpoint of our guidance range. Organic revenue growth, which does not include changes in revenue from divestitures or acquisitions, was 1.7% for both the full year and Q4. Underlying this revenue performance, we set patient census records in sleep health, respiratory health and wellness at home and a retention record in diabetes health. In sleep health, new starts were up about 6% year-over-year and just a few hundred shy of the record set in Q1 2023 during the post-Philips recall demand snapback. Sleep health patient census grew 4% year-over-year and set another new record. In respiratory health, oxygen, and vent new starts were up about 4% and 5%, respectively, and patient census for both product lines hit new all-time records. Vents for the third consecutive quarter. In wellness at home, new starts for wheelchairs and beds were about 6% and 5% year-over-year, respectively, with patient census for both hitting all-time records. And in diabetes health, patient retention was better than we have ever experienced, driven by the decision we made last year to integrate diabetes resupply into our sleep resupply operations. Diabetes patient census was flat year-over-year as the improved retention rate offset slower new starts. Turning to profitability. Adjusted EBITDA was $616.7 million for the full year and $163.1 million for Q4. Both periods included a $14.5 million legal settlement and about $10 million of accelerated costs to bring our new capitated arrangement live in December, ahead of schedule and to ensure an on-time go-live for the next phase scheduled for Q1. Excluding these 2 items, adjusted EBITDA was in line with our full year 2025 guidance as we continue to demonstrate discipline on labor and operating expenses. The underlying earnings power of our business remains intact, and we are maintaining the 2026 guidance previewed on our Q3 earnings call. We continue to make progress on our balance sheet. During the quarter, we reduced our debt balance by another $25 million, bringing the year-to-date total to $250 million. And S&P and Moody's, both upgraded our credit ratings, reflecting our focus on debt reduction and our strong free cash flow, which was $219.4 million for the full year. Let me take you behind these financial results to the operational progress that is beginning to show up in our numbers. The patient census growth, I highlighted previously, reflects our continued focus on rapid service delivery and clinical outcomes that drive physician referrals and patient retention. Central to that focus is the standard operating model implemented in Q3, which realigned our organizational structure and standardized workflows across the company. As part of that transformation, we centralized order intake in sleep in Q3, and we extended that to vents in Q4. This change is contributing to improved setup times and order conversion rates. In sleep, referral to setup improved to 9 days, down from 10 days in Q3 and from 23 days a year ago. In respiratory, referral to setup improved by 3 days year-over-year for both oxygen and vents. We also operationalized new CMS documentation requirements for vents, requirements, we believe, could be challenging for smaller competitors and a tailwind for our vent share in 2026. We also continue to produce industry-leading clinical outcomes. For example, in sleep, adherence continues to be 10 percentage points above the industry top quartile. We are deploying technology to further enhance service delivery. And AI pilots for sleep order intake significantly reduced processing time and our conversational AI for PAP self-scheduling meaningfully reduced patient phone times. Given the success of both pilots, we plan to roll them out to additional regions in 2026. We are also advancing our digital patient engagement capabilities, with the self-scheduling feature we introduced in earlier 2025, helping to more than double myAPP users to over 327,000 at year-end. Another element of our operational transformation, the centralized patient services contact center introduced in Q3 proved critical to successfully onboarding the Mid-Atlantic cohort of patients for our new capitated contract, achieving 98% answer rates. That success is early proof of something that will matter enormously over the coming year, our ability to execute complex large-scale transitions. Our new capitated contract is a massive undertaking, the largest service transition in the HME industry's history. To put that in context, when fully operational, we'll be serving over 10 million patients nationwide with approximately 1,200 dedicated employees across 30 locations. We went live with the 3 Mid-Atlantic states in December, covering approximately 50,000 members. This was earlier than planned and the transition has been remarkably smooth, thanks to 7 months of preparation by our team and exceptional collaboration with both the incumbent provider and our customer. As I mentioned earlier, we have also been investing in the infrastructure and staffing required for the upcoming start dates. The preparation, collaboration and forward investment give us confidence in our ability to onboard the remaining patients on schedule in the first half of 2026, while maintaining continuity of care as they transition between providers. It also gives us confidence in our ability to deliver on the contract's performance requirements, metrics like speed to serve, responsiveness and patient satisfaction. We know we can meet these requirements because they essentially mirror what we've been delivering under the Humana capitated arrangement, which has demonstrated we can execute this model at scale. Turning to our commercial progress. We continue to strengthen our sales organization in the fourth quarter. We deepened sales leadership across the organization and standardized daily management routines, giving our teams aligned data, clear structure and shared accountability. These are the building blocks of sales force maturity. We continue to focus on building our capitated pipeline, several years of demonstrated performance under our Humana arrangement, combined with the scale of the contract we won last year, have established us as a proven partner for large capitated arrangements. We believe our operational capacity, technology infrastructure and focus on service excellence uniquely positions us to help payers and integrated delivery networks align incentives and keep patients healthy at the lowest sustainable cost. On the regulatory front, we received a favorable outcome from CMS on the upcoming round of competitive bidding, with our core sleep and respiratory products excluded from the next round, providing stability and clarity in our longer-term outlook. On the business development front, we closed the acquisition of a Hawaii-based HME provider, expanding our footprint to our 48th state. The deal provides the infrastructure needed to support our capitated contract in the state and establishes a beachhead for winning other business there. We also completed one divestiture in the fourth quarter, exiting a small remaining infusion asset in our Wellness at Home segment as part of our ongoing effort to sharpen our strategic focus and redeploy capital into our core businesses. Our acquisition pipeline remains active, and we continue to target home medical equipment providers that expand our footprint and increase patient access. In summary, as we enter 2026, we believe our house is in the best condition it has ever been. Our operational foundation is stronger. Our portfolio is more focused. Our balance sheet is healthier. Our patient census is growing, and our capitated contract is ramping. The work of 2025 was hard but necessary, and we are confident it has positioned us to deliver on our commitments to patients, partners and shareholders. We look forward to showing you what we can do. And with that, I'll pass the call over to Jason to review our financials. Jason Clemens: Thank you, Suzanne, and thanks to everyone for joining our call today. I'll cover our full year and fourth quarter 2025 results, then review our balance sheet and capital allocation before finishing with our 2026 guidance. For full year 2025, net revenue of $3.245 billion decreased 0.5% versus the prior year on a reported basis. Organic revenue growth was $56.9 million or 1.7% over the prior year. Full year revenue increased by $19.5 million because of acquisitions and decreased by $92.4 million because of dispositions. The dispositions were primarily attributable to the 3 businesses we sold within our Wellness at Home segment during 2025. For the fourth quarter, net revenue of $846.3 million decreased 1.2% versus the prior year quarter, but increased 1.7% on an organic basis, consistent with our full year rate and was impacted by the disposition actions noted a moment ago. Sleep health net revenue was $372.3 million, up 4.4% versus the prior year. New starts were approximately 130,600, up about 6% year-over-year and just a few hundred shy of the all-time record set in Q1 2023. Sleep health patient census grew 4% year-over-year to a new record of 1.73 million patients. Respiratory health net revenue was $178.2 million, up 7.8% versus the prior year. Oxygen new starts were up about 4% year-over-year and vent new starts were up about 5%. Oxygen patient census of approximately 335,000 patients set a new all-time record for the third consecutive quarter, and vent patient census also hit a new all-time record. Diabetes health net revenue was $158.5 million, down 7.4% from the prior year quarter. While new CGM starts remained soft, patient retention hit a new all-time record, the direct result of the changes we made to our resupply operations in late 2024. CGM patient census of approximately 153,000 patients was flat versus the prior year, but the shift in payer mix from commercial insurance to government payers resulted in lower CGM reimbursement per patient. Pumps and related supplies remained on track, growing patient starts and net revenue over the prior year. Overall, we are pleased with the continuing stabilization of the Diabetes Health segment. Wellness at home net revenue of $137.3 million declined by 16.1%, driven primarily by the disposition of certain noncore assets completed during 2025. New starts for wheelchairs and beds were up about 6% and 5% year-over-year, respectively, with patient census for both hitting new all-time records. Turning to profitability. Full year adjusted EBITDA was $616.7 million with an adjusted EBITDA margin of 19.0%. Fourth quarter adjusted EBITDA was $163.1 million with an adjusted EBITDA margin of 19.3%. As Suzanne noted, both periods were impacted by a $14.5 million legal settlement and over $10 million of accelerated expenses to onboard our new capitated contract faster than we originally anticipated, which together account for the variance to our guidance. Before leaving profitability, I want to note that our Q4 GAAP results include a noncash goodwill impairment charge of $128 million recognized as part of our annual goodwill impairment assessment and related to the estimated fair value of the Diabetes Health segment relative to its carrying value. This charge is excluded from adjusted EBITDA and has no impact on our cash flows or operations. Moving to cash flow. Fourth quarter cash flow from operations was $183.2 million. Capital expenditures were $103.9 million or 12.3% of revenue, reflecting continued investment in patient growth as well as forward investment to support the capitated contract ramp. Free cash flow was $79.3 million for the quarter. And for the full year, free cash flow was $219.4 million, meaningfully exceeding the top end of our guidance range. Turning to the balance sheet. We ended the year with $106.1 million in unrestricted cash. Working capital of $16.5 million was lower than normal due to the aforementioned legal settlement and infrastructure expenses. We continue to compress our cash conversion cycle over the course of 2025, and we ended the year at 40.8 days sales outstanding, the lowest since the Change Healthcare outage in 2024. Net debt stood at $1.694 billion at year-end with a net leverage ratio of 2.75x. This is up modestly from 2.68x at the end of Q3, reflecting the impact of the litigation settlement and pre-revenue contract costs on trailing adjusted EBITDA. We remain focused on our 2.5x net leverage target and continue to view debt reduction as among our highest capital allocation priorities as we believe a strong balance sheet is essential to unlocking and sustaining value for shareholders. We decreased interest expense by approximately $21 million versus the prior year, and the recent credit upgrades from both S&P and Moody's in the fourth quarter reflect the progress we've made as an organization. On capital allocation, our priorities remain investing to accelerate organic growth, debt reduction and selective tuck-in acquisitions that expand our geographic footprint and increase patient access. During 2025, we deployed $250 million to debt reduction and approximately $42 million to acquisitions, self-funded entirely through our free cash flow and disposition proceeds, recycling capital from noncore assets into businesses with stronger returns and better strategic fit. This disciplined approach to capital allocation is how we intend to drive improved return on invested capital in 2026 and beyond. Turning to guidance. We expect net revenue of $3.44 billion to $3.51 billion, adjusted EBITDA of $680 million to $730 million, free cash flow of $175 million to $225 million. Our underlying assumptions for revenue represents 6% to 8% growth over 2025. We anticipate that organic growth of 7.5% to 9.5% will be offset by about 1.5% compression, net from acquisition and disposition revenue from previously closed deals. We expect 5% to 6% growth over 2025 revenue resulting from a new capitated agreement, and we expect another 2.5% to 3.5% growth from the rest of the business. We believe sleep health and respiratory health will grow faster than that range, offset by generally flat expectations for diabetes health and wellness at home. For the first quarter of 2026, we expect revenue growth of 2% to 3% over the prior year quarter. Over the course of the year, we expect ramping capitated revenue to result in adding a few points of incremental year-over-year growth each quarter peaking at low double digits by Q4. Our 2026 midpoint for adjusted EBITDA translates to approximately 20.3% adjusted EBITDA margin, a full percentage point better than 2025. For the first quarter of 2026, we expect adjusted EBITDA margin of approximately 16%, as we expect to carry capitated infrastructure expenses in the first part of the quarter prior to revenues ramping in the back half. We expect improving margin throughout the year as the capitated revenue ramps, particularly in the back half. And similarly, we expect free cash flow to be negative $20 million to negative $40 million in the first quarter, with improvement throughout the year as the capitated revenue ramps and the associated infrastructure costs are absorbed. As usual, we expect to generate approximately 1/3 of our full year free cash flow in the first half of the year with the remainder coming in the back half. I have one last point regarding the infrastructure investments we are making to support our new capitated contract. As you'll note in our forthcoming 10-K subsequent to December 31, 2025, we acquired certain assets of a provider of home medical equipment for total consideration of $47.6 million. To support that acquisition and potential similar future acquisitions, we drew $100 million from our revolving credit facility. We believe that these equipment acquisitions will support smooth patient transitions, and we expect to pay down the revolver as free cash flow builds throughout the year. That brings me to the end of my remarks. Operator, will you please open up the call for questions? Operator: [Operator Instructions] We'll take our first question from Eric Coldwell with Baird. Eric Coldwell: I just wanted to hit on the legal settlement. I wanted to confirm if this is the civil debt collection class action from North Carolina that was initiated several years ago? And is the $14.5 million a final settlement or an estimate? Does it cover all similar or potential claims? In other words, can we expect that this is onetime and won't repeat? And then finally, obviously, these claims relate to activities that began many years ago under different leadership. But what steps has the company taken to prevent similar complaints or issues in the future? Suzanne Foster: Appreciate that, Eric. Yes, to all of your assumptions above, meaning that this was a claim that was brought against the company in 2022. And to your point, it deals with the technicality and debt collection practices. It does -- it is the final amount and settles all claims in that state. And since then or even right after that, those -- on the technicality, we do not or have fixed anything that would be perceived as a violation of that technicality. Not saying that we thought that we are in violation of it to begin with, However, anything that could be interpreted as such has been fixed. And we decided to settle this rather than pursue this litigation as a means to further derisk the business. We have so much to look forward to the next couple of years that we thought getting this legacy lawsuit behind us, made a lot more sense at this point. Jason Clemens: Eric, this is Jason. I might add that since 2022, there's been significant maturing in the overall control environment here at AdaptHealth, so much so that you'll note in the forthcoming 10-K this afternoon that you'll see for the first time, AdaptHealth has achieved an opinion from our auditor with a clean bill of health regarding our SOX environment. And so prior year material weaknesses, really at various points along the way have been remediated, which we're very happy about. Operator: We will move next with Kevin Caliendo with UBS. Kevin Caliendo: And Jason, thanks for the color on the cadence. I just want to make sure I understand fully how to think through the impact of the investment in 4Q and the guidance, like the margin cadence for fiscal '26. It sounds like it's going to be different than fiscal '25 a little bit, right? There's a mix of business in your onboarding. How should we think about it in the context of over the course of the year? I know you made comments around 1Q and free cash flow, but any more specifics there as we just think about modeling it to start? Jason Clemens: Sure. Yes, Kevin. So we started with the Q4 guidance of top line at 2% to 3% revenue growth, and adjusted EBITDA margin of approximately 16%. And so particularly as the new capitated arrangement starts ramping, we expect revenue as we get into the second quarter, to be up another 3% or so incremental from Q1. We expect Q3 to be up another 3% or so incremental in terms of growth against Q2. And then as we said in our prepared remarks, we expect in Q4 over the prior year to grow revenue in the low double digits. To go in line with that revenue growth, again, we're facing that pressure in the first quarter from carrying significant expenses on the P&L prior to really the substantial contract dates really starting here in the first quarter and on throughout the year. We expect margin to be at or near 20% as we get into that second quarter. And then we think we'll add about 1.5 points to that in each of the third and then incremental again into the fourth quarter. So again, full year, we think that revenue growth will be 7% at the mid. We think the full year adjusted EBITDA margin will be just over 20%, representing an incremental point over the prior year. Kevin Caliendo: And just a quick follow-up. You mentioned the 2 pilots for fiscal '26. Are they material in any way to your financial performance here? How should we think about that? Is there update that we get on these over the course of the year? Jason Clemens: Well, Kevin, I'd say that they're not yet material, certainly, in the Q4 that we just reported nor in the Q1 guidance, the formal guidance that we brought forth this morning. We do, however, believe that we will get operating leverage over the course of the year related to these technology investments, and that is embedded in the guidance that we brought forth. Operator: Our next question comes from Richard Close with Canaccord Genuity. Richard Close: I'm curious if you guys can talk about the pipeline of capitated agreements. Obviously, a strong start to this large contract and continued execution on the previous Humana. So maybe just a lay of the land on the opportunities that exist going forward on that front. Suzanne Foster: I'll start there. We are out there, obviously responding to some inbound and obviously some outbound requests to discuss how we operate that business, the value to both sides and the patient under these types of arrangements. As I've said before, we can service this business, whether it's fee-for-service or capitated. And I think there is some market interest in getting to a place where incentives are aligned. So there is many conversations going on that are proceeding for us, but these do take time. If you think about the contract we just won, that was over a year, call it, 2-year conversation. There's infrastructure and IT systems and things that have to happen, especially if it's a new capitated arrangement. So we're going to continue to push forward and have those conversations, but I do see that there is market appetite for these, call it, not for fee-for-service arrangements. Jason Clemens: Richard, the last thing I'd add there is that we view the capitated pipeline, much like we do our M&A pipeline is that we are continuing to pursue both, but we do not assume any impact inside of our guidance until or unless we close deals. Richard Close: Okay. That's helpful. And then maybe just really quickly on diabetes. I appreciate the success on the retention and consolidating that with the sleep. I'm just curious when you expect that from a new start perspective to, I guess, begin to show growth? Or what are your long-term thoughts on the growth of that segment? Suzanne Foster: Sure. I'll start there. Yes, thank you for calling out the hard work that our resupply Nashville team has done around really improving substantially how we service our resupply patients and the retention rates are proof of that. We knew going into the turnaround that we initiated, what, 18 months ago or in the fall of 2024 that our -- the confidence in the team down in Nashville would produce a sooner, better outlook for diabetes and that it takes time to build up the sales force, retrain them and to earn the trust back of the referring providers. And so that has been the work over the past year to the point that we have also started to see improvements there in pockets of the country. And we've also made the decision to grow our diabetes sales force to improve our CGM, particularly our CGM new starts in 2026, notwithstanding that we're holding the expectation too flat until that proves out. And then missed the last part of that question. Jason Clemens: Yes. I'd say, Richard, if we think about the components of the segments, in CGMs, we've got the resupply, as Suzanne referenced. We've got new start activity that we are making key investments in an attempt to jump start the start activity from our field force as well as our pharmacy operations. And so we feel pretty good about being able to achieve that as we get later in the year. And then finally, don't forget pumps. I mean, we had a good year with pump revenues. And in Q4, both new starts and net revenue for pumps was up low double digits. Operator: Our next question comes from Brian Tanquilut with Jefferies. Meghan Holtz: This is Meghan Holtz on for Brian Tanquilut. I just wanted to begin with, can you provide us any update on the infrastructure readiness for this new national health care system partnership this year? Are there any additional investments we need to be thinking about? Or are you in line with your initial outlook? Jason Clemens: Meghan, I would say that we are right down the fairway with our initial outlook. The investments that we made in Q4 and that we're carrying through Q1, they have shored up a February 1 start date on the West Coast that we are now taking care of a lot of patients from this new capitated arrangement. We do have subsequent start dates as we get into the back half of Q1 and on throughout the year. We've made key investments there. We talked about the Hawaii acquisition, which is a terrific business on its own, and it will be part of supporting Hawaiian operations for this contract as that start date occurs later in the year. And then finally, we referenced the $100 million draw on the revolver in reference to an acquisition that's already closed in support of that February start date, and we are pursuing similar acquisitions to support the rest of the West Coast operations. And so we're not we're not celebrating yet. I mean there's still a lot of work ahead. But overall, we're very pleased with getting the December and February start dates secured, and we feel good about the rest of the year. Meghan Holtz: Okay. And then as a quick follow-up, as we think about free cash flow guidance, CapEx stepped up, obviously, in regards to supporting this contract as well. As we exit Q4, is this the right run rate going forward? Jason Clemens: Yes, we do think that this is just about the right run rate as a percent of revenue. I mean, I would point out that through the disposition activity over the last, call it, 5 quarters or so, I mean we did take out about 5% of top line revenue. Now none of those businesses sold really had any CapEx at all. And so that alone add about 0.5 point to CapEx and which is why the run rate we're seeing here in Q4, we feel pretty comfortable with going forward. Operator: We will move next with Pito Chickering with Deutsche Bank. Kieran Ryan: This is Kieran Ryan on for Pito. Just wanted to check in on the sleep business first. Just see if there's anything that we should be aware of there on cadence year-over-year or year-over-year comps or if there's anything that you'd want to highlight around maybe from a price mix perspective? Or should we generally just expect revenues to be tracking with the strong new starts and census you're seeing? Jason Clemens: Kieran, it's Jason. I'm glad you're calling this out because there is some noise in the comparable in 2025. You might recall that we had discussed a change in the rental and sales mix within sleep last year related to the accounting of a component of the CPAPs. I mean in the first quarter last year, that was about $15 million, just a touch under. That cut in half approximately in the second quarter and again in the third and then started running out in the fourth quarter. And so that does set up an easier comparable in 2026 over 2025. Otherwise, our start growth, we've been very pleased with. We are nearing record start activity for sleep, and we're feeling very good about the sleep business for 2026. Kieran Ryan: And then just a follow-up once more on diabetes. Just kind of wanted to check in and see what you're seeing on the DME versus pharmacy side there. I know I think you've seen most of that shift already occur on the CGM side. So kind of just wondering if that's stable and then more so just what you're seeing in pumps as we see more pumps kind of moving into that channel? Jason Clemens: Sure, Kieran. So I'd say on the CGM side of things, we absolutely saw fewer payer policy changes or notifications as we're starting this year versus what we saw in 2025 or particularly in 2024. So that's a good thing for the business. And then on the pump side of things, we do have full capability within our pharmacy operations to distribute pumps through that channel as well as through the more traditional DME channel, which is part of why we're seeing very good pump growth here in the back half of '25, and we think that will continue in 2026. . Operator: We do have a follow-up from Eric Coldwell with Baird. Eric Coldwell: And I just wanted for posterity, I wanted to go back to the capitated contract onboarding expense in the fourth quarter of -- I think it was just over $10 million. Can you remind us how that compared to what was embedded in your guidance previously? Was there any delta on that number? And then I might have a quick follow-up. Jason Clemens: Sure, Eric. The delta was just a touch under $10 million at approximately $8 million. Now considering that we guided first week of November, I mean, we certainly had a sense that we were going to overrun and overspend on labor and vehicles and general OpEx within the quarter. However, we wanted to be cautious in communicating that without the corresponding revenue ramp that was going to come with it. So at the end of the day, I mean, we spent more than we communicated. However, the initial outlook we provided in '26 and the revenue that came with that, you'll note that we stepped up the contribution from this capitated arrangement pretty meaningfully. I mean back in November, we said that we believe it would be 3% to 5% growth to be attributed to that contract in 2026. And today, we stepped that up to 5% to 6% growth. So this was timing. Expense came bigger and faster than we said it would. However, the revenue is also coming bigger and faster than we said it would. So we feel pretty good about it. Eric Coldwell: And then on the Hawaii acquisition I may have missed this, but did you size the revenue contribution? I know you gave us a net impact of M&A and dispositions in the -- embedded in the outlook for growth. But did you size the Hawaii deal specifically? Jason Clemens: We didn't, but we're happy to, Eric. That Hawaii ideal, excluding any impact from the upcoming capitated arrangement, the run rate is about a little over $1 million a month. Now we netted that against what we project to be a third and final disposition in our home infusion assets. which was also just over 1 million a month. That deal closed on January 1. So subsequent to the end of the quarter, you'll see that in the filing. And so they really wash out, which is why we didn't mention it. Operator: [Operator Instructions] We show no further questions at this time. This will conclude our Q&A session as well as our conference call. Thank you all for your participation, and you may disconnect at any time.
Operator: Good morning, everyone. Joining me on today's call is Michael Dale, Axogen's Chief Executive Officer and Director; and Lindsey Hartley, Chief Financial Officer. Michael will discuss fourth quarter and full year 2025 financial results and corporate highlights. Lindsey will then provide details on financial performance, guidance and overall outlook for the year. This will be followed by a question-and-answer session. Today's call and presentation is being broadcast live via webcast, which is available on the Investors section of Axogen's website. Following the end of the live call, a replay will be available on the Investors section of the company's website at www.axogeninc.com. Before we begin, I'd like to remind you that during this conference call, management will be making forward-looking statements, which are statements that are not historical facts and are based on current expectations and assumptions regarding future conditions, events and results. Forward-looking statements include, among other things, statements regarding our financial guidance and outlook, clinical development activities and regulatory efforts, commercial growth initiatives, reimbursement and market access efforts, training and education initiatives, research and development activities and our overall business strategy and operating performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially including, without limitation of risks and uncertainties reflected in our filings with the Securities and Exchange Commission including our most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and other filings we make with the Securities and Exchange Commission. Forward-looking statements speak only as of the date made, and we may make -- we undertake no obligation to update any forward-looking statements, except as required by law. In addition, for a reconciliation of non-GAAP measures, please refer to today's press release for a presentation with highlights from today's call and the corporate presentation on the Investors section of the company's website. Now I'll turn the call over to Michael. Michael, please go ahead. Michael Dale: Thank you, operator, and welcome to everyone joining us this morning. Today, I'll walk through our fourth quarter and full year 2025 performance through the lens of the 6 priority areas of our strategic plan, highlighting how we executed against each in 2025 and how they frame our objectives for 2026. I'll then turn the call over to Lindsey to review the financials and outlook, after which we'll open the call for questions. 2025 was a year of significant achievement for Axogen, both financially and strategically and one that positions us well for durable growth in the years ahead. The first strategic plan priority I will speak about is our growth target of 15% to 20% and the related financial operating leverage we expected for the business. We delivered strong top and bottom line performance in 2025, consistent with the upper end of the growth trajectory outlined in our strategic plan. Our Q4 revenue was $59.9 million, up 21.3% year-over-year with double-digit growth across all 3 target markets. Our full year revenue increased 20.2% to $225.2 million. Our adjusted EBITDA grew 41% to $27.9 million, and we increased our cash position by $6 million while fully funding our strategic initiatives. This performance reflects expanding adoption of Axogen's nerve repair algorithm across traumatic iatrogenic and chronic peripheral nerve injuries with Avance Nerve Graft remaining our primary growth driver, often complemented by our broader portfolio of repair, protection, connection and termination solutions. Importantly, we have now reached a financial inflection point enabling greater concentration of our market development efforts while generating positive cash flow and improving profitability. Regarding capital structure and balance sheet strength, in January, we completed an upsized public offering raising $133.3 million in net proceeds. We used $69.7 million to fully retire our term loan facility, leaving us with a clean capital structure and significantly enhanced financial flexibility. Eliminating the interest and revenue participation obligations improves our earnings quality over time, while the remaining proceeds provide capacity to fund continued execution of our strategic plan. As a result, we entered 2026 well capitalized and positioned to deliver disciplined, profitable growth. The second strategic plan priority I will speak about is our market development progress for elective and planned procedures in extremities, oral maxillofacial and head and neck, breast and our prostate market development plans. Across our 3 core markets, momentum remains strong, as represented by continued double-digit growth in each market. In extremities, which continues to be our most mature market and where we are furthest along in achieving standard of care status supported by solid growth in both traumatic and chronic procedures. For Oral Maxillofacial and Head and Neck, we delivered high double-digit growth, driven by a surge in adoption of the Axogen algorithm and increasing recognition of nerve repairs impact on quality of life. Breast remains one of our fastest-growing opportunities with accelerating adoption of resensation techniques and increased implant-based reconstruction volumes. In Prostate, we made important foundational progress in 2025. More than 100 procedures were completed across 10 clinical sites, and in collaboration with our surgery partners, we established a standardized surgical technique. As we enter the second half of 2026, we expect to begin seeing meaningful clinical signals as nerve recovery data matures, an important step in what we believe is a highly underdeveloped and compelling market opportunity. The third strategic plan priority I will speak about is our commercial expansion progress in regards to infrastructure and sales force growth. In 2025, we significantly expanded our commercial organization across all markets. In Breast, we added 10 sales representatives and 2 regional directors ending the year with 21 sales representatives and 2 regional directors. In Extremities, we added 12 sales representatives in high-potential geographies, ending with 117 reps and 15 regional directors. In Oral Maxillofacial and Head and Neck, we ended the year with 3 field-based market development managers. And in Prostate development, we added 3 clinical development managers and one director. Early productivity trends are tracking well with our assumptions. Across markets, new hires typically reach independence and breakeven within 6 to 9 months, after which they become accretive. In 2026, we plan to continue this expansion. We will grow the Breast team to approximately 30 sales representatives. We will grow Extremities to approximately 130 representatives and we will continue to evaluate further commercial investment to support Prostate market development in the second half of the year. The fourth strategic plan priority I will speak about is our commercial excellence performance specific to our high potential accounts, productivity in general and education. Our high potential account strategy remains a cornerstone of our commercial model. In 2025, 61% of total revenue growth came from high potential accounts. Average high potential account productivity increased 21% and active surgeons in high-potential accounts increased by 131. We ended the year with 679 active high-potential accounts out of an approximately 780 universe. While slightly below certain internal targets, fundamentals across both high potential and non-high potential accounts remain strong with double-digit growth and improving productivity across the broader base. For 2026, our high potential objectives include 60% of revenue growth from high potential accounts and 18% productivity growth in these accounts and activation of at least 100 surgeons. Surgeon education continues to be one of Axogen's core competencies and a critical driver of algorithm adoption. In 2025, we exceeded training targets across all markets. And in 2026, we plan to further expand education programs across Breast, Extremities and Oral Maxillofacial, Head and Neck. In 2025, Extremities held 9 professional education programs and trained 170 surgeons. In Oral Maxillofacial and Head and Neck, we held 3 programs and trained 59 surgeons. In Breast, we held 5 professional education programs and trained 79 surgeon pairs. For 2026, our training objectives include holding and conducting 10 Extremities professional education programs and training 200 surgeons. In Oral Maxillofacial and Head and Neck, we will conduct 6 professional education programs and train 100 surgeons. And in Breast, we will conduct 5 professional education programs and train 75 surgeon pairs. The fifth strategic plan priority I will speak about is progress related to our standard of care objectives as related to evidence coverage in the FDA Biological License approval of Avance. In December, we achieved the most significant milestone in Axogen's history, which was the FDA approval of the biologics license application for events. Avance is now the first and only FDA-approved biologic therapeutic for treating peripheral nerve discontinuities with 12 years of market exclusivity. This establishes Avance as the standard of reference in nerve repair. We are acting on this milestone across 4 fronts: customer engagement to reinforce confidence in Avance's safety, efficacy and regulatory status; payer engagement to drive near universal U.S. coverage; clinical advancement by enabling prioritized studies under an approved regulatory framework; and lastly, manufacturing investments to support scalability and margin expansion by our ability now to manage our manufacturing operations under one quality system. In 2025, we also received strong validation of Avance from leading medical societies. The American Association of Hand Surgery and the American Society for Reconstructive Microsurgery issued position statements recognizing nerve allograft as a non-experimental medically necessary standard of care for peripheral nerve defects. Building on prior guidelines from the American Association of Oral Maxillofacial surgeons, together, these endorsements represent an important step toward broader recognition of allograft nerve repair as a standard of care and support our efforts to expand coverage and payment in the future. On reimbursement, approximately 19.8 million additional lives gained coverage in 2025, bringing commercial coverage above 65%. With Biologics License approval, we believe we are well positioned to address the remaining payer objections. Additionally, CMS implemented a new outpatient payment classification for nerve procedures in January, improving the economic profile for outpatient settings and potentially expanding site of care flexibility over time. The sixth and last strategic plan priority I will speak about is our innovation progress. Our R&D investments which are focused on improving benefit versus risk profiles for the treatment of nerve care are focused on 3 strategic priorities. Firstly, making nerve coaptation faster and easier and more consistent. Second is advancing solutions for non-transected and chronic nerve injuries through better protection. And thirdly, developing therapeutic reconstruction technologies to improve the fundamental ability for nerve regeneration. With the Biologics License approval in place, we are moving forward also with prioritized clinical studies, including in breast and mixed and motor nerve indications. We expect to provide more detailed updates on individual programs later this year. In each instance, these programs are progressing well and we plan to provide more detail on each of these programs in the second half of the year. In summary, 2025 was a year of execution and validation for Axogen. We delivered strong financial results, achieved a historic regulatory milestone and continued building momentum across our markets, all while executing against the 6 priorities of our strategic plan. I am proud of the Axogen team and confident in our ability to deliver disciplined growth consistent with our guidance and long-term strategy. I'll now turn the call over to Lindsey to review the quarter's financials and our outlook for 2026. Lindsey Hartley: Thanks, Mike. I'm pleased to report our 2025 financial results and provide 2026 guidance. We are excited about our results for the fourth quarter and the full year. Our focus on commercial execution and resource allocation have yielded top line growth and positive cash flows. For the fourth quarter, we reported strong growth with revenue of $59.9 million, reflecting 21.3% growth compared to the fourth quarter of 2024. For the full year, we reported revenue of $225.2 million, reflecting growth of 20.2% compared to 2024. As mentioned during our last earnings call, we estimated that our revenue was positively impacted by the discontinuation of the K stock sales program for Avance. We believe the pull-forward impact on our full year results to be minimal. Revenue growth continues to be fueled by strong sales of Avance and adoption of our comprehensive product algorithm across our target market with unit volume and mix serving as the primary driver of our revenue performance in addition to price. Our gross profit for the fourth quarter came in at $44.4 million, up from $37.6 million in the fourth quarter of 2024. This represents a gross margin of 74.1%, down from 76.1% in the same period last year. Gross profit for the full year came in at $167.4 million, up from $142 million in 2024. This represents a gross margin of 74.3%, 1.5 percentage points less than 75.8% in 2024. Gross profit was negatively impacted by $1.9 million or 3.3% for the fourth quarter and 0.9% for the full year from onetime costs related to the FDA BLA approval of Avance. 2/3 of these costs or $1.3 million were noncash and related to the vesting of certain stock-based compensation awards containing milestones tied to this event. Excluding these onetime costs, the year-over-year decreases of gross margin were primarily driven by approximately 2% higher product cost, offset by a reduction of inventory write-offs and reduced shipping costs on products sold. Product cost increased as a result of costs related to additional steps and tests required as we transition to and began processing Avance as a biologic. The reduction in inventory write-offs and shipping costs resulted from the discontinuation of the K stock sales program for Avance and process improvements implemented throughout the year. Operating expenses increased to $54.2 million in the fourth quarter, up from $35.6 million in the fourth quarter of 2024 and increased 18.3% as a percentage of revenue. Full year operating expenses increased to $175.2 million from $145.3 million in 2024 and increased 0.3% as a percentage of revenue. Included in operating expenses for the fourth quarter and full year was $7.2 million of noncash onetime stock-based compensation expense related to the vesting of equity awards tied to the FDA BLA approval of Avance. This expense is reflected across operating expense categories, including $700,000 in sales and marketing, $4.6 million in research and development and $1.9 million in general and administrative expenses. As a result, operating margin was negatively impacted by approximately 12.1% in the fourth quarter and 3.2% for the full year. Excluding this onetime cost, operating leverage improved by 3% as a result of top line growth and financial discipline year-over-year. Sales and marketing expenses as a percentage of total revenue increased nearly 5 percentage points to 45.4% in the fourth quarter compared to 40.6% in the fourth quarter of 2024. For the full year, sales and marketing expenses as a percentage of total revenue increased 1.5 percentage points to 43.4% from 41.9% in 2024. Research and development expenses increased 83.9% to $12.4 million in the fourth quarter compared to $6.7 million in the fourth quarter of 2024. And as a percentage, total revenue increased by approximately 7 percentage points to 20.7% from 13.6%. Full year research and development expenses increased 18.4% to $32.9 million from $27.8 million in 2024 and was flat at approximately 15% as a percentage of revenue. General and administrative expenses increased 64.6% to $14.6 million in the fourth quarter compared to $8.9 million in the fourth quarter of 2024. And as a percentage of total revenue increased 6.5 percentage points to 24.4% from 17.9%. Full year general and administrative expenses increased 14.2% to $44.6 million from $39 million in 2024 and as a percentage of revenue decreased 1 percentage point. Net loss for the fourth quarter was $13.2 million or $0.28 per share compared to net income of $500,000 or $0.01 per share in the fourth quarter of 2024. Full year net loss was $15.7 million or $0.34 per share compared to $10 million or $0.23 per share in 2024. Adjusted net income was $3.5 million or $0.07 per share for the fourth quarter of 2025 and 2024. Full year adjusted net income was $14.4 million or $0.29 per share compared to the $5.9 million or $0.13 per share in 2024. Adjusted EBITDA for the fourth quarter was $6.5 million compared to an adjusted EBITDA of $6.7 million in the same period last year. Fourth quarter adjusted EBITDA margin decreased 270 basis points to 10.9% from 13.6% in the same period last year. Full year adjusted EBITDA was $27.9 million, compared to an adjusted EBITDA of $19.8 million in 2024. Full year adjusted EBITDA margin improved 180 basis points to 12.4% from 10.6% in 2024, driven by revenue growth and increased operating leverage, excluding stock-based compensation expense. I am pleased to report for the full year, our balance of cash, cash equivalents, restricted cash and investments increased $6 million to $45.5 million from $39.5 million as of December 31, 2024, demonstrating our ability to be cash flow positive for the year. Now turning to our full year financial guidance for 2026. We expect full year 2026 revenue growth to be at least 18% or total revenue of at least $265.7 million. We anticipate full year 2026 gross margin to be in the range of 74% to 76%. This range is consistent with 2025 and considers anticipated product cost pressure as we begin selling Avance Biologic product in the second quarter of 2026. In 2027, we expect to begin seeing improvement to gross margin as a result of implementing continuous improvement programs this year and increasing economies of scale. We expect to be free cash flow positive for the full year 2026. Similar to prior years, we anticipate higher cash burn in the first quarter. In summary, we are pleased with our fourth quarter and full year performance and entered 2026 with strong momentum. Looking ahead, we will continue to prioritize initiatives that strengthen our financial foundation including targeted investments in innovation and commercial infrastructure. By maintaining a disciplined approach to expense management and leveraging economies of scale, we are confident in our ability to further enhance operating margins and deliver consistent profitability. With that, I will now open the line for questions. Operator? Operator: [Operator Instructions] Our first question today is coming from Michael Sarcone from Jefferies. Michael Sarcone: Just to start on the guidance for the year, at least 18%. You exited 2025 at 21%. And maybe you could argue that's even higher when you adjust for the K stock discontinuation. But just wanted to get your take on how conservative or achievable do you view the guidance and maybe talk about some of the key assumptions that you've got in there? Michael Dale: Thanks, Mike. We would characterize it as prudent. We're building off of a larger base. We believe that our commercial customer creation models are elastic, but they still need to be managed. And so each quarter is a new quarter, each year is a new year. And we feel very confident in the guidance of 18%. Obviously, we aspire to growing the business as fast as possible. But hopefully, that answers the question. It's a situation that we still believe that we need to prove out quarter-to-quarter because the management of those -- of the customer creation processes is one of diligence, and then we're expanding the footprint, and we still need to be careful about getting out ahead of ourselves. Michael Sarcone: Understood. That's helpful. And then maybe just -- you touched on the CMS reimbursement, a healthy increase in the outpatient setting. Can you maybe just help us think about how you're thinking about pricing in that context? And any help on -- can you give us a rough sense of the split of the business between inpatient versus outpatient procedures? Michael Dale: Why don't I ask my colleagues, Jens and Rick to weigh in on answering that question. Rick Ditto: Mike, thanks for the question. This is Rick. Just to start, we don't break out by care setting in terms of our revenue, but I do think this is a good derisking event. It's not a light switch. So it's not like all of a sudden, all these procedures are going to move to the outpatient setting. But I think it increases site of care flexibility over time, and it's something we'll continue to take a look at. One thing that's important to note is that facilities negotiate procedure payments with the commercial payers and that happens every 1 to 2 years. So CMS makes this decision and facilities will renegotiate their contracts accordingly. And so these things will just flow through the health care system over time, but it gives us a lot of belief in what we're doing. Jens, any color you want to add? Jens Schroeder Kemp: Yes. I would say it's definitely positive. The payments have increased, but the really important thing is coverage. And so as coverage expands, that also will give us more opportunities to expand the footprint into other care settings. But it's really -- there's 2 sides of the coin. You've got the payment, which is great, has been increased, but we're still working hard to expand coverage as well. Michael Dale: Mike, to give context of procedures that will likely move in the future where it's advantageous for the provider to do so are going to be more of the upper extremities, the hands and the arm and then follow-up outpatient procedure opportunities. The other major significant procedures, particularly head and neck and breast, those are unlikely to move into that kind of setting. So it's all good for nerve care in the future, but it will be one that takes time to socialize as each hospital understands their own situation and then decides whether or not to deploy more resources to the setting. Operator: Next question is coming from Larry Biegelsen with Wells Fargo. Gursimran Kaur: This is Simran, on for Larry. Maybe just to start out, Mike, since the BLA in December 2025, can you talk about the reaction to it so far from physicians in each segment of the market and payers as well? And then how are you thinking about major coverage wins in 2026 as you move towards full coverage from above 65% today? Michael Dale: Sure. The reception from the physician community is varied. So the product has been commercially available to the community for many years now. So for a lot of individuals, they more or less took for granted that this is the case and we're in many instances, only modestly aware of the work going on behind the scenes to move from a device classification to a biologic. So I think that context is important because it's an unusual circumstance. That said, what we have done is with the approval, it has allowed us to go back to the customers, the people we serve and to affirm with them their trust and confidence in Avance. So that is very positive. It gives us a chance to revisit the basic product characteristics of why it's a suitable solution for treating nerve discontinuities. So all very positive in that regard. And as you might appreciate, for those individuals who are sitting on the fence or who were not adopters, it's given us a new vehicle to go back and revisit the question with those individuals. So in all regards, it's very positive, but it's something that also is important to understand it has been a product that's already been available to the community for quite a while. Now as for payers, it's a vehicle that allows us to go back and revisit any of the payers whereby their -- one of their primary objections was that the device was experimental and has allowed us to make clear that, that is not the case. As to their response, it's a formal process. You make the submissions, you work through their various work streams that they require in order to even have a conversation. And then periodically, on an annual basis, they review that information that's new and then revisit their decisions. So there is not a schedule that we can point to that will guarantee us a feedback. But other than what we can say is that we hope and expect to see some sort of responses from these entities in 2026, but we have no prediction per se as to which one or exactly when they will respond. Gursimran Kaur: Okay. That's helpful. And maybe just to follow up -- yes, go ahead. Michael Dale: One thing I would like to add is that while we can't predict the timing, we have predicted the timing in the context of the strategic plan. So I do want to be clear about that. It is our expectation that between now and 2028, we will overcome the negative coverage decisions that presently exist. Gursimran Kaur: Got it. Sorry, just a follow-up. So maybe just switching gears towards your sales force kind of adds for the year. I think if I'm doing my math right, you added about 22 reps across the business in 2025 and you're guiding to at least 12 repetitions in 2026. Maybe help me understand why is that the right number, especially as you're starting to sort of reach critical mass in some of your segments like extremities. And how are you thinking about the productivity ramp of the sales force today versus the historical ramp? Michael Dale: Thanks for the question. I think maybe to start with the one comment you made that reaching critical mass. To put it in context, if you wanted to provide full coverage for extremities, you probably need somewhere between 400 to 600 sales representatives. So there's a very, very large provider universe in extremities. And so -- and point of fact, while 130 sounds like a lot, it does not provide full coverage of that particular patient presentation stream in terms of trauma and related injuries. So we're a long way from full coverage in extremities. With regards to breast, the same thing. So we are -- there's about 1,200 sites of service in breast. And to that end, the current organization, while growing rapidly and doing good work is a long way from full coverage. So that's why we have made the strategic decision. We're not going to try to do all of this in a single year, but we're going to grow into it through incremental additions throughout the year and in the succeeding years through 2028. Operator: Your next question is coming from Chris Pasquale from Nephron Research. Christopher Pasquale: Lindsey, I wanted to start with just the cadence of gross margin throughout the year. Could you just level set us on how we should think about it here? Is 2Q the low point and then you improve from there and sort of magnitudes of the high and the low for the year would be helpful? Lindsey Hartley: Yes. So as we progress through the year and we begin selling a new Biologics Avance product, it will carry a heavier cost. Now we will be selling both tissue and biologic products when we start selling Biologics. So we expect to see that pressure in Q2 and going into the remaining second half of the year. Christopher Pasquale: Okay. So it sounds like the pressure builds over time as that mix shifts and then we start to see improvement in '27. Is that fair? Lindsey Hartley: That's correct. Christopher Pasquale: Okay. Mike, and then you talked about how having the BLA out of the way now frees you up to focus on other clinical priorities, including breast, I would assume, at some point, prostate as well. Can you give us any sense about how you're thinking about what's ultimately going to be required to establish the level of clinical evidence you want in those indications? Are we talking about randomized trials? Or can you get what you need just from documenting sort of single-site registry style study in more detail? Michael Dale: Sure. It will be both. So in every instance, it does not need to be randomized, but it needs to fit the bill of what the FDA refers to -- and it's really not an FDA requirement, but needs to fit the clinical evidence expectations of what's considered adequate and controlled. And so there's a structural definition that accompanies that. So with regards to mixed and motor, that's going to be randomized clinical trials. With regards to breast, unlikely to be randomized. There's great resistance to that given the current belief that it's unethical to do such. But nonetheless, there's a desire for greater clarity in terms of patient fit and response rates. And so there will be adequate control studies that will run there. So those 2, for example, are already planned. Those will all initiate this year. And then we will consider doing additional studies. Prostate, as you raised, will be certainly a significant effort, but we are not in a position to describe what that study will be until really before the end of this year once we see the clinical signals back from 10 clinical sites that we initiated last year. So most important thing to understand is while evidence is significant in so far as individual single-center studies, in terms of randomized studies, to put it in context, RECON is the largest randomized clinical study ever done in nerve care. And while we're very proud of that, it also speaks to the fact that there does need to be more evidence, and so we look at this as an opportunity. Our customers are actually very excited because we provide for those individuals an opportunity, essentially a vehicle by which to engage in nerve care in a way that's very common, say, for example, cardiovascular or some other health care domains, but not historically the situation in nerve care. Operator: The next question is coming from Jayson Bedford from Raymond James. Jayson Bedford: Congrats on the progress. Just as it relates to the BLA, it doesn't look like it based on the physician training metrics you provided, but are you assuming any step-up in growth directly related to the BLA? Michael Dale: Not explicitly. It was always assumed as part of the strategic plan that we would achieve Biologics License approval. And so the growth is implicit in our guidance. It's characterized based upon that assumption. Jayson Bedford: Okay. And then just you mentioned the active 679 high potential accounts within a universe of, like you said, 780. So my question is, you see scenarios where there's -- the potential universe of high potential accounts grows beyond the 780? Jens Schroeder Kemp: Yes, definitely. As we increase our target indications and target procedures, that high potential algorithm will evolve. And so we do expect in the future that, that universe of high potential accounts will grow. Operator: Next question today is coming from Caitlin Roberts from Canaccord Genuity. Caitlin Cronin: Just starting off with guidance. If you could provide some more color on the cadence of revenues throughout the year? Michael Dale: From a calendarization standpoint, it should be very similar to what you've seen the last 2 years for Axogen. To generalize, first quarter is typically the most modest quarter for the business. And then the second and third quarter are stronger quarters based upon the dynamics that transpire across nerve care. So summertime is when you see a very significant trauma, people are out and active. And so that's a pronouncement. But it just basically builds throughout the year. And I would look to the last 24 months of history to give you a guide for the calendarization. Caitlin Cronin: Awesome. And then just for breast. I think you've talked in the past about addressing only a certain part of the market given the technique of the nerve size limitations. Are you working on expanding the technique to address further breast recon procedures? Michael Dale: We are. So we have ongoing R&D and regulatory work to understand what other permutations could be offered that includes greater nerve length, greater -- different morphology representations on the nerve, all things that could make it easier. There's nothing expected this year that would be available. But certainly, within the next 24 months, if we decide and determine that we can successfully develop such, we will be bringing those to the marketplace. Operator: Our next question today is coming from Mike Kratky from Leerink Partners. Michael Kratky: So maybe just to jump in on prostate. You highlighted some really exciting milestones, over 100 procedures and some of the clinical activity we should be expecting in the latter part of this year. But how should we think about the potential revenue contribution in the commercial side ahead of that progression throughout the year? And any color there would be helpful. Michael Dale: Sure. So we're trying to maintain discipline as we wait for the clinical signals from those 10 clinical sites. So prostate will not be a significant revenue contributor in 2026. Michael Kratky: Got it. Understood. And just to clarify there, is there any then contribution in the first half? Or is it really -- that will be kind of the gating factor for your ability to drive more commercial adoption there just as you get more of that clinical signal? Michael Dale: Nothing that we haven't already forecasted implicit in the guidance, which we just shared. So certainly, there's spend and there's things being planned for potential development. But that's all captured in the guidance at present. And it would be very unlikely -- it's very unlikely that we would depart from the current plan. It really boils down to what we've been describing is that we want to see the clinical signals from those 100 patients in the various procedures that we conducted. And again, on the presumption that those are positive, then we'll have a lot more to talk about. Michael Kratky: Okay. Yes, I appreciate the color there. And then maybe just one last one, but some helpful color on the BLA expenses that you outlined in the fourth quarter. I'm curious if there was any G&A impact there? And then any BLA expenses that we should be building in for 2026? Lindsey Hartley: Yes. As I mentioned on the call, there was the stock-based compensation expense directly tied to that event. In G&A, it was $1.9 million. Across all of OpEx, it was $7.2 million. Operator: Next question today is coming from Anthony Petrone from Mizuho Group. Anthony Petrone: Congratulations on a strong end to the year here. Maybe I'll start just on the BLA transition, just something we touched on, Mike, previously, just around inventory or distributor channel shifts as you move from the tissue-based product to Avance BLA in 2Q? And anything we should be aware of over the next couple of months. And quick follow-up here would be on hospital outpatient, that new rate plus 40%. How does that play specifically on the breast side? Like how many breast reconstructions have done outpatient, and is that a driver for that segment in 2026. If I can, I have one quick one on just patient economics after as well. Michael Dale: Sure. With regards to the transition from the tissue to the biologic, it will be invisible to the customer for the most part. There's no inventory obsolescence risk. So all the mechanics and logistics have been factored in and should be seamless at this point. So hopefully, that answers that question. With regards to the outpatient dynamics, despite the changes in reimbursement, as we presently understand the market opportunity in breast, it will not be a factor of any significance with regards to the outpatient setting. Most of those procedures will remain inpatient as we currently understand the situation. Anthony Petrone: Yes, a quick one would be just on patient economics. When you think of core extremity, oral maxillofacial, you're bringing in breast now and these 100 cases in prostate in 2027, presumably that will grow. When you think about revenue per patient between core extremity and oral, how does that stack up to breast and prostate? By our math, I think you used quite a bit more Avance graft in the latter 2 surgeries. Just trying to get an idea of how the different patient categories stack up from a revenue capture standpoint? Michael Dale: Sure. In general, from a pure product standpoint, breast because of the longer grafts, these are typically 1 to 2-millimeter diameter grafts, 7 millimeter in length and the number of those grafts that are used, those will -- those procedures will represent the highest average selling price. There are exceptions in extremities based upon the trauma or the situation where it could be similar. But on average, extremities will have a lower ASP point based upon the number of grafts and products utilized. Prostate, should we succeed there and move forward, we'll employ grafts that are typically 4 to 5 millimeters in diameter and about 50 millimeters in length. And so it will also have a relatively higher ASP, but breast will remain into the future, the highest ASP procedure. Operator: Our final question today is coming from Frank Takkinen from Lake Street Capital Markets. Frank Takkinen: I was curious if I could follow up on breast. I think you outlined 1,200 potential accounts to target in that area. If you think about the 30 rep headcount, how much of that market can you pursue with that size headcount? Michael Dale: Only a portion of it. And so as I've mentioned in the past, we don't have a firm number yet, but I think it should be expected that, that organization could as much as double between now and 2028 and '29 to ensure that we have full coverage based upon the number of accounts are representative to support the care pathway development. So we're still watching that and evolving that. Still a little too early to put a stake in the ground. But the bottom line is we currently have plans to continue to grow the breast organization for the next several years. Frank Takkinen: Got it. That's helpful. And then just as my last one. Curious if you could talk about any long-term gross margin targets once we get to a place where you're consistently manufacturing under the BLA and where that gross margin profile can go over a longer period of time? Michael Dale: Our plan is to address that explicitly in the second half of the year. By then, we will have instituted many of the capital infrastructure investments and have those in place. And that's what's allowing us to guide that we expect improvements in 2027. And I know everyone is anxious to know what are we looking at. But until we really get that work behind us, we think it's appropriate that we hold off in terms of that guide. For this year, it's very similar to what we explained last year, that 74% to 76% range, people should feel good about. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Dale for any further closing comments. Michael Dale: Thank you, operator. On behalf of the Axogen team, I want to thank everyone for their time and interest in our work to fulfill the promise and potential for all stakeholders in our business purpose to restore health and improve quality of life by making restoration of peripheral nerve function an expected standard of care. We look forward to updating you on our continued progress and our plans for the business on our earnings call next quarter. So thank you very much. Operator: That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, and welcome to InfuSystem Holdings, Inc. Reports Fourth Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Glenn Axelrod with [ Bristol IR. ] Please go ahead. Unknown Attendee: Good morning, and thank you for joining us today to review InfuSystem Fourth Quarter 2025 Financial Results ended December 31, 2025. With us today on the call are Carrie Lachance, Chief Executive Officer; and Barry Steele, Chief Financial Officer. After the conclusion of today's prepared remarks, we will open the call for questions. Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of InfuSystem during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under the Risk Factors in the documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2024. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. InfuSystem does not undertake and specifically disclaims any obligation to update any forward-looking statements, except as required by law. Now I'd like to turn the call over to Carrie Lachance, Chief Executive Officer of InfuSystem. Carrie? Carrie Lachance: Thank you, Glenn, and good morning, everyone. Welcome to InfuSystem's Fourth Quarter Fiscal Year 2025 Earnings Call. Thank you all for joining us today. I will provide a fourth quarter overview, highlighting key initiatives, outlining our strategic priorities and providing our outlook for 2026. Then Barry will provide a detailed summary of our financial results. I will then come back for some closing comments before opening the line to questions. During the fourth quarter, we closed out the 2025 reporting period by delivering solid top line growth of 7% with full year adjusted EBITDA expanding 24% to $31.5 million and strong operating cash flow of $7.1 million. We further strengthened our balance sheet with net debt declining 30% year-over-year, while returning capital to our shareholders through our share repurchase program, retiring 137,000 shares in the fourth quarter and 1.3 million shares for the full year. We continue to make advances on key initiatives that are expected to help us accelerate our growth rate of net revenue, adjusted EBITDA and operating cash flows during 2026. We completed the migration of our Wound Care business to the new revenue cycle application that we obtained in conjunction with the acquisition of Apollo Medical during the second quarter of 2025. This includes advanced wound care, negative pressure wound therapy devices and our latest product category, pneumatic compression devices. This important initiative allows us to reduce processing costs and expand our volume capacity, thereby opening the door to increase revenue volume. This leaves our Oncology business, by far the largest in our Patient Services segment as the final therapy left to migrate. In addition, we obtained new accreditations for additional home healthcare DME products that we plan to add to our patient services product portfolio. We are currently working with the manufacturers of some of these products with the goal of repeating the speed and success of our latest PCD product launch. We feel positive on the current progress and look forward to providing more details on these products in the near future. We also restructured our field-based biomedical services team of technicians to better align with our reduced volume expectations for 2026 and to better position our capabilities to bring on smaller, more profitable client engagements. Finally, we made significant progress on our project to replace and upgrade our main information technology business application, which we plan to complete during the first quarter of 2026. At project completion, we will reduce the current spending rate for the project and begin focusing on capturing productivity improvements that the new application enables within several departments. As we announced during our review of the 2025 third quarter, we are focused on driving value creation through profitable growth, which led us to restructure our largest biomedical services contract. And consequently, we are starting 2026 at a reduced revenue volume by $7.1 million or 5.5% annually. This was a necessary change that will have an immediate favorable impact on our reporting earnings and cash flow since we expect an even larger reduction in our expenses. After adjusting for this decrease on a pro forma basis, we are expecting annual revenue growth in a range of 6% to 8%. Additionally, we anticipate that our adjusted EBITDA margin will continue in the mid- to low 20% range. This is inclusive of the impact of costs related to our ongoing information technology system upgrade, which are expected to decrease after the first quarter. We are excited about the opportunities ahead and look to update and refine our guidance as we move throughout the year. Now I'll turn it over to Barry for a detailed review of the fourth quarter financial results. Barry? Barry Steele: Thank you, Carrie, and thank you, everyone, on the call for joining us today. I'm going to give details for the current quarter's results, provide a few insights on the 2026 outlook, and I'll update you on our current financial position and how it changed during the quarter. Now let me start with our financial results for the period. During the fourth quarter of 2025, our net revenue totaled $36.2 million, representing a $2.4 million or 7% increase from the prior year fourth quarter. Both the Patient Services and the Device Solutions segments contributed to the improvement. Patient Services net revenue increased by $1.1 million or 5.4% and included increased patient treatment volumes in Oncology and Wound Care. Oncology net revenue increased by approximately $500,000 or 2.8% and wound care treatment volume revenue grew by nearly $900,000, which represented an increase of over 160%, driven largely by pneumatic compression devices, which launched in the previous quarter. Device Solutions net revenue increased by $1.3 million or 9.7%. This increase was primarily attributable to $1 million in higher sales of medical equipment and just over $600,000 in higher revenue volume in biomedical services revenue. The equipment sales included some rental buyouts from a large customer and the biomedical services increase came from a more diverse group of smaller customers. Partially offsetting these increases for Device Solutions was a $400,000 reduction in equipment rental revenue. Gross profit for the fourth quarter of 2025 was $20.4 million, which was a $2.2 million or 12% increase over the prior year fourth quarter. Our gross margin percentage at just over 56% increased by 2.6% from the prior year amount, demonstrating our focus on profitable growth. This increase was mainly driven by improved labor efficiency and pricing in biomedical services, improved revenue mix favoring higher-margin revenue such as oncology, lower procurement costs and lower pump maintenance and disposable expenses. Selling, general and administrative expenses for the fourth quarter of 2025 totaled $14 million and was $865,000 or 6.5% higher than the prior year fourth quarter amount. Part of this increase was attributable to $689,000 in expenses associated with our project to upgrade our main enterprise resources planning software, which was $196,000 higher than the spend for the prior year fourth quarter. This project is now in the final phase with a go-live launch expected during the current quarter, after which quarterly implementation costs are expected to decrease significantly. Other increases for the fourth quarter were related to additional headcount and revenue cycle and other personnel needed to support the higher revenue volume, offset partially by a lower accrual for short-term incentive compensation, portions of which were already capped and fully accrued due to performance metrics being already met at the end of the third quarter. Adjusted EBITDA during the 2025 fourth quarter was $8.8 million, which represented an increase of just over $1.3 million or 17% from the prior year fourth quarter adjusted EBITDA. This represented a 24.3% of net revenue for 2025, which was above the prior year rate of 22.2%. It also was an all-time record -- quarterly record. These amounts included the spending on the ERP project, which again is expected to start to decrease by the second quarter here in 2026. For the full year of 2025, adjusted EBITDA totaled $31.5 million, representing a margin of 21.9%, an increase of 3.1% from 18.8% in 2024. This reflects a significant year-over-year improvement of $6.2 million or 24.3% despite a $1.8 million increase in ERP project expenses. The improvements are another example showing that our focus on profitable revenue growth and operational efficiency is yielding meaningful results. Turning now to our outlook for 2026. As Carrie mentioned, we are forecasting an increase in our net revenues of 6.8% for 2026 on a pro forma basis after adjusting for the GE Healthcare contract restructuring. The low end of this range is achievable through initiatives we have put in place or have high visibility to such as new customers that have already started in our Oncology business, and new products such as PCDs that have already been launched. The high end of the range will be possible when we are successful launching just a few of the new opportunities we are currently focusing on but have not yet started. These included new customers and products whose impact for 2026 will depend on our success rate and launch timing. Now a few points on our financial position and capital reserves. For 2025, we generated operating cash flow totaling over $24.4 million. This amount was nearly $4 million or 19% higher than the amount realized during 2024. This increase was due to the higher adjusted EBITDA offset partially by a use of cash for working capital. Our net capital expenditures were $6.8 million in 2025, which represented a significant decrease from $13.2 million spent during 2024. This decrease was attributable to overall capital spending requirements being lower as compared to amounts in prior years as the sources of our revenue growth have been more weighted towards less capital-intensive revenue sources. We expect these lower requirements to continue in 2026. We remain well positioned to fund continued net revenue growth with the growing cash flow from operations backed by significant liquidity reserves available from our revolving line of credit and manageable leverage and debt service requirements. Our net debt decreased by $6.9 million during 2025. We were able to do this despite purchasing $9.9 million of our common stock during the year through our stock repurchase authorization. Our available liquidity continues to be strong and totaled nearly $58 million as of December 31, 2025. At that time, our ratio of net debt to adjusted EBITDA was a modest 0.52x. Our debt consists of $20 million in borrowings on our revolving line of credit with no term payment requirements. During the third quarter of 2025, we amended our credit agreement, extending the facility for 2 additional years. The facility now expires in July 2030. We continue to benefit from an outstanding interest rate swap, which fixes our interest rate on the $20 million of our outstanding borrowings at a below market rate of 3.8% until April of 2028. I will now turn the call back over to Carrie. Carrie Lachance: Thanks, Barry. As I reflect back on efforts made during fiscal year 2025, the updates that we've shared with you today and what we are currently focused on as we head into 2026, I hope that you will agree that we have been diligent in pursuing the strategic priorities we laid out for you during 2025. Those priorities are to execute with discipline, deliver profitable growth and drive long-term value creation for our shareholders. Operator, we are ready for the Q&A portion of the call. Operator: [Operator Instructions] The first question comes from Kyle Bauser with ROTH Capital Partners. Carrie Lachance: Maybe starting with the top line guidance, 6% to 8% for the year. Can you talk a little bit about how we should anticipate the growth rates within each segment, Patient Services and Device Solutions to trend? Would we anticipate a continuation of maybe higher percent growth in Device Solutions like you saw in Q4 versus Patient Services? Any color here would be appreciated. Barry Steele: Yes. I'll throw a couple of thoughts out there, Kyle. Definitely, the patient services is where we see our growth mainly coming from. Even Oncology, we see some success there but Wound Care is our main focus right now for driving further volume through the PCDs that we launched last year and other products we might bring online. That's not to say that we don't see growth in Device Solutions, we definitely do. We're going to give some revenue back because we restructured the GE contract but we see lots of opportunities for us to take that team and grow the base at much better returns for the company. Kyle Bauser: Got it. Appreciate that. And on the adjusted EBITDA margin guidance of mid- to low 20s, of course, it includes the planned reduction of the expenses from the ERP program. Any sense as to kind of the go-forward adjusted EBITDA rate for, call it, like Q2 through Q4, just since we'll be kind of working off of the new base of expenses after Q1? Barry Steele: Yes. Let me make a few high-level comments about our margins. There's definitely -- we've worked hard in this past year to bring our margins up from historical lower rates. And so we're going to be able to carry that forward for sure. So we're feeling very good about that. The restructuring in the biomed actually is helpful to our margins. And there's a couple of other things to mention is that we do see headwinds in margins that we're going to overcome things like our increases in our healthcare costs, other sort of inflationary impacts. We think those will be headwinds that we will overcome through the growth in new products. So we're not seeing a lot of additional increase in margins generally as we go forward but we feel like we're going to stay at this much higher level very strongly going forward. Okay, if that makes sense to you? Kyle Bauser: Yes. No, it does. I appreciate that. And then maybe just one more. On the revenue cycle application that has been successfully integrated. It sounds like that's been very helpful in driving reduction in lead times, et cetera. Wound Care delivered 160% revenue growth in the last quarter, albeit off of a lower base. Anything to call out here in Wound Care going forward and kind of how you anticipate the revenue cycle application to really help drive volume? Carrie Lachance: Yes, I'll take that, Barry. The revenue cycle system that we have implemented obviously took a little bit of time to get going. We've entered most of our business, all of the Wound Care business, PCD into that. We are looking forward to in probably the second half of the year, really starting our Oncology business into that as well but it does allow us to take on some more volume and ramp in a more productive way and manner, both from a PCD and then any new product that will be going through that system. So it's been helpful. Operator: Your next question comes from Anderson Schock with B. Riley. Anderson Schock: So the ERP is expected to go live this quarter. I guess what's the remaining spend to completion? And when should we expect to see the net maintenance cost savings to fully materialize? Barry Steele: Yes. So we'll see the number to be slightly higher in this coming quarter as we're in that final launch phase. A lot of activity is currently happening to get us ready, and we have extra help from our consultants on that as we bring actual real live transactions and convert over. So that will be a little bit higher in the first quarter but then it should taper down. It won't go to 0, though. As we look at the full benefit on a sort of annualized basis, if we compare the periods where we're doing the ERP to the future when we're not doing the actual implementation, it about $2 million savings annually. So that's the spend that should come out where we do have some ongoing spend, higher maintenance costs, if you will, for the new system. So the net difference between when we've been doing the implementation to the future is about $2 million in savings. What we expect sometime later in the year 2026 or beyond 2027 is to start seeing some benefits as the new application starts to -- we get good at it and we start to consolidate and see efficiencies for all the rest of the teams that are impacted by it. You may recall that we did the ERP because we -- our old system was going to go away. It was being discontinued by Microsoft. So we had to do it. But we do see that there will be a payback and improvement in overall efficiencies and productivity to pay for the system, the investment that we made. Anderson Schock: Okay. Got it. And then are there any other costs associated with the transition of the RCM platform from Apollo to expand it into the oncology business? Carrie Lachance: No, no, no additional costs. Again, that system is up and running. We're just -- we're defining those processes to get oncology over there. We use several systems today for the oncology work. So we're excited to get it moved into that new system but no additional cost. Anderson Schock: Yes. Okay. Got it. And then finally, do you have any updates on the ChemoMouthpiece billing code approval or timing there? Carrie Lachance: I do. Unfortunately, I don't have any updates, meaning it was approved or not approved. What I would say is that we're in touch with them very frequently. We have weekly calls regarding kind of the momentum that we see and the interest in the product. We are seeing devices that are shipped out on a weekly basis. They don't have any new information based on their December 17 meeting with CMS but they continue to be encouraged. And again, there's product interest, and we're looking forward to. They were looking forward to maybe a February information back with approval or whatnot but we haven't heard an update yet. Barry Steele: I would just like to add to that, Carrie, the ChemoMouthpiece piece, we kept that any revenue out of the low end of our guidance range. So it will be definitely -- we do believe that we'll see some revenue. It will be one of the things that will help us get higher in the guidance range. Operator: Your next question comes from Jim Sidoti with Sidoti & Company. James Sidoti: You mentioned that the expense reduction related to the renegotiated GE contract will be greater than the $7.1 million in revenue reduction. Where will that show up on the income statement? Will we see that mostly in the gross margin? Barry Steele: Yes, it's gross margin. It's -- we restructured the team, so we had to take some team members out of the program and things like we'd have to pay for the parts for repairs, at least not in the field. So there's a lot of costs that come out of the cost of sales line as we see the revenue come down. James Sidoti: All right. And in addition to -- I think you said expenses should come down about $2 million because of the change in -- or because of the ERP completion. You said on an annual basis, they should come down about $2 million. In 2025, you had some expenses related to the CEO transition. Those should go away as well in 2026, right? Barry Steele: That's correct. Yes. Those are added back for EBITDA, but obviously not added back for our operating income or net income. Correct. James Sidoti: Okay. And so your cash flow generation has been getting stronger over the past couple of quarters, and it seems like it's going to continue to improve. You've been paying down debt so far. Is that really the plan for cash? Or do you have any other options that you think you might use your cash for in 2026 and 2027? Barry Steele: Yes. I would say that our capital allocation priorities have not changed, right? And we have a share buyback program, which is opportunistic in nature. We want to buy back shares in periods where we have strong free cash flow or we see -- and when we see that the trading price is below what we view as intrinsic value. So that will continue. Obviously, the paying down debt is very flexible for us because we have a revolving facility, which means that we can borrow it right back, so we don't give up commitments. And then there's obviously we want to invest in the business, right? We see -- we want to be a top line grower. And M&A, we've done some M&A in the past and could be in the future. I don't care if you want to expand on that. But yes, we -- I think our sort of our priorities are about the same as they have been. Operator: Your next question comes from Matt Hewitt with Craig-Hallum. Tollef Kohrman: This is Tollef Kohrman on for Matt Hewitt. So kind of just general here, are there any other low-margin businesses you're considering exiting or just opportunities to drive more efficiency? Carrie Lachance: I don't think there's any other really low-margin areas that we're looking at today. We will continue to look at -- from a biomed perspective, if there's -- we have a much smaller team today from a nationwide aspect of the number of technicians. So we will try to keep it to a regional kind of the work that we're doing in the biomed space to a regional area unless we see good pricing that we can kind of afford to fly people all over the place. So I think otherwise, we don't have any low-margin areas that we're looking to kind of exit from. Operator: Your next question comes from Benjamin Haynor with Lake Street Capital Markets. Benjamin Haynor: First off for me, I know the subject has been already touched on a bit but I was just curious on the Wound Care cost efficiency and maybe how you see that tracking throughout the year. Carrie Lachance: I would say from the new system, it's allowing us to ramp, bring in volume. It's a much more efficient system. We're using multiple systems before. So it's allowing us to bring in more products. Again, we saw some really good benefit from -- with PCDs. We were able to ramp that relatively quickly. We expect that to continue to grow over the course of the year as well as adding new products. So... Barry Steele: Yes. I would add to that, Carrie, by just saying that the wound care hasn't been a lot of cost actually in our P&L. The cost that we see in order to grow it has been a barrier, and we've been able to move that barrier out of the way. So you won't see necessarily a decrease in our cost because we didn't go and incur them but now we'll be able to grow the wound care at a more efficient pace, if that makes sense. Benjamin Haynor: Okay. That's helpful. And then just lastly for me on the DME new products. Can you share what categories those are in at all? Or is that something we should be staying tuned for? Carrie Lachance: I would say from an accreditation standpoint, I'm happy to share we were accredited for a few new products. One is called the Defender Boot, one is called HidraWear in the ostomy category. So we got accredited for some of those codes. We see some interest in some of those products. We've been approached by some folks with some of those products. I would say as a whole, we -- I would typically not love to share. We want to prove out what we're doing before we set expectations on that. We really want to prove out that it's working for us. Reimbursement is working. So we are working with some companies here to take a look at this, see if it's going to be a good opportunity for us. And as we are successful in those areas, we'll continue to share more information. Benjamin Haynor: Congrats on the quarter and progress. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Carrie Lachance for any closing remarks. Carrie Lachance: Thank you, everyone, for joining today's call. We look forward to speaking with you again on our first quarter call, where we will provide an update on our results and progress. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the American Tower Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, today's conference call is being recorded. [Operator Instructions] I would now like to turn the call over to your host, Spencer Kurn, SVP of Investor Relations. Please go ahead. Spencer Kurn: Thank you, and good morning. Welcome to our fourth quarter 2025 earnings call. I'm Spencer Kurn, Head of Investor Relations for American Tower. Joining me on the call today are Steven Vondran, our President and CEO; and Rod Smith, our Executive Vice President, CFO and Treasurer. Following our prepared remarks, we will open the call for your questions. Before we begin, I need to call your attention to our safe harbor statement. It says that some of our comments today may be forward-looking. As such, they are subject to risks and uncertainties described in American Tower SEC filings and results may differ materially. Additional information is available on our Investor Relations website. With that, I'll turn the call over to Steve. Steven Vondran: Thanks, Spencer. Good morning, everyone. Thanks for joining today's call. As you can see from our published results, we had a great year and an excellent fourth quarter. For the full year, we delivered attributable AFFO per share as adjusted growth of 8%, including over 13% growth in the fourth quarter. These results were underpinned by robust leasing demand across our tower and data center businesses and strong execution against our strategy. Over the past year, we've taken meaningful steps to improve our earnings quality and durability. We've steered capital toward developed markets, globalized and simplified our operations and brought leverage back down to our target range. These actions put us on strong footing to capitalize on future growth opportunities and deliver on our goal of industry-leading AFFO per share growth. Before turning the call over to Rod to review our detailed financial results and 2026 outlook, I'd like to spend a few minutes discussing our key priorities for 2026, as outlined on Slide 5 of our earnings presentation. First, driving durable revenue growth. The backbone of our revenue growth is mobile data consumption, which continues to grow rapidly alongside growth in mobile customers, 5G adoption and fixed wireless access. This secular demand growth is expected to require a doubling in wireless network capacity between now and 2030. On top of this, with trillions of dollars being deployed into AI, it's likely that new AI applications will propel mobile data consumption even higher and require greater bandwidth, lower latency and more uplink capacity than today's typical usage. In our largest tower market, the U.S., carriers are in the middle stages of the 5G cycle, where they broadly completed their initial 5G coverage-oriented activity and are shifting toward capacity-oriented activity. We anticipate carriers will densify their networks not only to meet the capacity demands of 5G, but also to plan ahead for the 6G cycle. We're excited about the 800 megahertz of higher frequency spectrum that's been earmarked for 6G and believe its deployment will drive significant activity on towers. As carriers invest in this capacity, we expect our U.S. portfolio to deliver durable long-term mid-single-digit organic growth. As you saw in our 8-K form from January, DISH has defaulted on its payment obligations. We continue to pursue legal action to recover the value of its remaining lease obligations. And while DISH's default negatively impacts our 2026 outlook, in the long run, we expect our business to benefit from a healthier, well-capitalized customer base that can invest more heavily in their mobile networks. Internationally, we see parallel trends of rising data consumption driving durable network investment. In our European market, 5G progress lagged slightly behind the U.S. and strong demand for new sites is prompting exciting levels of newbuild activity with top-tier carriers. In our emerging markets, 4G-related activity continues to dominate, but we see increasing levels of 5G rollouts in key metros with significant runway for growth. We continue to expect our international tower portfolio to deliver faster organic growth in the U.S. as our less mature portfolios lease up over time. In our data center business, strong demand for hybrid and multi-cloud deployments and positive pricing actions continue to yield impressive double-digit growth. Demand for AI-related use cases like inferencing and machine learning is driving an increasing portion of new leasing, and CoreSite's AI-ready platform is equipped to accommodate these higher-density, interconnection-heavy workloads within its existing cost structure. CoreSite is also benefiting from sustained migration of enterprise IT infrastructure from on-premises to interconnection-rich colocation facility. These powerful demand trends, combined with our unique interconnection-oriented infrastructure, continue to support CoreSite's achievement of mid-teens or higher stabilized yields on new data center deployments. Our second priority is operational efficiency. This has long been a key operating principle at American Tower. Over the past 3 years, we worked diligently to improve our cost structure by centrally aligning our regional groups, divesting noncore business units and automating leasing transactions. These initiatives have helped deliver over 300 basis points of cash EBITDA margin expansion across our global tower portfolio since 2022. And today, we have the highest like-for-like tower cash EBITDA margins amongst our peer group. The bulk of our recent cost efficiency efforts have focused on reducing SG&A, which for our tower business is best-in-class at approximately 4.5% of revenue. With the creation of our global COO position last year, we've undergone an extensive review of the direct costs within our tower business in an effort to bend our cost curve and grow direct expenses at a slower rate than revenue. We identified four key areas of expense savings across our global tower portfolio. First, managing land expense, which is our most significant direct cost, by expanding our highly successful U.S.-based land optimization program to other markets; second, implementing a global unified sourcing and supply chain to enable economies of scale, gain pricing advantages and improve inventory management; third, accelerating the adoption of our well-developed standard of care for U.S. assets across our global portfolio to improve repair and maintenance costs; and fourth, simplifying and standardizing internal technology platforms to optimize customer service and accelerate automation. We expect these new initiatives in conjunction with continued strong conversion rates to drive 200 to 300 basis points of tower cash EBITDA margin expansion over the next 5 years. On top of this, we're investing in AI to accelerate efficiency gains even further. While we're still in the early stages of AI adoption, we expect AI use cases to target process automation, predictive maintenance, power and utility management and workflow optimization. We look forward to updating you on our AI endeavors and accelerated efficiency targets in the future. Moving to our last priority for the year, capital allocation. We remain disciplined stewards of capital and strive to generate durable cash flow growth with high returns on invested capital. Now that we're back within our target leverage range, we have significant flexibility. After funding our dividend, we will opportunistically assess the best uses of our capital among internal CapEx, M&A, share repurchases and further delevering. This year, we plan to deploy the vast majority of growth CapEx to our developed tower markets and CoreSite, and we'll continue to manage our global portfolio in ways that accelerate growth and reduce volatility. Before turning the call over to Rod to discuss our 2025 results and 2026 outlook, I'd like to thank our incredible employees for delivering another excellent year. We've established a best-in-class platform for capitalizing on strong industry demand drivers, and I'm confident that we're well positioned to execute our 2026 priorities and drive accelerating durable growth in 2027 and beyond. Rod, over to you. Rodney Smith: Thanks, Steve, and thank you all for joining the call. I'll start by walking you through our 2025 highlights and then share our 2026 outlook. Slide 7 shows a snapshot of our full year highlights. Consolidated property revenue grew approximately 4% year-over-year and approximately 5% when excluding noncash straight line and FX impacts. Our growth was primarily driven by organic tenant billings growth of approximately 5% and complemented by data center revenue growth of approximately 14%. Adjusted EBITDA grew approximately 5% year-over-year and approximately 7% excluding noncash net straight line and FX impacts. Property revenue growth was magnified by record services contribution and disciplined cost management, resulting in 20 basis points of consolidated margin expansion. Attributable AFFO per share as adjusted grew approximately 8% year-over-year, firmly within our long-term range of mid- to high single digits. This growth was supported by strong conversion of adjusted EBITDA growth and management of below-the-line costs. Excluding refinancing headwinds of approximately 1% and normalized for FX impacts, AFFO per share as adjusted grew approximately 9% year-over-year, demonstrating the underlying strength of our business model. Finally, on the capital allocation front, we brought leverage back down into our target range of 3 to 5x, and we ended the year at 4.9x. Also in the fourth quarter, we repurchased approximately $365 million of American Tower common stock, our largest quarterly and annual buyback since 2017. We've continued to repurchase stock in 2026, buying back approximately $53 million year-to-date. Now let's turn to our full year 2026 outlook, starting with organic tenant billings growth on Slide 8. As Steve mentioned, DISH failed to meet its payment obligation and is in default. This did not impact our 2025 financials, and for the full year 2025, DISH represented approximately 2% of consolidated property revenue and approximately 4% of U.S. and Canada property revenue. In order to reset true run rate expectations for the U.S. and Canada, 100% of DISH's revenue was removed from organic growth beginning on January 1 and reflected in churn. Any payments collected from DISH subsequent to year-end 2025 will be reflected in other non-run rate revenue. For 2026, we expect consolidated organic tenant billings growth of approximately 1% or approximately 4% excluding DISH churn. In the U.S. and Canada, organic tenant billings growth is expected to be approximately 0.5% or approximately 4.5% when excluding DISH churn. This is comprised of colocation and amendment growth of approximately 2.5%, escalations of approximately 3%, DISH-related churn of approximately 4% and normal churn of approximately 1%. We remain constructive on growth for towers in the U.S., supported by a healthier, well-capitalized customer base. In Africa and APAC, organic tenant billings growth is expected to be approximately 8.5%. This is comprised of colocation and amendment growth of approximately 7%, representing a modest acceleration off of 2025 levels, CPI-linked escalations of approximately 4% and churn of approximately 2.5%. Churn is expected to be back half weighted, resulting in approximately 10% organic growth in the first half of the year and approximately 7% in the second half of the year. In Europe, organic tenant billings growth is expected to be approximately 4%. This is comprised of colocation and amendment growth of approximately 3%, consistent with 2025 levels, CPI-linked escalations of approximately 2% and churn of approximately 1%. In LatAm, organic tenant billings is expected to decline by approximately 3%. This includes steady colocation and amendment contributions of approximately 2%, CPI-linked escalations of approximately 4%, churn of approximately 8% and other run rate revenue headwinds of approximately 1%. As communicated over the last couple of years, we have expected low single-digit organic growth in LatAm through the end of 2027 due to elevated consolidation-related churn in Brazil and for organic growth to accelerate in 2028 once the churn passed. On average, our multiyear expectations remain consistent, though we now expect more acute churn in 2026 and the acceleration in organic growth to commence in 2027, 1 year earlier than previously expected. The higher churn in 2026 is driven by a combination of delayed churn initially expected in 2025 and accelerated churn initially expected in 2027. Overall, we are encouraged by the prospects of an earlier-than-expected market repair in Brazil and from the forthcoming acceleration of organic growth in 2027. As a reminder, we still have an ongoing arbitration with AT&T Mexico. We remain confident in our legal position and note that the outcome of the arbitration may impact organic growth. Turning to property revenue on Slide 9. We expect our outlook for approximately 1% organic tenant billings growth to be complemented by the selective construction of approximately 2,000 new tower sites at the midpoint of our outlook and approximately 13% growth in our U.S. data center business. Excluding noncash straight-line revenue and FX impacts, property revenue is expected to grow approximately 3%. Normalized for the impact of onetime DISH-related churn, our outlook for property revenue implies approximately 5% growth on a cash FX-neutral basis. The FX assumptions contemplated in our 2026 outlook, which reflect our standard methodology and are conservative relative to current spot rates, contribute approximately 1% of incremental growth. And noncash straight-line revenue represents an approximately 2% headwind to our GAAP outlook for property revenue. Moving to Slide 10. Adjusted EBITDA is expected to grow approximately 2% when excluding net straight line and FX impacts as growth in towers and data centers is partially offset by a decline in services. Normalized for the onetime impact of DISH-related churn, our outlook for cash adjusted EBITDA implies approximately 5% growth. Cash adjusted EBITDA margins are expected to be 66.8%, down a modest 20 basis points versus last year as steady margins in towers are offset by contributions from lower-margin data centers and services. In towers, due to a continuation of high conversion rates and cost savings initiatives, we expect cash margins to be flat year-over-year even while absorbing approximately 60 basis points of onetime pressure from DISH-related churn. In data centers, we expect cash margins to decline approximately 270 basis points year-over-year as onetime benefits from property tax adjustments and legal settlements in 2025 are not expected to reoccur in 2026. Normalized for these onetime items, we expect cash margins to hold steady as strong lease-up of existing facilities is offset by putting new capacity into service. In services, we expect healthy levels of carrier activity to drive our third highest services contribution in the history of the company. While this level of services contribution is robust relative to historical standards, following our record 2025 and taking into account an increasing contribution of lower-margin construction services, it weighs on consolidated growth and margins in 2026. Turning to AFFO on Slide 11. Our 2026 outlook assumes attributable AFFO per share growth of approximately 1% year-over-year. Normalized for the impact of onetime DISH-related churn and excluding the impact of FX and refinancing costs, our outlook for attributable AFFO per share growth implies approximately 5% growth. Bridging from our 2026 outlook for cash adjusted EBITDA, tailwinds from lower maintenance capital and share repurchases executed in the fourth quarter of 2025 and year-to-date in 2026 are partially offset by higher interest expense as debt is refinanced at higher rates, higher cash taxes and higher minority interest and distributions, consistent with our expectations. While our outlook for 2026 growth is negatively impacted by churn events in the U.S. and Latin America, we believe that we are well positioned to deliver our goal of industry-leading attributable AFFO per share growth and compelling total shareholder returns in subsequent years. On Slide 12, I'll review our capital allocation plans for 2026. We expect to grow our dividend approximately 5%, resulting in approximately $3.3 billion in distributions to our shareholders, subject to Board approval. Next, we're planning for $1.9 billion in capital deployments, of which $1.8 billion is discretionary in nature and includes the construction of 2,000 sites at the midpoint. Approximately 85% of our discretionary spend is directed towards our developed market platforms, including over $700 million in success-based investments in our data center portfolio to replenish elevated levels of capacity sold over the past several years, increased spend in the U.S. primarily toward land buyouts under our tower sites and continued acceleration in European new builds with over 700 new sites planned. Our plan also includes approximately $180 million in maintenance capital, a reduction of roughly $15 million due to an acceleration of maintenance capital projects into 2025, reducing 2026 anticipated spending. Moving to the right side of the slide, we remain disciplined as we utilize our balance sheet, which is well positioned for a variety of macroeconomic scenarios. And we are focused on allocating capital to optimize long-term shareholder value creation. As I mentioned, we repurchased approximately $365 million of American Tower stock in 2025, plus another approximately $53 million so far in 2026. We will continue to be opportunistic in utilizing the remaining approximately $1.6 billion that the Board has authorized for share repurchases. Turning to Slide 13 and, in summary, we are pleased with our 2025 results, which demonstrate the fundamental durability of our business model. Robust mobile data consumption growth and demand for our interconnection-rich data centers underpin a long runway of growth opportunities for American Tower. With our best-in-class portfolio of towers and data centers and strong balance sheet, we are well positioned to capture these growth opportunities and deliver on our goal of industry-leading attributable AFFO per share growth. And with that, operator, we can open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Batya Levi of UBS. Batya Levi: Great. On the domestic side, can you provide a bit more color on the pacing of activity that you're seeing from the carriers as we enter a lower contracted revenue cycle that you had under the holistic deals in the prior terms? And are you seeing a change in the amendment versus densification activity today? And maybe just to compare that 2.5% leasing growth guidance for '26, how does that compare to '25 if we exclude DISH? Steven Vondran: I'll start out with leasing trends, and then I'll let Rod talk about the numbers on it. So what we're seeing, Batya, is we're seeing the customers providing a steady level of activity, kind of broad-based across the entire ecosystem there. And we are seeing a higher incidence of new colocations coming in, but we still have a pretty healthy amendment pipeline as well. And this is what we would expect to see at this point in the cycle. Some of the carriers are broadly done with their initial 5G overlays. So there'll be some fill-in sites that happen there, but they're broadly done with their initial targets. One is still a little bit further behind on that. And so we are still seeing some amendment growth there. And when it comes to the densification, we're seeing both some amendments because they're adding more equipment to existing sites that they've already overlaid, but they're also adding new sites. So we are seeing a little bit of a shift in that. But we still would expect the majority of our new leasing to come from amendments this year, as we have historically. Rodney Smith: Batya, this is Rod. I'll take the other piece of your question relative to the colo and amendment contribution to organic tenant billings and how it relates to prior year. So if you look at our 2026 guide for organic tenant billings growth, it's about 0.5%. Within that, there is about 2.4% contribution coming from colocation and amendment revenue. Now that doesn't have any contribution from DISH at all in it. If you go back to the prior year, the 2025 numbers, we were at about 3.1%, 3.2%, which included some activity from DISH in terms of the contribution from colocation and amendment revenue. When you remove that contribution in the prior year number from DISH, you come right in at that 2.5% level. So we are seeing, as Steve outlined, very consistent activity levels in the U.S. marketplace ex DISH. And we're seeing about 2.5% contribution from colocation and amendment revenue in each of those years from the carriers in the U.S. ex DISH. The only other thing I would add to the pacing of the new business, as Steve said, it's pretty consistent. You will see a little bit higher number in the first half of the year and it drops down just slightly in the second half of the year. Steven Vondran: Yes. Thanks, Rod. Yes, I think you meant to say 2.5% contribution from new leases and amendments this year. Operator: Our next question comes from the line of Rick Prentiss of Raymond James & Associates. Ric Prentiss: Hope you're doing okay with the snowstorm. Can you hear me okay? Rodney Smith: Yes. We can, Rick. Ric Prentiss: Hope you're doing okay with the snowstorm. Obviously, crazy up there in the Northeast. I want to start on the DISH. Appreciate it's out of the guidance. We had taken it out of our numbers as well. Can you provide us the amount owed? Like Crown Castle mentioned that they're owed $3.5 billion when they terminated the agreement with DISH. Are you able to tell us how much is owned and that you're looking at trying to work out a payment from them? Steven Vondran: Yes. Thanks, Rick. Yes, I think the key takeaway that we want everybody to have about DISH from today's call is that we have derisked our business going forward by taking it out of the numbers. And we fully plan to fight in the litigation. We think our contract is enforceable. We're going to do everything we can to collect that. But that would all be incremental upside to the current guidance that we're giving out there. When it comes to the exposure on DISH, we've given you guys the numbers. We can kind of back into it, where it represents about 4% of our U.S. revenue. So that's approximately $200 million a year and we've disclosed that it goes through 2035 into 2036. So that gives you guys kind of the ballpark on that. We haven't put a specific number out there and don't plan to put a precise number on it, but that gives you guys kind of the ZIP code of where that exposure is or what the opportunity is actually now that it's out of the numbers. And so in terms of -- and I'll go and proactively address this for some of the other questions I know are coming. We don't plan to speculate on the litigation. It's public, and you guys can follow along as you go. This is going to take time to work out. And so we don't necessarily expect this to get resolved this year. We hope it does, but we don't necessarily expect it to. And so as we kind of go forward -- as we go forward in the year, we'll keep you updated on anything material that happens. But otherwise, we're just going to continue to fight this out in the courts and see where it goes. Ric Prentiss: Excellent. Along those lines, obviously, settlement or payments would be upside to the capital allocation. You mentioned opportunistic stock buybacks, also pursue M&A. How should we think about M&A out there, what you're seeing across the global landscape? And maybe address also kind of the disparity between public and private multiples. Steven Vondran: Yes. Thanks, Rick. We continue to evaluate everything that's out there. As you probably know, there's a lot of portfolios that are talked about right now. There's not a lot of active deals that we're seeing. But we are still seeing a disconnect between private and public multiples. And we think that, that reflects the attractiveness and the durability of revenue in the tower business. And so that's kept us on the sidelines for the past few years because there has been that delta there that's made it hard for us to participate. But just to reiterate to everyone, our capital allocation strategy is to focus on developed markets. And so you should not expect to see us participating in M&A in emerging markets. We'll continue to invest a small amount of capital there, opportunistically doing redevelopment to support our organic tenant billings growth there. And then we do have some build-to-suits that we're doing as part of multiyear commitments we entered into previously. But as we think about capital allocation going forward, it's really focused on developed markets, predominantly the U.S. And then if there's an opportunity in Europe or elsewhere that's developed, we'll certainly evaluate that. But we're not seeing a lot of deal flow out there that we find attractive today. And we hope that changes. We hope that there is an opportunity for us to scale in some of those markets. And if there is, we'll keep you guys apprised when it happens. Rodney Smith: Rick, I would just add a couple of quick things here. Once you had mentioned any possible future settlement from DISH could be a balance sheet item. I'll just highlight the fact that DISH is in default at the moment. They're not paying us. There is the potential for future collections that may come in. And if they do, it could be accounted for in other non-run rate revenue. So there could be some P&L impacts to the extent that there are future collections from DISH as we go forward. And the only other thing I'd highlight on capital allocation is we are now down below our 5%, within our 3 to 5x leverage target. As you've heard Steve and I talk about over the last several quarters, that brings us into financial flexibility. Just to remind you the bits and pieces here, Steve talked about this. We're a REIT. We provide the dividend. We think that's essential to our long-term TSR, total shareholder return. Then we have been consistently investing between $1.5 billion and $2 billion in CapEx. And we've been able to rotate that, as Steve said, into the areas where we see the best returns. Today, that's going into developed markets and it's increasing capital investments in CoreSite. And then we look at M&A and buyback, and we will make the decisions between those two pieces in terms of which one provides the best outlook for long-term total shareholder return. And of course, if paying down debt and building capacity for future deployments make sense, then we'll do that. So we have a lot of options available to us. We're willing to use them all. And we are now in a place where the balance sheet is very strong and we've regained full financial flexibility. Operator: Our next question comes from the line of Michael Rollins of Citi. Michael Rollins: So the margin guidance for cash margins to go up by 200 to 300 basis points by 2030, how much of that is just organic from the natural operating leverage in the business? And then how much is represented by the acceleration of the activities that you outlined earlier? Rodney Smith: Michael, this is Rod. Let me take that one. So as you highlight in our 2026 guide for cash EBITDA margins, we're guiding to about 66.8%. That is slightly down from the prior year, down about 20 basis points. Of course, within there, there is organic revenue growth as the benefits of cost management that I would remind you and other listeners that we, as a company, have been focused on cost management and efficiencies over the long term historically and certainly over the last several years, you've seen us talk about absolute reductions in SG&A year-over-year over the last few years. So this is not new to us in terms of focusing on cost. A couple of things that are offsetting those expansionary pieces that are driving the margin is it's offset by contributions -- higher contributions from our data center business which is lower margin as well as contributions from our services business that also has lower margin. And I would highlight that it's absorbing about 50 basis points of contraction because of the DISH churn. And within there, it has a step back in the CoreSite margins by about 270 basis points. A lot of that is a onetime nonrecurring benefit we got in property tax as we reversed a prior property tax accrual in 2025. That's not expected to be recurring again, of course, in 2026. With all of that said, I'm not going to go through and try to break out the bits and pieces of that margin expansion that we are expecting. We have increased margins about 300 basis points over the last several years. We expect to do that again going forward in the next several years going out to about 2030. And I'm not going to break it out in terms of which pieces are the organic growth pieces and which ones are the cost savings. And it really is a continuation of what we've been doing. We've been focused a lot on reducing and managing SG&A. We'll now pivot towards global operations and look to reduce and manage our direct expenses down. That will help contribute to that continued expansion. Michael Rollins: And just to confirm. Over the last several months, I think you and Steve have been talking about the incremental effort to drive efficiency, and we were going to get an update at some point. So does today's target for 2030 fully encapsulate the activities that you've been describing over the last several months just to continue to push those efficiencies forward? Steven Vondran: It encapsulates the things that I talked about in my script, where we talked about the four initiatives that we're taking on today. We do think that AI could offer some incremental upside to that, but it's too early to predict exactly what that's going to be. So when you think about what we're doing here, the direct costs typically rise with inflation. And so we thought the best way to explain a target to you guys was to do it in terms of margin. We could put out a number that's sort of a voided cost number that wouldn't mean anything to anybody. But we didn't think that was the right way to explain it. We thought it was really to focus on what's it going to be in the bottom line and what's something you could actually model out in terms of our expectation. And so when we looked at it, and we looked at what the growth would have been in terms of margins just from the operating leverage and where we were in terms of direct, we set a stretch target for ourselves. And we do think that, that 200 to 300 points of margin expansion represents some nice improvement over what it would otherwise be if we weren't able to recognize these cost savings. So that's the guidance you're going to get from us, is that margin expansion piece. If theres's a chance to do something else with AI, and we think there is, once we've been able to sort of figure out exactly what those numbers look like, we'll share it. But until then, focused on margin expansion. As Rod said, look at it on the tower side, not on the data center and services side. And we give you guys enough information in the supplemental to do that. And we'll continue to expand those margins and update you on that quarterly like we always have. Rodney Smith: And Michael, I would just add that, that margin expansion is off of a base that is already industry-leading. Operator: Our next question comes from the line of Nick Del Deo of MoffettNathanson. Nicholas Del Deo: First, I was hoping you could expand a bit on two of the tower revenue growth drivers you highlighted, fixed wireless and AI. So with fixed wireless, are you seeing the carriers invest behind it as the primary motivating factor for work on a site versus it piggybacking mobile-led deployments both in the U.S. and overseas? And what AI use cases do you see as most promising for driving wireless traffic growth? Steven Vondran: Sure. I'll take that one. When it comes to fixed wireless, the carriers are still using their existing installations to support that. So you wouldn't necessarily see a stand-alone deployment for fixed wireless. The way we think about it is overall mobile network traffic and mobile data demand. And when you look at the percentage of mobile data usage that's coming from fixed wireless, it's accelerating. We also look at our carrier customers and what they're saying publicly, and they're all raising their targets for fixed wireless subscribers. So what that tells us is that's driving demand on the network and that's underpinning growth in our sales, even though we can't necessarily pinpoint this amendment or this colocation to fixed wireless, we know it's kind of an overall driver. And when it comes to AI, we're in the early days of this. And most of the AI that we're all doing on our telephones is text or maybe a still photograph. That doesn't put a ton of stress on the networks. It's really video that puts the stress on the networks, and it's both video upstreaming and downstreaming. And that's what we think is going to drive a lot more activity over time. Some of the projections we've seen are showing that the upstreaming effects of AI could require a change in network architecture. Where most networks today have about 10% dedicated to upload and 90% to download, varies by customers, so some of them could be different, we think that in the future, AI could change that trajectory a bit so that you're seeing north of 20% in terms of uploading capacity. So again, it's early days. Too hard to predict exactly when it's going to happen or exactly what app is going to drive it. But it's really that video upstreaming, video manipulation as well as things like the Meta glasses that are live streaming kind of everything around you, those types of applications that we think are going to really result in some network traffic over time. Nicholas Del Deo: Okay, Steve. And can I ask one on CoreSite as well? I thought there were some local news reports that indicated that you recently bought land in the Bay Area and might be pursuing a new campus in the Dallas-Fort Worth area. Assuming those reports are accurate, kind of what's the time frame for the Bay Area land? And how many megawatts do you think it will be able to support? And maybe talk a little bit about the vision and rationale for de novo market entry in Dallas. Steven Vondran: Sure. So we're not ready to announce any new markets yet. We are selectively looking at opportunities in other key metros that would be complementary to our existing portfolio, and we have purchased the land in various areas as sort of an exploratory foray into those. And when we make a decision to break ground there, we'll tell you guys that we're doing it. The rationale is we're seeing incredible demand on our campuses. And this is our fourth consecutive year of record sales growth and this is the first year we've seen AI really manifest itself as a huge use case. So when you look at what's driving the success of CoreSite right now, we still have our kind of bread-and-butter customer, and that's the enterprises that are -- need to be in an interconnection-rich data center that's directly connected to multiple cloud on-ramps. That's our core customer. There's still a huge tail -- a long runway of demand from that customer. But we're also seeing AI workloads like inferencing and machine learning, things like that, and that's our fastest-growing new use case. So from our perspective, to maximize the value of CoreSite, which is what we should be doing, it's both investing in our current campuses and expanding those. And it's looking at what other markets our customers would like for us to be in to drive even more accelerant sales over time. From a timeline perspective, from the time we break ground until the time we open the facility, it depends on a couple of factors. Power availability is one of them, but also just the size of the facility zoning, et cetera. But you can expect it to be approximately 2 to 3 years from the time we break ground till the time that we can bring that capacity online and start realizing revenue from it. Operator: Our next question comes from the line of Jim Schneider of Goldman Sachs. James Schneider: I was wondering if you could maybe just elaborate on the cost reduction program. Maybe specifically talk about what -- it sounds like many of the actions you mentioned, Rod, would be things you would have done in normal course already. So I'm trying to understand, are you basically saying or is the message that you'll be able to sort of achieve this 50 basis points on average per year in spite of some of the cost headwinds and margin headwinds that you mentioned earlier? Or is there something sort of above and beyond that? And would you expect any nonlinearity in achievement of those? Rodney Smith: Yes. Thanks for the question, Jim. And I would highlight the fact that in the last several years, you've seen us really manage our SG&A and manage that down. Of course, we don't announce when we're reducing staff and those sorts of things, but some of that activity certainly happened over the last 3 years as we rationalized SG&A across the board. When I mentioned a continuation, it really is a continuation of the mindset around cost management and cost controls. The thing that is different going forward is that we have a different global structure. We have the addition of a Chief Operating Officer that is going to be bringing best practices around the globe in terms of the way we manage land expenses, the way we execute on supply chain and sourcing. We're going to be looking to expand the standard of care and the way we manage tower operations in the U.S. globally, which we expect really will drive efficiency and bend that curve down. And that will be a contributing factor to the margin expansion that we expect going out, out to 2030. James Schneider: And then as a follow-up, can you maybe comment on the Europe property growth expectations? 9% new site seems like a lot. I'm just kind of curious where that's coming from. And maybe talk about any kind of the flavor or underlying color on a country-by-country basis. Steven Vondran: Sure. I'll take that one. So we're seeing a lot of good opportunities in Europe right now, and we have a strong portfolio anchored by Telefonica that's largely insulated from some of the potential consolidation that's out there. So as we look at Europe, we're continuing to see a long runway of mid-single-digit organic growth that we expect to realize there. And as part of our acquisition but also as part of some of our other agreements out there, we have the opportunity to build new sites. So we're expecting to bring onboard a record number of new builds in Europe next year. And so that's underpinning a lot of that growth. And it's largely in the countries you'd expect it to be. Our two main markets are Germany and Spain there. So you're going to see a lot of towers there. We will bring some new towers online in France as well. And we'd like to bring more online in [ Italy ]. We like that country, and we just don't have as much presence there as we'd like to have. But what you're seeing there is a reflection of some really solid performance by our teams and earning the trust of our customers and then giving us more opportunities to build sites for them. And that's what's underpinning the growth there, along with good leasing expectations over time. I would note that Europe in general is behind in deploying 5G compared to what the U.S. is. And so I think that from that perspective, there's a lot more runway to continue to deploy 5G there as well. So we feel good about the market. We feel good about the investments there. And what you're seeing in that 9% is really us continuing to build new sites as well as realizing organic growth there as well. Operator: Our next question comes from the line of David Barden of New Street Research. David Barden: I guess regarding capital allocation, we talked a lot about returning capital and making new investments. But something we haven't talked about for a while, Steve, was kind of the pivot away from emerging markets. And I think the term of art is called capital recycling. And if you go to Slide 11 and you kind of look at that left-hand side, it looks like there's a lot of markets that are small enough to be distractions and that money could be put to a higher and better use. So if you could kind of talk to us a little bit about what the strategy there is at this stage, whether currencies and market valuations have perhaps stopped you from doing things or if things are on the burner. And then I guess my next question is a little offbeat. But for the last 5 years, if anyone asked, hey, how's satellite going to affect the terrestrial wireless business, you'd roll your eyes and you'd say, it's never going to have an impact. But now that you're starting to talk about 2030 margin expansion, 2030 6G is a driver and the reality that these LEO constellations are going to evolve over the next 5 years in material ways, how do you kind of get comfort right now looking into 2030 that this kind of evolution of connectivity, towers in the sky, so to speak, isn't an equivalently disruptive -- an equivalent to, say, the AI evolution, which you also expect to happen in the next 5 years? Steven Vondran: Yes. Well, let me take the emerging market question on that. And our goal is always to establish a real estate portfolio that's giving us industry-leading AFFO per share. And we made a pivot a couple of years ago to focus more of our development CapEx in the developed markets because we thought that was going to give us the best durable growth over time and because we had gotten a little ahead of ourselves in terms of emerging market exposure given some of the challenges that we saw there with India and other things. So we've already made a number of changes to our portfolio mix there. You referenced some of the smaller countries. And we'll always evaluate those countries to see what the best use of capital is on that, and you could see us do something there, but only if we think we're realizing the value of those that's accretive to our shareholders. So we're not going to do any fire sales. We're not going to eliminate something because of the distraction. What we've done to fix that is we've changed our operating model so that they're operating from regional hubs or through these kind of global organizations. So it's really not a distraction for us. So it's all about what value can we realize and does that make sense? And if it does, you might see us take action. Otherwise, we're going to harvest that cash flow and redeploy it into our capital priorities that we outlined there. So again, just when there's some -- when there's news there, we'll let you know. But until then, we're going to continue with those. When it comes to satellites, the reason that we made an investment in AST SpaceMobile was to get a Board seat so that we would have a front row seat to this technology as it unfolds. And we certainly continue to monitor that. We talk to the engineers in the space. We talk to the dreamers in the space and what they're trying to do. And that gives us a lot of confidence that satellites will be complementary to the terrestrial networks. 6G is likely to be designed with satellites being an integral part of an integrated network. But the simple physics of spectrum, the simple economics of having a constellation that has to consistently be replenished over time means that towers will always be the cheapest and best way of deploying the level of content, the volume of mobile data that consumers demand. So while we think the satellite business is a great business, it's going to be a good complement to the network and we certainly are excited about the developments we're seeing in that area, we see no risk at all to the tower business over the long term because, again, towers will always be a cheaper form of delivering a mass amount of data to the consumer. And the satellites just can't compete with that. Rodney Smith: David, I want to add a couple of just data points for you to think about to support Steve's discussion around us being an active portfolio manager. The evidence here is that we sold India and we took the proceeds from that sale. And we delevered and helped us get down below our 5x. You also saw us exit [Technical Difficulty] in different markets around the world. And again, we used those proceeds from those sales to delever the balance sheet and to help us regain that financial flexibility. And most recently, and we announced it in the prepared remarks and in the press release, we sold half of our stake in AST Mobile. Remember, it was just a modest investment. We really invested in to stay close to the satellite business and to learn about that business going forward. There's no secret, the stock has done well. The company has done well. And we looked at it as a good opportunity to recycle some of that capital. So we sold half the stake. We used that to actually buy back shares in the last quarter. And we maintained a Board seat on AST. So we still have the ability to continue to learn. Operator: Our next question comes from the line of Brandon Nispel of KeyBanc Capital Markets. Brandon Nispel: Can you guys hear me? Operator: Yes, we can hear you. Brandon Nispel: Great. So two questions. Obviously, the U.S. ex DISH is pretty steady. I guess if we could remove DISH from like the last 3 years, it still seems like colo and amendment activity is down. Is that right? And just to nitpick a little bit, why is the second half of the year lower than the first half? And how should we be thinking about that in terms of the exit rate? How should that inform our view in terms of 2027? And then separately, in Africa, one of your largest customers just announced their intent to acquire some towers for their own. Sort of how you're thinking about that in terms of your view when one of your largest customers now wants to own a captive tower portfolio? How does that impact your growth expectations for that market? Steven Vondran: Thanks. I'll take the Africa question first. We don't expect it to have any effect on our business there at all. We view that transaction is unrelated to the business we have there. If you look at the sales success that we had in 2025, we're doing very well in Africa in terms of our new business there. And our projections for 2026 are to have another good year of that. We don't think that the acquisition of the other tower company really has any bearing on that at all. As we've said previously, our goal is to reduce the incremental capital that we're putting into Africa over time. And that means that we're not going to be building as many new sites for the carrier customers there. And so I think that what you're seeing play out in the various changes that are happening in Africa are reflective of our customers there looking for other alternatives versus American Tower in terms of how they're going to build some of those sites in their network. So we feel good about that business. We think that we're going to continue to have a nice long runway of organic growth there. Rodney Smith: Brandon, I guess keeping with the theme here and working backwards, I'll answer your second question, which is the timing and the pacing of new business. So I referred to the fact that there will be a slightly higher number or contribution in the first half of the year and it ticks down really ever so slightly. It's simply just a function of the way that our holistic agreements work as well as the timing of activity that we expect to see. And there's nothing more to it than that. Your first question again is related to kind of going back over several years and the contribution and activity level that we've seen in the U.S. and how it relates to our organic growth. I'll point out a couple of things. A few years ago, you did see us achieve record levels of new business. And there were a couple of drivers to that. One is there was an initial phase, initial wave of 5G networks, carriers deploying and upgrading their network with C-band spectrum. That came with an initial spike in CapEx, where we saw the carrier CapEx in the U.S. come up over $40 billion. So there was a significant push to begin that 5G launch. And that's typically what we see in the industry when a new technology is deployed. After that initial wave, we do see a moderation of the CapEx in a more steadying, albeit a step-up in terms of CapEx. So we may not be seeing a repeat of the all-time high that we saw in the initial wave of 5G. But the steady state now, more in the mid-$30 billion range, is higher than the steady state that we saw in CapEx under the 4G cycle. So it moderates but there is a step-up that's consistent over time. And the other thing I would highlight is over the last several years, you saw contributions from DISH to new business and organic growth for the tower companies over the last several years. Going forward, that's no longer in the numbers. So that said, when you think about the state of the industry today and the 3 wireless carriers, they're well capitalized, healthy. And they are contributing a consistent level of activity in '26 that we saw in prior years, and we expect that to continue going forward. Operator: Our next question comes from the line of Brendan Lynch of Barclays. Brendan Lynch: Rod, maybe just to follow up on that commentary there. That was very helpful in kind of framing out the longer-term outlook. You previously guided to 5% organic growth through 2027. Obviously, with DISH not in the picture now, that is coming down a little bit. How should we think about that long-term growth going forward, we get back into about 4.5%, and that's what you're suggesting for this year? Should we anticipate that, that continues out into the future as well? Steven Vondran: I'll actually take that one. Back in early 2021 when we set out that expectation for U.S. and Canada organic growth of 5% or better between '23 and '27, that was based on the growth drivers that we saw at the time. And what we didn't have in our view shared then was DISH trying to sell its spectrum and exit the market effectively and also T-Mobile completing the transaction of U.S. Cellular. So those are things that have taken us off of that guide, as you know, this year in particular. However, everything else is kind of playing out the way that we expected it to. And if you look at the past several years, we achieved 5% up until last year when those transactions were announced. And so as we think about going forward, and we're not going to give '27 guidance here, but as we think about going forward, our long-term growth algorithm that we've laid out for you guys, we believe still holds true. And that is organic growth in our developed markets in the mid-single digits, a little bit higher in our emerging markets, higher contributions from CoreSite because we see double-digit growth in revenue in CoreSite. And we're going to have expanding margins because of our cost control. So as we think about that long-term growth algorithm that we laid out, we're still confident in our ability to deliver that even in the 3-carrier market. Brendan Lynch: Great. That's helpful. And maybe just one on the data center front. Can you describe to what extent you're seeing actual inferencing demand and specifically low latency inferencing demand at CoreSite? Steven Vondran: I can speak to inferencing demand. It's hard to say if it's low latency because the whole campus is low latency based on the way we've organized it. But what we've seen is an uptick in inferencing. It is one of our leading new use cases that's coming in. And quite frankly, we have more demand for it than we can meet with our supply. So we're able to curate our mix of inferencing partners there, and that's helping us keep the risk, the business model risk down because we're only choosing the best names in the space in terms of who can go in our facilities. We could do more if we had more space, quite frankly. There's a lot of demand out there for it. But because we're still curating our customer mix, we're still trying to make sure that we have that right balance of cloud, networks and enterprises, and I would throw inferencing in, is kind of the new fourth characteristic of it, but because we're still curating that mix, we're just not taking everything that comes in the door. Operator: Our final question comes from the line of Richard Choe of JPMorgan. Richard Choe: I wanted to ask a follow-up on the data centers. What kind of renewal pricing are you seeing and overall pricing for new business? And then back to the tower business, if you can give us a sense of what kind of pipeline of applications you are seeing? And has that shifted at all? And at some point, do you see it kind of inflecting higher? Steven Vondran: Sure. So I'll start with the data center question -- I'm sorry, pricing. So we're seeing generally higher pricing. Our mark-to-market continues to exceed what it's been over kind of historical norms on that. So that's a really good indication of that. And then the market level pricing does continue to rise because there is this imbalance between supply and demand. And so I don't have any specifics for you in terms of percentages there. We're not putting that kind of level of information out there. But overall, it's going up. And that's enabling us to continue to underwrite mid-teens or better returns on the new incremental capital that we're putting in. Because as we're creating that new space, even though you do have a little bit of cost pressure from inflation, tariffs, things like that, we're able to pass that through in the form of higher pricing to keep those stabilized returns kind of in that mid-teens range. So we feel very good about that over time. In terms of the application pipeline on towers, we are expecting slightly fewer number of total applications this year. But that's not reflective of anything other than a couple of the carriers are largely through their initial 5G overlays. And so a lot of that was kind of amendment business that was likely covered in a lot of our holistic agreements anyway. So there's no real readthrough on that in terms of customer demand or property revenue. And in terms of an inflection, what we're seeing as an inflection is a higher number of new colocations coming in which is very positive because those come in at higher revenue per transaction than the amendments do. But I would say, again, it's an overall consistent level of activity year-over-year, and it's consistent with what we expected to see at this point. And we expect it to be at that level or better in the future as they switch to densifying their networks. Operator: Thank you. This concludes the question-and-answer session. I'd like to thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, everyone, and welcome to the Fibra Danhos Fourth Quarter 2025 Conference Call. [Operator Instructions] Please note, this call is being recorded, and I'll be standing by for assistance. Now it's my pleasure to turn the call over to your host, Rodrigo Martinez. Please go ahead, Rodrigo. Rodrigo Chavez: Thank you very much, Elvis. Hello, everyone. I am Rodrigo Martinez, and I run Investor Relations for the company. At this time, I'd like to welcome everyone to Fibra Danhos 2025 Fourth Quarter Conference Call. We issued our quarterly report yesterday. If you did not receive a copy, please do not hesitate and contact us. Please be aware that they are also available on our website and in Mexico Stock Exchange website. Before we begin the call today, I would like to remind you that forward-looking statements made during today's call do not account for future economic circumstances, industry conditions and company performance or financial results. These statements are subject to a number of risks and uncertainties. All figures included herein are prepared in accordance to IFRS standards and are stated in nominal Mexican pesos unless otherwise noted. Joining today from Fibra Danhos in Mexico City is Mr. Salvador Daniel, CEO of Fibra Danhos; Mr. Jorge Serrano, CFO of Fibra Danhos; and Mr. Elias Mizrahi. Now I will turn the call for Jorge Serrano for opening remarks and financial operating indicators. Jorge, please go ahead. Jorge Esponda: Thanks, Rodrigo. Good morning. Thanks for joining us today. Let me share some initial remarks on Fibra Danhos' fourth quarter. Despite a softer consumption environment, financial and operating results reflect steadiness on our operating portfolio, complemented by the recent contribution from industrial projects. Increased revenues were explained by higher fixed rent with sound occupation levels, overage and positive lease spreads that more than compensated the effect of the dollar depreciation on our office portfolio. Revenue was up 6.5% on the quarter and 11.8% on the year. NOI margin of 78% for the quarter and 78.5% for the year reflect expense control and operating efficiencies. Quarterly AFFO reached MXN 1.3 billion that accounted for MXN 0.80 per CBFI, and accumulated close to MXN 4.6 billion in the year or MXN 2.85 per CBFI. Distribution for the quarter was determined at the same level of MXN 0.45 per CBFI, which amounts to MXN 724 million and represents a payout ratio of 56%. Capital expenditures on new developments during 2025 were financed with nondistributed cash flow plus additional debt of MXN 1.5 billion. Balance sheet, however, remains strong with only 13.5% leverage. Our MXN 3 billion Cebures DANHOS 16 will reach maturity by midyear. We are analyzing the best alternatives in order to fulfill our commitment and optimize financial expense. Danhos maintains AAA local debt rating. New projects, Nizuc and Oaxaca, have gained momentum on its construction phase and report progress as scheduled. Industrial projects on development stage are making progress as well and expect to deliver quick and sound cash flow returns [ which is evidence for ] our execution capabilities, high-quality construction standards and have become a reference in the logistics corridor located in the north of Mexico City metropolitan area. Overall, GLA increased 15% year-over-year and reached 1.25 million square meters, with an overall portfolio occupancy of 91.5%. Retail occupancy reached 94.2%, office 77% and industrial 100%. Lease spread on 24,000 square meter renewal agreements was 3.9% during the quarter, which is in line or above inflation levels. Thanks, and we may now turn to the Q&A session. Operator: [Operator Instructions] And our first question today will come from Jorel Guilloty of Goldman Sachs. Wilfredo Jorel Guilloty: If I can actually focus on your retail portfolio. So one thing that we found interesting is that when we look at the rent growth year-on-year, we see that the fixed rent portion 4Q went up, but the overage went down. So I just want to understand a little bit more about that dynamic. And also we saw a couple of your malls, there are about 3 of them, that saw a decline year-on-year on overall rental revenues. So I just wanted to get a sense of what could have driven those down. Salvador Daniel Kabbaz Zaga: This is Salvador Daniel. I mean we've -- what we've always done and we always do is every time we have a chance to transform variable rent to fixed rent, we do that. So sometimes, you will see a decrease in the variable rent and an increase on the fixed rent because we've done that. And that's something we usually do on shopping malls. Although we have to recognize that we saw a little bit of a slowdown in the last couple of months in the consumption, although still remains strong. We did see a minimum decrease on it. And on the other 3 properties you have been talking about, Parque Esmeralda is not a shopping mall. It is an office building with 1 tenant, which had a discount for a 10-year lease that we signed last year. So that was very important for us. It is a pretty old building. We actually did some work on it and [ worn ] CapEx on it, and it's now fully leased for the next 10 years. Parque Alameda, we -- it's a very, very, very small shopping mall. Actually, we can barely call it a shopping mall. And we lose a tenant, we already lease that, and it's on its time to redoing the space. So probably in the next couple of months, we will see the income coming back. And the rest, I think it's operating in a great way. We feel very comfortable with them. Wilfredo Jorel Guilloty: A quick follow-up if I may. While we did see that dynamic on rents, we did see that parking revenues were actually quite strong year-on-year. So I just wanted to get your comment on that. What is driving that higher? Is it all coming through pricing? Is it expansion of parking spaces? Just want to get a sense of what drove the strong performance. Salvador Daniel Kabbaz Zaga: I mean we basically, every couple of years, we do the pricing on the parking spaces. That's something we did last year, and especially I think in the middle of the year. And we've seen also a little bit more people coming into the parking. We haven't expanded our parking spaces, but that's probably the natural thing about people coming back to -- by car to the shopping malls. Operator: Our next question comes from Felipe Barragan of JPMorgan. Felipe Barragan Sanchez: I'd like to discuss a little bit on the office side occupancy. I saw it grew quarter-over-quarter, mostly on the Urbitec office asset you have. So I just want to get a sense if this is just more property related or if you guys are seeing a pickup in the office segment overall. Any color on that would be appreciated. Salvador Daniel Kabbaz Zaga: I mean especially in Urbitec, we changed our mindset. We were trying to find just 1 tenant for the whole building; and we changed that and we basically took opportunity of a couple of people wanting to come into the building. And that's why you saw especially that building being leased. We actually done 3 floors of it. And that's why. But we've actually seen a little bit more movement in the office spaces with having more people asking about them and companies inquiring about prices and opportunities. So we've actually seen this past semester a little bit of movement in the office spaces. Operator: Our next question comes from Alan Macias of Bank of America. Alan Macias: Just a quick question on distribution per certificate. If you can share your thoughts on what we should be thinking about for this year, what level? And what level of loan-to-value should we be thinking for the end of the year? Salvador Daniel Kabbaz Zaga: I mean we've -- actually think we're going to leave the distribution at the same level where we've been doing it in the past. We have a lot of projects in development, which will need cash requirements, and we feel that the best way to achieve them is by putting some cash in it and having some debt on it. So we feel we're going to be loan-to-value below 15% by the end of the year, for sure. And with that and the cash flow we've been retaining, we're going to be able to achieve our goals in the new projects. Operator: [Operator Instructions] Rodrigo, we have no further questions at this time. I'll turn it back over to you for any closing comments. Rodrigo Chavez: Thank you very much, Elvis. Everyone, please let -- please know that we are always available for any further questions that you might have. And thank you very much. See you next quarter. Operator: That concludes our meeting today. You may now disconnect. Goodbye.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Orthofix Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Julie Dewey. Julie Dewey: Thank you, operator, and good morning, everyone. Welcome to Orthofix' Fourth Quarter 2025 Earnings Call. I'm Julie Dewey, Orthofix' Chief IR and Communications Officer. Joining me today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews. Today's press release and supplemental presentation are available on the Events and Presentations page in the Investors section of Orthofix.com and a replay of this call will be posted shortly after we conclude. Before we begin, please note that our remarks include forward-looking statements. These statements involve risks and uncertainties, and actual results may differ materially. All statements other than those of historical facts are forward-looking statements, we do not undertake any obligation to revise or update such forward-looking statements. Factors that could cause actual results to differ materially are discussed in our most recent filings with the SEC and may be included in our future filings with the SEC. We'll also reference various non-GAAP financial measures. Reconciliations to U.S. GAAP and additional details are in our press release and supplemental materials. Unless otherwise stated, net sales growth rates are on a pro forma constant currency basis and exclude the discontinued M6 artificial disc product lines, and all results of operations will be on a non-GAAP as adjusted basis. Here's today's agenda. Massimo will start with business performance and operational highlights. Julie Andrews will follow with our financial results and our 2026 outlook, then we'll open the call for Q&A. With that, I'll turn the call over to Massimo. Massimo Calafiore: Thank you, Julie, and good morning, everyone. I appreciate you joining us today. The fourth quarter capped a year of meaningful operational progress for Orthofix. We delivered strong consistent performance in Bone Growth Therapies and U.S. Limb Reconstruction. And the work we did to finalize our Spine commercial channel supported double-digit net sales growth in our global Spine Fixation business. This momentum contributed to our eighth consecutive quarter of adjusted EBITDA growth and a standout quarter of free cash flow generation. Collectively, this result show the positive impact of our focused commercial initiatives and margin enhancement efforts providing a solid foundation as we enter 2026. Further demonstrating our progress, let me highlight several key accomplishments. Global Spine Fixation Q4 net sales grew 10% for the year and in Q4. In U.S., Spine Fixation net sales grew 6% for the year and 5% for the quarter. While distributor transition implemented earlier in 2025 created some temporary pressure during the quarter, performance improved meaningfully as we exited Q4. With this transition now largely behind us, variable access to important IDN accounts and a strengthened highly aligned distributor network in place, we believe the business is set up well for 2026. Building on that momentum, our Spine commercial channel optimization efforts continued to strengthen sales productivity. In Q4, our top 30 U.S. distributor partners grew net sales 25% year-over-year and 27% on a trailing 12-month basis. A clear validation of our focused channel strategy. Turning to enabling technologies, 7D FLASH navigation continue to be a powerful differentiator across our surgical ecosystem. Voyager earnout placement grew 30% in 2025. And our earnout customers are collectively exceeding their purchase commitments by more than 50%, demonstrating strong utilization and engagement. Looking ahead, One of the most exciting milestone for 2026 will be the full market release of our VIRATA Spinal Fixation System in the second half of the year. VIRATA is purpose-built for the $2 billion U.S. pedicle screw market, pairing a proprietary screw design with intuitive instrumentation that integrates seamlessly with the 7D navigation platform. We believe VIRATA will enhance surgical efficiency, strengthen surgeon confidence and serve as a multiyear growth catalyst for our U.S. Spine business in 2026, 2027 and beyond. Shifting gears, we have rebranded our Orthopedics business as a Limb Reconstruction to reflect our strategic focus on four high-value clinical categories. Limb preservations, limb lengthening, complex fracture management and extremity deformity correction. Together, this represents an estimated $2.6 billion market opportunity, and we believe Orthofix is well positioned given our comprehensive portfolio of internal and external fixation solution. From our perspective, a few companies are prioritizing this market which give us an opportunity to elevate the care pathway in a category with meaningful long-term growth potential. In 2025, we sharpened our focus on high return opportunities in this business by streamlining our product portfolio, strengthening organizational alignment and refining our commercial strategy. These actions drove sustained momentum. U.S. Limb Reconstruction grew 8% in Q4 and 16% for the full year. This performance was driven by the successful global launch of TrueLok Elevate, FITBONE bone transport and FITBONE trochanteric lengthening nails, each expanding our addressable market enhancing our product mix and fortifying our leadership position as we had in 2026. Turning to Bone Growth Therapies, the BGT business remained a consistent performer, delivering accelerating momentum throughout the year, a strong sequential fourth quarter growth that benefited from procedural cross-selling. Fourth quarter growth reached 7%, more than double the market rate driven by increased utilization and higher prescribing velocity across both Spine fusion and fracture management. With its consistent performance and healthy margin, BGT continues to be an important contributor to our overall progress. As we enter 2026, our priorities are clear: sharpen commercial execution, drive deeper market penetration adoption of our 7D navigation system, improved gross margin through targeted operational initiatives and maintain targeted capital allocation with a continued focus on adjusted EBITDA expansion and free cash flow generation. With full year contribution from TrueLok Elevate and FITBONE, the planned second half of full commercial launch of VIRATA, ongoing benefits from our optimization of our Spine commercial channel and renewed focus on advancing our Biologics portfolio and sustained momentum across Limb Reconstruction and BGT business, we believe the company is well positioned to deliver durable top line growth, expanding margins and strong free cash flow in 2026. Today, we also announced that we are recalibrating the time line for our 3-year financial targets to fully capture the anticipated benefit of our Spine commercial channel optimization. Over the past year, the decision to optimize our Spine commercial channel has proven to be the right one. Strengthening our foundation and driving measurable improvement in execution and distributor productivity. At the same time, the scope and rigor of this transformation required us to implement these changes with deliberate care to increase the likelihood of long-term success. As a result, while the underlying fundamentals of our strategy remain strong, the timing of certain growth benefit has shifted, and we are extending our long-range plan time line by 1 year to fully capture the expected operational and commercial leverage created by this channel enhancement. This adjustment reflects our commitment to disciplined execution should position us to deliver sustainable above-market growth and margin expansion as this initiative mature. In closing, 2025 was a year defined by strengthened commercial capabilities, disciplined execution and meaningful new product launches from our innovation pipeline. We delivered another year of significant adjusted EBITDA gains and positive free cash flow generation, excluding the impact from M6. As we move into 2026, we are carrying that momentum forward with disciplined commercial execution and targeted capital deployment. While our work is not yet complete, and certain benefits from our Spine initiatives are expected to continue to build over time. We are increasingly confident in our ability to execute. We believe the traction behind our strategy and the strength of our innovation engine position us well as we advance towards our long-term financial goals and create sustainable value for our shareholders. Thank you for your continued support. I'll now turn the call over to Julie Andrews. Julie Andrews: Thank you, Massimo, and good morning, everyone. Before we dive into the numbers, a quick reminder. All net sales growth rates referenced today are pro forma, constant currency, excluding M6 disc, discontinuation impacts. I encourage you to review the reconciliations in our press release and the supplemental materials posted on our website, which include pro forma results through Q4 to support your modeling. Total global net sales in Q4 reached $218.6 million, a 3% increase supported by strong performances in our Bone Growth Therapies and U.S. Limb Reconstruction segments. Global spinal implants, biologics and enabling technologies delivered $112.3 million in net sales for Q4. Our performance was supported by targeted distributor transitions in key geographies, partially offset by softness in biologics and our strategic shift from 7D capital sales to the voyager earnout program. As a reminder, we are still annualizing the impact of the previously disclosed price decrease at a major account, which continues to affect year-over-year comparisons. Bone Growth Therapies, or BGT net sales were $68.3 million, up 7%, significantly outperforming the market. We expect BGT growth to remain above market rates of 2% to 3%, driven by new surgeon additions and competitive conversions, especially in the fracture channel. Global Limb Reconstruction sales were $38 million in the fourth quarter, driven by 8% U.S. growth. This performance reflects our sharpened focus on the [ core ] Limb Reconstruction pillars and the deliberate deemphasis of products that are not aligned with the strategy. We expect to return to double-digit growth in the second half of 2026 as these portfolio and commercial refinements continue to take hold. Moving down the P&L. Pro forma non-GAAP adjusted gross margin was 71.4%, reflecting the impact of the M6 discontinuation and productivity improvements partially offset by unfavorable geography mix due to increased net sales in international Spinal Implants, Biologics and Enabling Technologies. As Massimo noted, this marks our eighth consecutive quarter of EBITDA margin expansion and an outstanding quarter of robust free cash flow generation, underscoring the scalability of our model and operational discipline. Fourth quarter pro forma non-GAAP adjusted EBITDA was $29.2 million or 13.4% of net sales with year-over-year margin expansion of approximately 230 basis points. We delivered exceptionally strong free cash flow of $16.8 million in Q4, a clear demonstration of the strength and scalability of our business model. For the full year, free cash flow when excluding restructuring charges, tied to the M6 discontinuation was $3.1 million. Notably, reported free cash flow was nearly breakeven for 2025, a significant achievement that underscores a meaningful financial progress we made throughout the year. We ended the quarter with $85.1 million in total cash, including restricted cash, which provides us with the flexibility to continue investing in innovation and supporting the long-term growth of the business. Moving on to 2026 full year guidance. We expect full year net sales of $850 million to $860 million with a midpoint of $855 million. These expected net sales represent implied pro forma constant currency year-over-year growth of approximately 5.5% at the midpoint of the range. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year. We expect full year non-GAAP adjusted EBITDA of $95 million to $98 million, and we expect to generate positive free cash flow for the full year, excluding the impact of any potential legal settlements. While we are not providing quarterly guidance, I do want to provide you with some directional comments on the expected cadence of our business to assist you in modeling our quarterly performance. We expect normalized procedure volume and seasonality throughout 2026 with a more meaningful contribution from newly launched products as the year progresses. Net sales growth is anticipated to be approximately 5% in the first half of the year and about 6% in the second half of the year. As a reminder, Q1 includes one less selling day than last year, while Q2 includes one additional selling day, each representing roughly a 1.6% impact on quarterly growth rates. In addition, we previously indicated that CMS would begin the team pilot program at some hospitals in January 2026 that covers a few episode of care categories, including BGT. Although we expect the annual impact from this program to be immaterial, it will have a onetime impact on our quarterly growth rate in Q1 of approximately 1%. Now for some specifics on the individual line items on the P&L for 2026. We expect adjusted gross margin for the full year to be approximately 72.5% as we continue to focus on productivity improvements within our manufacturing and distribution operations. We expect operating expenses as a percent of net sales to be approximately flat to 2025 as we normalize for lower variable and incentive compensation and increased depreciation and stock-based compensation. To assist you with modeling EBITDA, we expect adjusted depreciation and amortization expense for the full year 2026 to be in the range of approximately $38 million to $39 million. Stock-based compensation expense is expected to be approximately $31 million for the year. Now let's touch briefly on the items below the operating income line. Our expectation for interest and other expenses is approximately $6 million per quarter. We expect adjusted EBITDA margin enhancements of 70 basis points to be weighted more towards the back half of the year due to the timing of revenue and R&D investments. This margin enhancement is driven by productivity improvements and SG&A leverage and is partially offset by increased variable and incentive compensation as well as investment in innovation and clinical evidence. As a reminder, Q1 historically carries heavier expense loads due to industry conferences and resets of payroll taxes and annual benefits such as 401(k) matching. Additionally, due to the phasing of R&D projects, the previously mentioned CMS team pilot program and certain onetime expenses, we do not anticipate EBITDA leverage in Q1 of this year versus Q1 of 2025. With regard to free cash flow, please keep in mind that while we expect to generate positive free cash flow for the full year 2026, excluding the impact of any potential legal settlements, we do not expect to generate positive free cash flow in every quarter. To provide additional color, we expect $45 million to $50 million in capital expenditures this year. As a reminder, Q1 in particular, has historically been the lowest cash flow quarter due to the payment of the prior year's annual bonuses and Q4 commissions, among other items. With our full year outlook in place, I'd like to spend a moment on our long-range plan. As Massimo mentioned, we're updating our 3-year financial targets to better reflect the timing of revenue and margin benefits from our Spine commercial channel optimization. By extending the time line to 2028, our long-range plan now better matches the pace of progress we're seeing and the ramp-up in commercial leverage we expect to deliver. We think this provides a clearer view of our anticipated growth trajectory and the solid financial foundation expected to support our strategy. Our refreshed 2026 to 2028 targets include 6.5% to 7.5%, net sales CAGR from 2026 through 2028, mid-teens non-GAAP adjusted EBITDA as a percent of net sales for the full year 2028 and positive free cash flow generation from 2026 through 2028, excluding the impact of any potential legal settlements. We believe these targets build on our positive momentum and position the company for sustained profitable growth, underpinned by a stronger financial profile and a clear path to long-term value creation. In closing, we expect 2026 to be a year defined by consistent execution and disciplined financial management. With the strengthened commercial foundation, a differentiated innovation pipeline and clear visibility into margin expansion and positive free cash flow generation, we believe Orthofix is well positioned for profitable growth. We remain grounded in operational rigor, disciplined capital deployment and prioritizing high-value opportunities across our Spine, BGT and Limb Reconstruction portfolios with the objective of creating sustainable long-term shareholder value. Now let me turn it back to Massimo for closing remarks. Massimo? Massimo Calafiore: Thank you, Julie. I am very pleased with the progress we made in 2025. We successfully executed several high-impact initiatives from optimizing our Spine distributor network to restructuring the Biologics commercial channel and launching multiple new products. We believe these actions strengthen our commercial platform and have set us up for accelerated growth in the year ahead. We also fortified our financial foundations delivering significant adjusted EBITDA gains and generating near breakeven free cash flow. We have entered 2026 with optimism and real momentum. Our new U.S. Spine distributors are fully onboarded and already contributing to our growth. As the year gets underway, we are seeing clear signs of progress with encouraging traction across key procedural segments and in our priority geographies. And here is an important milestone. As Q4 2025, more than 75% of our U.S. net sales were driven by our top 30 distributor partners. High-performance teams with the scale, focus and commitment to grow with us. To put that in perspective, at the start of 2024, this group drove less than half of our net sales, representing an increase of 55% in their shares of our total revenue. This strategically aligned commercial channel is elevating productivity, sharpening execution, and we believe is the means for enabling more consistent and predictable sales performance, a stickier surgeon relationship as we move through 2026. Our innovation pipeline has never been stronger as we anticipate a variety of meaningful product launches and product enhancements that extend across every major segment of our business. In fact, we expect to introduce over a dozen value-creating products over the next 18 months to drive sustained momentum. These include the full market launch of the VIRATA open system and the alpha launch of the VIRATA MIS system in the second half 2026. Next-generation automation enhancement for key Limb Reconstruction systems like TrueLok Elevate and FITBONE. Technology enabled advancements within our BGT portfolio designed to focus strengthen surgery engagement and patient adherence and additional platform extensions and enabling technology upgrades that enhance efficiency and reinforce our competitive position. And we believe we have the right team in place, aligned, disciplined and focused on our priorities to drive profitable growth. Finally, we believe our financial foundation is strong we're optimistic about the opportunities ahead, and we believe we are making the right investments to elevate our execution and create durable long-term value for our shareholders. Before we move to Q&A, I want to express my sincere gratitude to the entire Orthofix teams and our commercial partner. Your commitment to supporting surgeon and patient is what fuels our progress and defines who we are. We are excited about where we are headed. And together, we are continuing to build Orthofix into the unrivaled partner in med tech delivering exceptional experiences and life-changing solutions. With that, let's go ahead and open the call for your questions. Operator: [Operator Instructions] And your first question comes from the line of Matthew Blackman with TD Cowen. Mathew Blackman: Maybe I'm going to start with just a clarification question for Julie. Just that on the CMS impact you're going to see in BGT, just clarify, the 1 point headwind you called out, is that isolated to the BGT franchise? And is that in the first quarter? Or is that a full year impact and total top line? Just want to make sure I capture the impact that you hold out there. And then I've got 1 follow-up. Julie Andrews: Okay. Matt, good to talk to you again. Yes, so the CMS change that we talked about, it's an immaterial impact for the year overall, but we'll have about a 1% impact in the quarter specific to BGT revenue only. Mathew Blackman: Okay. Appreciate that. And then my follow-up question, it's on the LRP. Maybe if you could just take a step back and reflect a bit more on what is essentially taking just a year longer to manifest in the business relative to the original LRP. It sounds like from your comments, Massimo, that the channel optimization initiative just took a little bit longer to execute. I just want to make sure there's nothing else going on. And then, Julie, on your end, beyond the top line, what do you need to execute on most critically for the margin and cash generation profile to continue to improve? Massimo Calafiore: Thank you, Matt. Look, this just reflects all the work that we did in the last couple of years. our goal was to create a company with stronger foundation and much more focus on how we go to market. So we made the right decision to be very aggressive to pursue our distributor transition. Right now, as you heard, 75% of our U.S.A. net sales now are coming from our top 30 distributor in Spine. And this is going to give us a much stronger predictability about how we go to market. But -- and also is going to give us the network that we need in order to start to deliver the very meaningful innovation that is going to come in the next 18 months. As you heard, we are very excited about the VIRATA launch. We are very excited about the over a dozen of products that are going to come across all of the business units to support the growth that you want to see in our organization. And in order to materialize that, we needed to have a strong foundation. So I think that we are taking the right decision in order to create the long-term value. Julie Andrews: Thanks, Matt. And to the rest of your question on just the mid -- getting to mid-teens EBITDA and positive free cash flow. So we are still working on our gross margin expansion plan, 300 basis points improvement from 71% to 74%. Our guide this year on gross margin, 72.5% put this right in line to achieve that by 2028. Specifically, we're working on productivity improvements across our manufacturing and distribution operations to achieve that as well as then as we look at our whole P&L, fixed cost leverage, moderating the expense growth on SG&A while we continue to invest in innovation in the commercial channel. And to lead that, we have some automation enhancements that we're driving now to drive back office efficiency that we're working on. And all of these things together, as we continue to focus then on our working capital management improved asset utilization will generate positive free cash flow. Operator: Your next question comes from the line of Tom Stephan with Stifel. Thomas Stephan: I'll start with the 2026 revenue guide. Maybe for you, Julie. Can you flesh out the 3 main line items a bit quantitatively mentioned above market growth for BGT, any finer points numerically for the 2026 revenue guide would be helpful. And qualitative commentary would be great as well. Julie Andrews: Yes. So I think we continue to expect above-market growth for BGT, like you mentioned, again, above-market growth for our Limb Reconstruction business. the commentary that we made was that the second half will see the U.S. return to double-digit growth in the U.S. Limb Reconstruction business. And then we expect another year of similar performance to what we saw in U.S. Spine -- or Global Spine business. We finished, as a reminder, 2025 at 10% global growth in the Spine business. So those are the big pieces there with our revenue guidance. Massimo Calafiore: Yes. And from the qualitative perspective, Tom, we are very focused and clear on our ability and want to execute. We need to drive a deeper penetration of 7D maximizing the productivity of our U.S.A. Spine distribution network, keep evolving our biologic business our Limb Reconstruction business. So if you want to summarize what we expect -- what you're going to expect in 2026, a real focus on to commercialize the amazing new technologies that we're bringing to the market. So I'm very excited and positive about where we are starting the year. Thomas Stephan: Got it. That's great. And then my follow-up also sort of ask about the LRP, grew 4% pro forma this year, maybe closer to 4.5% constant currency in the back half on revenue guiding to 5% to 6% or so in 2026. Hopefully, I have all these numbers right. For the long-term targets, you still view 6.5% to 7.5% is the right long-term revenue CAGR even though it is pushed out a year. And Massimo, I know there's a lot of product launches on the come. The commercial optimization is ongoing, and you do expect to benefit from that. But maybe if you can take a bit of a step back and just talk about your level of confidence that 6.5% to 7.5% is the right target for top line growth for Orthofix? Massimo Calafiore: Yes. Thank you, Tom. We never -- we talked about it in the past. We knew we made a lot of meaningful investment on both on the commercial channel and innovation. So starting the second half of this year, you start to -- we are expecting to start to get the positive impact of the combination of the two. VIRATA launch is important for us is the last -- is one of the products that is going to propel this organization to the next level, focusing into Spine there is amazing technology coming into Limb Reconstruction between our FITBONE and our TrueLok product line that I'm very excited about. Biologic, a lot of enhancement around the 7D platform. We made a lot of investment while keep delivering EBITDA margin expansion and free cash flow. So I'm very proud about the discipline of this organization. So everything is going according to what we said all along. So very excited about where we are today, very excited at what the company was going to become tomorrow. Operator: Your next question comes from the line of Caitlin Roberts with Canaccord Genuity. Unknown Analyst: This is [ Nikhil ] on for Caitlin. First one from us. Could you provide some additional color on 7D placements in 2025 in the installed base? Julie Andrews: Yes. So we placed 30% -- we had a 30% increase in our placements in 2025. We don't give the numbers specifically for our installed base. But the other thing that we're really excited about is that collectively, we saw our earnout units exceed their purchase volume commitments by more than 50%, which again, we believe validates our strategy to move from capital sales to an earnout model. Unknown Analyst: That's helpful. And then just shifting maybe for a follow-up. You mentioned a renewed focus on advancing Biologics portfolio. Can you provide any more color on that? Maybe, if you could elaborate on what that means strategically and how we can think about its contribution over the next couple of years? Massimo Calafiore: Yes. Thank you for the question. So what we did, we made some internal shifting in terms of leadership. So we just give -- we wanted to give Biologics back a very clear and important central focus for who we are. And so we recognize there is a lot of work to do here, but I truly believe we have a strong biologic portfolio. So we saw some decline last year, primarily related to our distributor transition. But now we are very focused on scaling our commercial network and making sure that the execution is going to be there. So we already made the changes that we believe is going to optimize our sales channel, and we are expecting for our U.S.A. Biologic performance to get back to marketplace as we continue to focus on it. I'm very confident that we're going to see a lot of positive momentum on this portfolio this year. So work ahead, but very excited about the basis to where we are today. Operator: Your next question comes from the line of Mike Petusky with Barrington Research. Michael Petusky: So Julie, I may have missed this, but did you provide any commentary around tariff impact for this included in your guidance for '26 or also tariff impact that actually was in '25? Julie Andrews: Yes. So it's included in our guidance. We talked about it kind of mid-last year when it -- so we expect about $1 million to $2 million impact in 2026. Michael Petusky: Okay. And that's roughly where it came in, in '25? Julie Andrews: Little higher than that in '25 because it was more of -- it wasn't a full year impact. Michael Petusky: All right. And then just in terms of the -- you mentioned potential legal settlements and obviously, timing on that is difficult to predict. But have you guys -- and I suspect this is in the K, but have you guys reserved for a legal settlement at all? Julie Andrews: Yes. We did take an accrual in Q3 and you can refer to the K for more information about it. Michael Petusky: All right. And then just one last question. In terms of free cash flow, if I'm looking at my calculations, it looks like you guys improved free cash flow from '24 to '25 by maybe $7.5 million to $8 million. I was curious, I mean is that a decent guesstimate for the level of improvement you might see in '26 versus '25, an additional $7 million, $8 million, something like that? Julie Andrews: Yes. I mean, excluding legal settlements, that would probably be in the range to maybe slightly more than that. But the legal settlements will impact that number. Michael Petusky: And it sounds like you guys maybe expect legal settlements in this coming year? Julie Andrews: That is included in our guidance that the breakeven excepts excluding legal settlements, so the timing still be determined, but that's what we assume. Operator: There are no further questions at this time. I will now turn the call back over to Julie Dewey for closing remarks. Julie Dewey: Thank you for your questions and for joining us today. We appreciate your time and interest in Orthofix. If you need any additional information, please reach out. We look forward to updating you next quarter. This concludes today's call. Operator: Ladies and gentlemen, thank you all for joining. You may now disconnect.
Operator: Good afternoon. Welcome to the Establishment Labs Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I will now turn the call over to Raj Denhoy, Chief Financial Officer. Please go ahead, sir. Rajbir Denhoy: Thank you, operator, and thank you, everyone, for joining us. With me today is Peter Caldini, our Chief Executive Officer. Following our prepared remarks, we'll take your questions. Before we begin, I would like to remind you that comments made by management during this call will include forward-looking statements within the meaning of federal securities laws. These include statements on Establishment Labs financial outlook and the company's plans and timing for product development and sales. These forward-looking statements are based on management's current expectations and involve risks and uncertainties. For a discussion of the principal risk factors and uncertainties that may affect our performance or cause actual results to differ materially from these statements. I encourage to review our most recent annual and quarterly reports on Form 10-K and Form 10-Q as well as other SEC filings, which are available on our website at establishmentlabs.com. I'd also like to remind you that our comments may include certain non-GAAP financial measures with respect to our performance, including but not limited to sales results, which can be stated on a constant currency basis or EBITDA, which we disclosed on an adjusted EBITDA basis. Reconciliations to comparable GAAP financial measures for non-GAAP measures, if available, may be found in today's press release, which is available on our website. The content of this conference call contains time-sensitive information accurate only as of the date of this live broadcast, February 24, 2026. Except as required by law, Established Labs undertakes no obligation to revise or otherwise update any statements to reflect events or circumstances after the date of this call. With that, it's my pleasure to turn the call over to Peter. Filippo Caldini: Good morning, and thank you all for joining us today. Q4 2025 was another standout quarter for Establishment Labs. Fourth quarter revenue was $64.6 million an increase of 45.2% versus Q4 2024 including Motiva revenue in the U.S. of $17.3 million. This brings our 2025 total revenue of $211.1 million an increase of 27.2% over 2024. U.S. Motiva revenue in 2025 was $45.6 million a number that I'm sure significantly exceeded everyone's expectations. As our business scaled, the operational leverage that we've been talking about is coming into focus. Q4 had us exceeding 70% gross margin for the second consecutive quarter, and our margins will continue to improve. Our fourth quarter net loss from operations was $3.9 million down 79% from Q4 2024. Our Q4 adjusted EBITDA was positive $5.5 million, up from the negative $13.1 million we reported in Q4 2024. This trend should continue throughout 2026, culminating in our first positive cash flow quarter this year. In 2027, we expect to be cash flow positive for the entire year and our margin should improve for years after that. With this trajectory and our ending cash balance is $75.6 million in 2025, we have no need for additional capital. As noted at the JPMorgan Healthcare Conference, we are profitable not only setting guidance for 2026, but also providing some visibility into 2027. As such, we are giving guidance for 2026 and of $264 million to $266 million, and there may be some upside to these numbers. At a minimum, this is a 25% growth and we believe that 2027, we will see at least this level of growth as well. Q4 capped off a remarkable 2025 for Establishment Labs, we didn't just see the U.S. market for growth in the years to come. We established ourselves as the company transforming the industry, materially changing and increasing the conversation about breast aesthetics. The $45.6 million in U.S. revenue and approximate 20% augmentation market share exiting 2025 is something that took the last new entrant almost 10 years to achieve. And we did in 1. How do we accomplish this? Well, first off, there's been a complete lack of innovation in breast aesthetics for decades. We have had an active R&D pipeline since 2010 and which continues today and is unparalleled in the industry. Our R&D investment continues to translate into highly differentiated products that address significant unmet needs in the market. When patients review or hear about the FDA study complication rates for today's commercially available implants, they recognize that Motiva should be part of the decision when selecting both a surgeon and an implant. Plastic surgeons tell us that when patients are presented with different implant options during consultation, 9 out of 10 choose Motiva even at a higher price point. This isn't just about data for them. Patients are gravitating towards Motiva when they compare implants in their hands. When doctors dig into the science and data behind Motiva, they find rigorous scientific literature that details our technologies and why implants are designed to create better patient outcomes. The process of consideration has been amplified and is actively discussed across social media. There is a new era of transparency that has evolved as women share their journey and talk openly about their aesthetic goals and decisions. An estimated 300,000 women get a primary breast augmentation every year in the United States, and it continues to be the #1 aesthetic surgical procedure annually, but it has always been a secret shared quietly. Social media has created a new paradigm where aesthetic and beauty secrets have become normalized. We believe that the combination of our innovative products and this new era of transparency is creating meaningful market expansion, and we can already see the start of this trend. It is not just patients that are excited about Motiva. For the first time in a very long time, plastic surgeons have a product and a surgery to talk about. It's new, it's differentiated, and they are taking the social media to talk about it. Their excitement and passion for Motiva and what it means for breast augmentation comes through and patients are responding. We are very thoughtful in how we spend our marketing dollars. And obviously, compared to some of our competitors, our resources are limited. But the marketing value we are receiving from patients and doctors is a competitive advantage and is very difficult to compete with. Our innovation and its reception in the market is driving adoption and plastic surgeons report to us that many patients come in asking for Motiva by name whereas prior to Motiva, they would really ask for a brand. All this has led to one of the fastest product launches in breast aesthetics history. The momentum has continued in Q1 of 2026 and with both January and the first 2 weeks of February, exceeding our expectations. Since launch in late 2024, we have onboarded over 1,500 accounts, we continue to sign up new practices every day. January and February are peak conference months for plastic surgeons and Motiva continues to dominate the podium discussions with surgeons actively seeking us out at these events to learn more and engage with us. It certainly appears our growth curve will continue. In a recent blinded survey of plastic surgeons, 88% said they either use or are interested in trying Motiva with the top reasons including patient-driven demand, an unmatched safety profile, the benefits of SmoothSilk surface and the opportunity for above the muscle placement. In this survey, 75% of surgeons noted, they've been asked for an implant brand by name and surgeons reported that 93% of the time, that brand was Motiva. Patients actively seeking out Motiva is having a significant impact on account volumes. In that same survey, surgeons with greater than 50% Motiva share in their practices saw year-over-year growth in augmentation volumes that was more than double that of surgeons primarily using another brand. This is important because while many early adopters have moved the majority of their volume to Motiva and are seeing the benefits of this on their practice volumes the opportunity to grow our share of procedures and accounts remain significant. This is not surprising given how clinic onboarding has ramped up over the year and because many surgeons plan and schedule surgeries months in advance. As we move through 2026, we expect to see our share in these accounts to move meaningfully higher. These efforts are being supported by a best-in-class commercial organization. In 2026, we plan to expand our U.S. sales force with the addition of up to 15 more sales representatives, a majority of whom have already been hired. This team of seasoned industry veterans are in plastic surgery accounts every day pushing our share higher. 2025 was also the year we started to introduce the concept of minimally invasive breast augmentation through our early experience of Preserve. We had strong global demand, and we're confident that patients and doctors in the U.S. would be equally receptive. If Motiva implants alone were exciting in the U.S. market what would that technology plus the promise of smaller incisions, minimal anesthesia and fast recovery bring. The acceptance and demand outstripped even our own expectations. For decades, plastic surgeons contended, these ideas were not important to patients. You just have to look at the social media response and know that patients feel very differently. We have 2 types of women choosing Preserve. The first are women that are already committed to the idea of breast augmentation, but are now choosing Preserve at a much higher price point because of the benefits over traditional augmentation. The second are women that were simply not interested in legacy breast augmentation procedure, but are now considering and booking surgery. For that second group, it may have been the aversion to general anesthesia, the fear of extended downtime that disrupts daily life or a number of other factors. Regardless, they are now part of a whole new group of consumers considering the possibility for the first time. Of the organic leads that have come through the Preserve's section of our website pre-launch 81% of patients looking to get connected with the surgeon said they are only interested in getting a breast augmentation if they can get Preserve. This marks a meaningful paradigm shift in the industry with Motiva uniquely positioned as the only solution meeting evolving consumer interest. We charge about 2x more for Preserve than we do for traditional breast augmentation. Preserve is not only expanding the market on a dollar basis. It's expanding procedure volumes as well. Based on our U.S. early experience, we are seeing expansion in the category. Approximately 15% of Preserve patients in the U.S. reported they were not previously considering a breast augmentation prior to learning about the procedure. In March, we are moving from our early experience to a full launch. We have trained more than 90 surgeons many of whom report patient wait list and women traveling across the country to access the procedure. In a recent survey with consumers on Preserve, over 55% of patients considering breast augmentation indicated a willingness to pay a premium and surgeons are currently charging 30% to 50% more than traditional augmentation. The average breast augmentation of America is about $9,000, and currently, the average pricing for Preserve is more than twice that. This pricing reflects the value of a less invasive tissue preserving option with faster recovery and minimal anesthesia. We expect to have at least 200 plastic surgeons trained by the end of 2026. If you're doing diligence around the impact that Preserve is having, I suggest talking to surgeons that have performed a number of cases. At least 5 surgeons have already done more than 40 cases in geographies that span coast-to-coast. Surgeons cite the benefits of Preserve to patients, but also to their practices. One plastic surgeon told me recently that preserve was game-changing. He used to have a local practice occasionally regionally. Now he has patients flying in from all over America. Another plastic surgeon that methodically tracks her metrics reports that she's able to do 3 or 4 more operations per week with the time that Preserve saves here. Our minimally invasive surgery portfolio is a real win-win for all. Patients are getting access to benefits that are incredibly important to them. Surgeons are able to charge more per patient and do more surgeries at the same time, better experience for patients and better businesses for surgeons. In December 2025, we also submitted Motiva implants to the FDA for approval in primary and revision breast reconstruction. Reconstruction represents a significant strategic opportunity as it effectively doubles our total addressable market in the United States while offering higher average selling prices. Motiva Flora breast tissue expander is already in 200 facilities nationwide, and this footprint should continue to expand as we move closer to FDA approval. In addition, we remain active in communications with the FDA regarding our small size of submission, which will further expand our portfolio, meet a broader range of patient needs and allow us to take a higher percentage of cases by surgeons already using Motiva. Beyond these initiatives, Mia, Ergonomix2 and GEM are also part of the innovation pipeline that we're working to bring to the U.S. market in the coming years. Along with our success in the U.S., our OUS performance remains strong and well diversified. A major focus for us in 2025 was our direct market and we have seen very good results. The number of accounts in many of our direct markets continues to grow, underscoring the strength of demand. European direct markets delivered more than 20% growth for the third consecutive quarter, led by outstanding performances in the U.K., Germany and Spain. In Latin America, results have stabilized in Brazil, while Argentina continues to post strong growth. Additionally, our recent acquisition of Benelux exceeded our expectation in the first year. While distributor markets can fluctuate based on the timing of orders, we are seeing healthy demand globally. Across APAC, China remains a key focus, and we're actively working with the local distributor and seeing improved performance. Our minimally invasive platform, Preserve and Mia continues to demonstrate strong momentum outside the United States. Preserve is now available in 33 global markets with demand exceeding expectations and more than 700 accounts opened. Mia outperformed the $8 million to $10 million guidance in 2025 and has more than doubled the number of accounts compared to 2024. Notably, all Mia clinics have adopted Preserve, enabling them to offer the benefits of a less invasive augmentation solution to a wider range of patients at price points far greater than a traditional breast augmentation. Globally, we expect demand for a minimally invasive platform to exceed $30 million in 2026 and continue to be a key growth driver in years to come. As I'm sure you have noted, we issued a second press release this morning around the management transition we're making effective March 9, which is really about getting Establishment Labs ready for our next phase of growth. Over the past several years, we have been focused on driving efficient execution and scalability. We are now adding additional leadership to sustain operational momentum while ensuring oversight of initiatives that require deep business expertise and strong leadership. With this, we are delighted to have Raj transition into the role of SVP Global strategy. His deep understanding of our business, strategic perspective and broad industry experience will be instrumental. There are a number of initiatives underway that should keep us at a very high growth rate for the foreseeable future and exactly how we execute these requires extensive planning and oversight. Along with this, we are pleased to welcome Cassandra Harris as our new Chief Financial Officer. Her strong background in operational excellence and proven track record of strengthening financial discipline while enabling growth will be critical as we execute on our priorities ahead. I will now turn the call over to Raj. Rajbir Denhoy: Thank you, Peter. Total revenue for the fourth quarter was $64.6 million, an increase of 45.2% from last year. Excluding the positive impact of foreign exchange in the quarter, growth would have been approximately 39.4%. Sales from Motiva in the United States were $17.3 million. On a geographic basis, in the fourth quarter, sales in Europe, Middle East and Africa were 41% of the global total. We saw strong growth in the region overall, including another good quarter in our direct markets where we exceeded 20% as well as good demand from our distribution partners. Sales in United State were 26.8% of the global total. Latin America was 18% of sales. Brazil remained stable, and we saw good growth in Argentina or other direct market in the region as well as from our distributors. Asia Pacific was 14.1% of sales. Results in the quarter reflected the comp in the year ago period where we saw sales to our Chinese distributor as well as the normal ebbs and flows of distributor purchase timing. Gross profit for the fourth quarter was $45.5 million or 70.5% of revenue. This was a 200 basis point increase compared to the 68.5% of revenue last year. Overall, in 2025, our gross profit margin increased 330 basis points compared to 2024. Primarily the result of the higher margin sales in the United States. SG&A expenses were $44.0 million and were flat compared to the fourth quarter of 2024. R&D expenses for the third quarter were $5.4 million. Total operating expenses for the fourth quarter were in line with the year ago period at $49.5 million. Adjusted EBITDA was positive $5.5 million in the fourth quarter. This compared to a loss of $13.1 million in the fourth quarter of last year. This is our second consecutive quarter of positive adjusted EBITDA. The $18.6 million improvement year-over-year in adjusted EBITDA was driven by the strong sales and the higher gross profit in the United States. But we've also been very focused on managing our operating expenses overall. Over the course of 2025, we grew our U.S. commercial operations, and we launched the second offering in our minimally invasive portfolio. We're able to do this and still generate increasing profitability by finding efficiencies across all parts of the organization and making structural changes when needed. Cash increased $4.9 million in the fourth quarter to $75.6 million. The increase was primarily the result of reduced operating cash use as well as inflows from option exercises. For 2026, our initial revenue guidance is for $264 million to $266 million, an increase of 25.1% to 26% over 2025. We expect our OUS business will grow in the single digits, and the U.S. will exceed 30% of overall sales, which is up from approximately 22% in 2025. Gross margins are expected to increase 200 to 300 basis points. Operating expenses in total are expected to be approximately $195 million to $200 million in 2026. However, as we saw in 2025, there can be some variability in quarterly spending levels based on the timing of expenses. We expect to be adjusted EBITDA positive every quarter in 2026. Cash use will continue to improve over the course of 2026. Our free cash use is expected to be less than half of what it was in 2025, and we expect to reach cash flow positive this year without the need for any further equity raises. Our credit facility will enter the last year of its term in April and we are considering a number of refinancing options. Overall, our financial outlook reflects a significant momentum in our business. The adoption of Motiva in the U.S. is still early with significant room to drive further practice adoption as well as penetration within accounts. Preserve will add to both procedure growth as well as our realized ASPs. Outside the U.S., global demand remains good and our focus on direct markets and our minimally invasive portfolio should lead to another solid year of results. Now on the P&L, gross margins are benefiting from the positive geographic and product mix playing out. Even with continued investments, incremental operating spending over the next few years will be at a rate well below top line growth. This leverage should allow us to achieve cash flow profitability in the second half of the year and is the basis of the meaningful and increasing earnings we expect to see in 2027 and beyond. We continue our work to make ESTA eligible for inclusion in a number of indices including the Russell. Recent updates have increased our confidence that we will be included this year. Finally, as Peter mentioned, I'm moving into a new role at Establishment Labs. With the company on a good financial footing, Peter and I have been discussing the best way for us to realize the significant potential we have to create shareholder value. ESTA is in a very unique situation with unmatched innovation and products and a pipeline that even further distances us from our competitors. To realize this, effective execution is the key. The company has grown very organically over the past 20 years and there are number of areas that have the opportunity to be strengthened. After 5 years as CFO, I'm looking forward to a new challenge of leading our global strategy. In this new role, I will remain actively engaged in driving our performance, but the day-to-day finance function and CFO role transition to Sandra Harris, who was selected after an extensive search. With that, I will turn the call back to Peter. Filippo Caldini: Thank you, Raj. While continuing to invest selectively, we are maintaining an investment pace well below the expected top line growth. We expect to achieve free cash flow positive in 2026 with meaningful earnings beginning in 2027. I'd like to thank the entire organization for a great 2025. This year, we remain focused on disciplined execution and building a global category leader. Operator, we're ready to take your questions. Operator: [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] The first question comes from Josh Jennings with TD Cowen. Joshua Jennings: Congratulations to a strong end of the year and excited for you, Raj, in your new role. I was hoping to just start on the minimally invasive portfolio. I mean, it seems clear that Preserve and Mia are pulling patients off of the sidelines a couple of years back, I think prior to your tenure Peter, the team had kind of put forward the potential for the minimally invasive portfolio to grow the market and grow breast augmentation procedure volume, maybe even double them. But can you just maybe not going to put that stake back in the ground, but can you just talk about the optimism and the trajectory of the market with minimally invasive offerings from establishment coming through? . Filippo Caldini: Yes. Thank you, Josh. I mean what we are seeing in the OUS markets with the minimally invasive platform from the early experience in the U.S. is extremely positive. I think with the benefits of no general anesthesia, smaller scars, faster recovery, I think that really resonates with patients. And we're seeing that in the marketplace and also with some of the surveys when we talk about 14% of patients that decide to do breast augmentation. We're not considering until they heard about Preserve and that's in early experience survey in the U.S. So it's a real driver for the -- what we think is not only to drive share for us in the market, but also to bring new patients and new women into the category. So we're really seeing that benefit. And we think that that's going to continue to be a key driver. It's going to be a bigger part of our business as we go throughout this year as well as next. And our estimate and what we put in terms of the guidance, over $30 million this year, and we feel very confident with that. So this will be a real driver for us this year as well as into the future. Joshua Jennings: Excellent. Maybe just one follow-up. I appreciate you laying out U.S. revenues being roughly 30%. You are planning on adding reps around 30% higher number. Maybe just talk about where you're pulling these reps from. Are you still taking all-star veterans from the competition in the breast implant sector or the aesthetic sector? And just remind us of how productivity can ramp for these new reps as they come on board over the course of 2026. Filippo Caldini: Yes. Thanks, Josh. I mean, I think one of the key drivers for our success in the U.S. market is we've been able to put together a best-in-class organization. So if you couple that with what we believe is the best products from a performance and a safety profile and bringing together with the best-in-class organization. And we're very focused on the type of reps that we bring to Establishment Labs. And we are continuing to focus on reps that have significant industry experience that have a very good reputation in the market that have a very strong track record. And I think what's very positive for us is that a lot of these reps see us as very attractive opportunities. And that will continue to be a key driver for us in this year as well as into the future. Operator: The next question comes from Mike Matson with Needham & Company. Michael Matson: So just want to start with one on reconstruction in the U.S. So can you maybe just talk about how you plan to launch into that market. And when you do get the FDA approval, do you need specialized reps? Do you need maybe like a corporate accounts type sales team? And maybe just talk about the importance of hospital contracts there. . Filippo Caldini: Yes. Thanks, Mike. I mean as you see and we've highlighted that the recon indication is a really large opportunity for us. I mean it really doubles the market potential for us. And we've already kind of seeded the market with some of the with Flora we're in over 200 accounts. As we get closer to the launch, we will be expanding -- obviously expanding our sales force. We'll probably look at a combination of some reps that will be hybrid, and then we'll have some dedicated reps specifically for the larger hospital network. And I think that we need to make sure that we have the right coverage, right sales support to ensure that we really capitalize on that opportunity. And as I mentioned before, we've already gotten some seeding in terms with the Flora. So I think the ramp-up will be a little bit quicker. And I think -- but as it relates to the sales force, we want to make sure we have some specific coverage, but we're also going to be leveraging the existing sales force. Michael Matson: Okay. Got it. And then the international growth was a fair bit stronger this quarter. So was there any kind of one-offs in there, stocking orders or anything like that? Or is this truly reflective of the underlying procedure growth that you're seeing? . Filippo Caldini: Yes. I mean, I think -- listen, this year, we made a very strategic focus on driving our direct markets. And we've really been successful in terms of driving growth in those markets. We've allocated resources from a supply as well as investment standpoint. We made some organizational changes, and you're seeing the benefits of that. We've had 20% growth the last 3 quarters. Preserve is also helping to drive that as well as we increase the number of accounts. But in general, I would say that the demand across all our markets is fairly stable. And in terms of how we finished the quarter, I don't think there was any -- necessarily any stocking orders. It just sometimes what you'll find in the distributor markets. There is some different periods. It's not always a straight line. It's a little bit choppy in terms of that, but there was no efforts in terms of any type of additional inventory or stocking. It's just really based on the demand that we're getting in the marketplace, and it's also based on the good execution. Raj in terms of phasing. Rajbir Denhoy: No, I think that's fair. I mean it's -- as Peter noted, there's always some ebbs and flows in the distributor markets, in particular, based upon the timing of orders. But overall, demand remains very healthy across all the regions. And the direct markets, which we control ourselves, obviously, are doing very well right now. We're executing at a high level. Operator: The next question comes from Anthony Petrone with Mizuho. Anthony Petrone: Congrats on a strong year. Congrats, Raj, on the transition and Cassandra welcome to the team if you're on the call. So maybe just maybe around the horn globally. I know the macro has come up quite a bit. It seems a little bit better maybe on a 3-month to 6-month basis here when you think of the regions? And maybe just a quick recap, where do you see the underlying augmentation markets, U.S. and in some of the core OUS markets, thinking of Europe China, Korea? And then I'll have a follow-up question. Rajbir Denhoy: Yes, Anthony. The question is really on the underlying markets. I mean generally, the markets feel healthy right now. the U.S., for us, we're growing at a high rate. So it's -- we're kind of well exceeding what's happening in underlying market. But as we've noted, there does seem to be some increased interest in breast augmentation procedures and I think a lot of that's been driven by the activities we're doing, certainly, but it does feel like the market in the U.S. is very healthy, and we hear that from surgeons as well with surgery schedules booked out and lots of interest. So overall, I'd say the U.S. remains quite healthy. Internationally, frankly, we're seeing the same thing. In our distributor markets, you've seen north of 20% growth now for several quarters. That, again, is pretty indicative of what's happening on the ground and also with our share taking. And then in distributor markets, likewise, the demand seems to be quite good. China, you mentioned has been a market that we've highlighted as had some challenges. It's taking a lot of focus of management in the company. We're spending a lot of time with that distributor. And frankly, we're seeing the results starting to turn a little bit. And so overall, I'd say the markets remain healthy for us, and you can see it in the numbers. Anthony Petrone: That's helpful. And then a follow-up would be on just the Establishment Labs mix. When you think of Preserve here coming in and obviously, good feedback, but also reconstruction. Where do you think, I guess, Preserve can be as a percent of total revenues once we get into the sort of '27 to '28 time range, can it eventually be 50% of, let's say, U.S. revenues. And if that's the case, what do you think the tailwind looks like to your gross margin? . Rajbir Denhoy: Yes. I mean, Anthony, it is early still, right? So Preserve launched essentially a year ago in Brazil, it's February of 2025, right? And the demand we've seen has been very strong. The U.S. globally, there's a lot of interest. It is really I think caught the attention of surgeons. It fits into the way that they do surgery. A number of them are saying, why would I do surgery any other way. And so your numbers of getting to 50% are not outside of the realm of possibilities. I mean, I think we could see that kind of penetration. And to your point about what it does to our gross margins, the ASPs we realized for a Preserve case relative to a case that only uses the implant, it's about twice the revenue for us as a company, and they are much higher margins. So it is a tailwind to what you're going to see on the gross margin side if that, combined with the ASPs in the U.S., what's going to happen with recon. It just adds to a number of initiatives that are going to support the gross margins going significantly higher over time. Operator: The next question comes from Sam Eiber with BTIG. Sam Eiber: Maybe I can come back to the U.S. for just a second and Peter, get your thoughts on some of the momentum you called out in the early days of 2026. And then I guess where you think you are along this growth trajectory, ,is the long-term outlook for share gains still around the same goalposts that you've laid out in the past? . Filippo Caldini: Yes. Thanks, Sam. We continue to have very strong momentum going into 2026. As I mentioned in the prepared remarks, there's a lot of opportunity to continue to gain share in the accounts that we're already in as we increase the utilization rate as the surgeons work through their scheduling. We're also going to be continuing to add accounts, so like put more accounts on the top of the funnel. So that's going to be significant drivers for us. As we mentioned also, we're going to be adding up to 15 reps. And a bulk of them have already been brought on. We started that process. I think we mentioned in the last earnings call that we're going to start that process at the end of last year. So we've had close to 10 reps join the organization so far, and we're going to continue to bring those reps. So that's going to be a key driver for us, then you overlay the fact that we're going to be launching Preserve and the strong performance that we've seen outside the U.S. But also in terms of the early experience, it's creating a lot of excitement in the U.S. market. So that will continue to be a key driver for us in 2026. We'll also -- we're expecting to get the smaller sizes approved in the first half of this year, depending on the FDA, but we're very confident we should have that in the first half of the year. And that's just going to really be the start of the super cycle of innovation that we mentioned before with the Recon indication, which we are expecting to be a key driver for us in 2027. Also looking at ERGO2, which will enable us to bring Mia to the marketplace. So our plan is still the same. We expect to be a dominant share in the U.S. market. We're on that path to get there. And I think that's probably going to happen a little bit sooner than I think we originally planned just based on the strong momentum we've had so far. Rajbir Denhoy: Yes. Sam, if you look at the guidance we've given for the U.S. for it to exceed 30% of our sales, it's almost 1/3 of our sales will be coming from the U.S., if not more. in the second full year. So we've got a lot of momentum in the U.S. is going very, very well. Sam Eiber: And then maybe just following up on the last point. Obviously, you guys have a lot of organic opportunities with minimally invasive and Recon. But maybe longer term, are there any gaps in the portfolio or maybe you're looking at that you have this -- the infrastructure now where maybe you could be adding additional capabilities to the portfolio? . Rajbir Denhoy: Yes, Sam, it's a good question. And I think it's part of the reason for my transition into this global strategy role is that with the financial performance of the company in a very good spot. There are things like you're describing, business development, go-to-market strategies, the way that we prioritize things in our portfolio of innovation that I can now spend more time focusing on, right, because there are significant opportunities as you're describing to continue to expand what we're doing and to really realize the potential of what this company has put into motion. Sam Eiber: Congrats on the transition here. Operator: The next question comes from Allen Gong with JPMorgan. K. Gong: You touched upon it already in response to some other questions. But I'm just curious about the contribution you're currently factoring into the 2026 guide from some of the pipeline products you have between small sizes and reconstruction I.s construction going to be more of a 2027 story? And how quickly can you really ramp that up once you get the approval since as you mentioned, you're already seeded in around 200 hospital facilities. Rajbir Denhoy: Yes. So on reconstruction, it is likely a 2027 and 2028 and beyond the story for us, right, because Obviously, it's still with the FDA. We -- nothing has changed the opinion that, that product is approvable and should be very soon. But then there is the blocking and tackling of simply getting into hospitals, right? It takes time to work through the VAC committees and to get on contracts and things, and that will take time. But what we've already done is we've seen strong interest from hospitals already. We're already in a number of them. And there's a lot of interest in recon getting to market and getting in the hands of a lot more surgeons. Filippo Caldini: Yes, Allen, just to add to that, as Raj highlighted is the Recon, our expectation is that's where we're going to see the impact in 2027. So we're not really considering that for 2026. And also, as you look at Preserve, I think we see a tremendous upside in those numbers. And I think we've been very pleased with the initial response, not only in the U.S. but outside the U.S., and I think that has the opportunity for upside for us in terms of how we drive the business this year. K. Gong: Got it. And then just a quick follow-up on spend. When we look at 2024, we saw a pretty linear increase in spend to support the U.S. launch this year was a little bit bumpier talking specifically about SG&A, and it sounds like you've already put in a good amount of investment into the U.S. sales force expansion you previously talked about early on in the year. So just any color on the cadence of spending on the operating side throughout the year. Should we expect it to be a little bit more front half weighted and then a little maybe improvement in the back half and then maybe next year, we see a little bit of a step up to support reconstruction. Rajbir Denhoy: I think your question is a good one. I mean you look at the overall spending for us. We talked about $195 million to $200 million. But if 1x is out noncash expenses and onetime things, that's $175 million, $180 million in cash operating expenses, which compares to a number roughly $160 or so, right? So the increase is well below the $50-plus million of revenue expansion we're going to see this year, right? So we are starting to see the significant leverage in the model playing out, and that's going to continue in '27 and beyond. Even the incremental investment to support the Recon market will be well below the opportunity that, that represents. And so again, that's another source of leverage for us. As it relates to kind of the timing, it is not linear, right? We do have certain expenses that hit at certain times. As the first quarter will actually likely be a little below trend and that it will pick up in the back half of the year. But we're supporting a lot of the U.S. expansion early on and then it will continue to be leveraged over the course of the year. But it's not going to be kind of flat every quarter, as you described. It will be a little up and down with the first quarter, perhaps being a little lower and then picking up in the middle part of the year in the back half. Operator: The next question comes from Caitlin Roberts with Canaccord Genuity. Caitlin Cronin: And congrats on all the new rules to all. As it relates to revenue guidance, anything to call out from a seasonality perspective this year, particularly as you ramp further in the U.S. Rajbir Denhoy: So it's a good question, right? Because the U.S., we do expect is going to continue to grow, right? So sequentially, we should be up in the first quarter, modestly right? It is a quarter where it's usually a down quarter for the market overall, and then you'll see kind of continued step ups every quarter with a very strong finish to the year in the U.S. Again, following normal seasonality. Internationally, it's a bit more normalized because you're not right, growing the same rate you are in the United States. And so overall, be that similar pattern where the first quarter is down. You see a pickup in the second quarter. It's down a little bit in the third quarter, and we see a very strong finish to the year. But you do have the subtlety of what's happening in the U.S. with the very strong growth we're seeing overall. Caitlin Cronin: Great. And then just one more. Just how many of your current accounts in the U.S., would you say are high-volume accounts? And then any color on kind of the average penetration within your accounts? . Rajbir Denhoy: Yes, it's a good question. I mean, when we started a little over a year ago, we did sign up a lot of high-volume, larger accounts, a lot of interest in the product that's broadened out a bit. The 1,500-plus accounts we have now kind of span the spectrum of where we are. And I would say, while it's hard to get exact numbers on penetration, we're still quite low in a number of markets, and that's based primarily on the timing of when these accounts came on, right? So account that's been with us for 6 months or less, it's going to be lower than one that's been with us for a year. And so 2026, the story for us is going to be about continuing to expand the number of accounts that we have in the United States but also going quite a bit deeper into all these accounts. And that's what's really going to drive the results. There's a lot of potential there. We're still early in a lot of the customers we signed up over the back half of last year. Filippo Caldini: Yes. Caitlin, just to add, we -- that's going to be a big focus for us in 2026. Obviously, in the beginning, you want to get as many accounts and the early adopters, I think we've really seen strong push where Motiva is a majority, if not almost all their volume. It's really now the next phase is really enhance that penetration, and that's a big focus for us. I think there's a lot of opportunity in that area. I think in certain accounts we're underdeveloped, now granted that's going to happen over time as they work through their schedules. But as Raj noted, this is a key driver for our growth this year. Operator: The next question comes from Mason Carrico with Stephens. Mason Carrico: I guess, first, could you just talk about your expectations around China this year? What are you baking in there? Sorry if I missed it. And really, what do you view as kind of the key hurdles to unlocking that market, whether it be in 2026 or 2027 or a future year. Filippo Caldini: Yes. Thanks. As we mentioned in the prepared remarks, and we've really communicated this in the last couple of calls. This is a big focus for us. And I think the start in China in terms of the distributor building out their commercial capabilities was slower than we would have liked, and we put a lot of focus in that area in terms of -- around their organization in terms of some of the strategy and targeting different hospitals pricing and we've been very pleased over the last 6 months in the back half of the year that we're seeing very good progress in terms of the sellout. So I think a lot of this work is really having an impact. And our expectations remain the same. This market is a very large market when we expect to have the same type of dominant share in China that we do it throughout the rest of Asia. Mason Carrico: Got it. Okay. And with the longer Preserve this year, it seems like ASPs and the ASP should benefit. So I guess, how much of U.S. growth in 2026 do you really see coming from volume versus ASP expansion? Or I guess how do you think about that algorithm, that growth algorithm even moving into 2027? . Rajbir Denhoy: Yes. I think, Mason, we're still so early in the penetration in the United States that the majority of the growth is going to come from continued unit growth, right, if that's how you described it, right? So continue to take share procedure volume, that is what's going to drive the revenue. Preserve certainly going to contribute. We're going to launch it here in the first quarter very soon. And it will play out over the course of the year. But for us, it's still primarily about penetration into this market and taking share from the incumbents. Operator: Thank you. That is all the time we have for questions today. I would now turn the call back over to Peter Caldini for closing remarks. Filippo Caldini: Thank you, operator, and thank you, everybody, for joining the call today. We've made tremendous progress over the last 12 months. I think we're in very good position to really capitalize and I think on a unique opportunity and the strength that we have, especially around our products and pipeline. So very happy with the progress and really appreciate everybody joining the call today, and look forward to talking to everybody in the future. Thank you. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Thank you for standing by. Welcome to the Kiniksa Pharmaceuticals Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Jonathan Kirshenbaum, Investor Relations. Please go ahead, sir. Jonathan Kirshenbaum: Thank you, operator. Good morning, everyone, and thank you for joining Kiniksa's call to discuss our fourth quarter and full year 2025 financial results and recent portfolio execution. A press release highlighting these results can be found on our website under the Investors section. As for the agenda, our Chief Executive Officer, Sanj K. Patel, will start with an introduction. From there, Ross Moat, our Chief Operating Officer, will discuss our IL-1 inhibition franchise and provide an update on ARCALYST commercial execution. Then Kiniksa's Chief Financial Officer, Mark Ragosa, will review our fourth quarter and full year 2025 financial results. And finally, Sanj will share closing remarks and kick off the Q&A session, for which Dr. John Paolini, our Chief Medical Officer; and Eben Tessari, our Chief Strategy Officer, will also be on the line. Before getting started, please note that we will be making forward-looking statements today that are subject to risks and uncertainties that may cause actual results to differ materially from these statements. A review of such statements and risk factors can be found on this slide as well as under the caption Risk Factors contained in our SEC filings. These statements speak only as the date of this presentation, and we undertake no obligation to update such statements, except as required by law. With that, I'll turn it over to Sanj. Sanj Patel: Thanks, Jonathan, and good morning or good afternoon, everyone. I look forward today to reviewing Kiniksa's fourth quarter performance and key highlights across our portfolio over the past year. Diligent execution across our commercial and clinical organization throughout 2025 has put us in a strong position to further advance our business. ARCALYST revenue continues to grow, driven by the expanding adoption of IL-1 alpha and beta inhibition across the recurrent pericarditis population. Since the launch in 2021, we have delivered this transformative therapy to thousands of patients, enabling a fundamental shift in the treatment paradigm and driving sustained revenue growth. On a year-over-year basis, ARCALYST product revenue grew 65% to $202.1 million in the fourth quarter and 62% to $677.6 million for the full year 2025. Importantly, ARCALYST revenue growth has been profitable since the fourth quarter of 2021. This has allowed us to make strategic investments across sales and marketing with the aim of capturing additional long-term growth. Ross will cover this in a moment. Kiniksa's robust financial position gives us the ability to create additional value by investing in R&D and advancing internally discovered and developed assets such as KPL-387 and KPL-1161 as well as pursuing strategic business development. Focusing on clinical, this time last year, we announced our development program for KPL-387 in recurrent pericarditis with plans to initiate a Phase II, Phase III clinical trial in the middle of last year. That was achieved, and we are continuing to enroll and dose patients in the Phase II portion of that program, and we are on track for data in the second half of this year. Together with continuing ARCALYST growth, the development of KPL-387 positions Kiniksa to extend its leadership of the recurrent pericarditis market. In particular, we believe KPL-387 could address key patient needs and expand penetration into the addressable market by potentially enabling monthly dosing with an auto-injector. In addition to KPL-387, we also recently announced that we plan to be in the clinic with KPL-1161, which is our Fc-modified IL-1 alpha and beta inhibitor by the end of this year. As highlighted, we made important progress across our commercial and clinical portfolio in 2025, and we are working diligently, some would say like the clap to continue that strong trajectory in the year ahead. And with that, I'll turn it over to Ross to review our commercial execution. Ross Moat: As we shared earlier this year, Kiniksa's robust execution over the first 5 years of our commercialization has established the recurrent pericarditis market and put ARCALYST on a path to future blockbuster status. Our full year 2025 net revenue was $677.6 million, which is an increase of more than $260 million compared to 2024 and represents the highest year-on-year growth to date. The primary driver of this growth has been the expanding adoption of interleukin-1 alpha and beta inhibition with ARCALYST as a second-line treatment immediately after the failure of NSAIDs and colchicine. In 2026, we expect to continue expanding the utilization of ARCALYST in recurrent pericarditis and reiterate our previously announced full year net revenue guidance of between $900 million and $920 million. Historically, Q1 faces some seasonal headwinds in the specialty drug sector associated with payer plan changes and co-pay resets. And as a reminder, in Q1 of last year, we benefited from a onetime bolus of patients who transitioned to commercial therapy associated with the IRA and Medicare Part D changes. As you've heard from Sanj, our ARCALYST franchise is profitable, which over time has allowed us to invest in our commercial infrastructure and digital marketing efforts to maximize our opportunity in recurrent pericarditis by reaching additional health care professionals and patients. In 2026, our focus is to unlock the next phase of growth for ARCALYST by driving further physician awareness of the 2025 ACC concise clinical guidance, advancing our digital marketing initiatives to empower patients to discuss ARCALYST with their physician as well as utilizing AI and machine learning to efficiently and effectively target the right physicians at the right point in time and to explore ways to expand the impact of pericardial disease centers where the growth in ARCALYST prescriptions has outpaced growth at other sites. At the end of 2025, more than 4,150 prescribers had written a prescription for ARCALYST. Of those, around 29% or more than 1,200 prescribers have written ARCALYST for 2 or more recurrent pericarditis patients. This continued growth in both total and repeat prescribers illustrates how we are evolving the treatment paradigm in recurrent pericarditis by updating the approach for treating the disease with targeted interleukin-1 pathway inhibition. Additionally, we've built a strong foundation to our commercialization with the average total duration of therapy approaching 3 years, robust payer approval rates and strong patient adherence, all of which has created solid commercial fundamentals. With increasing penetration into the multiple recurrence target market and additional upside with ARCALYST being used earlier in the disease course, we continue to see meaningful opportunity ahead. The combination of an effective commercial engine with robust safety and efficacy data for ARCALYST means we are well positioned to continue expanding our reach into both the multiple recurrence and first recurrence populations. On the left-hand side of this slide, you can see that our penetration into the 2-plus recurrence target market has increased over time, most recently up to approximately 18% at the end of 2025 compared to around 15% in the middle of last year and 13% at the end of 2024. As we've previously stated, approximately 20% of ARCALYST prescriptions have been written for patients following their first recurrence, demonstrated increased use earlier in the disease course. Overall, we are seeing physicians more readily turn to targeted interleukin-1 alpha and beta inhibition with ARCALYST after the failure of NSAIDs and colchicine. In 2025, this evolution in treatment paradigm was ratified by the publication of the ACC concise clinical guidance, which now recommends interleukin-1 pathway inhibition as a second-line approach immediately following the failure of NSAIDs and colchicine in patients suffering from recurrent pericarditis. As you've heard, we are pleased with our solid execution and progress. But far more importantly, we are excited about the opportunity ahead to support significantly more recurrent pericarditis patients with ARCALYST. And with that, I'll turn the call over to Mark to review our financial results. Mark Ragosa: Thanks, Ross. In 2025, we advanced both our commercial business and our clinical portfolio while maintaining a strong balance sheet, positioning us to continue to help patients and grow in 2026 and beyond. This morning, I will walk through our fourth quarter and full year 2025 financial results. You can find our detailed financial information in today's press release. There are a few items of note. First, starting on the left-hand side of this slide with our income statement. As Sanj and Ross noted, broader adoption of IL-1 alpha and IL-1 beta inhibition as a second-line treatment drove strong ARCALYST product revenue growth in 2025. ARCALYST product revenue grew 65% year-over-year to $202.1 million in the fourth quarter and 62% to $677.6 million for the full year 2025. Second, operating expenses grew year-over-year in both the fourth quarter and the full year 2025, driven by higher cost of goods sold due to ARCALYST growth, increased collaboration expenses aligned with higher ARCALYST collaboration profit and additional SG&A expense with investment to further support ARCALYST commercialization. Third, net income was $14.2 million in the fourth quarter of 2025 compared to a net loss of $8.9 million in the fourth quarter of 2024. And net income was $59 million for the full year 2025 compared to a net loss of $43.2 million for the full year 2024. Fourth, the right-hand side of the slide provides the calculation for ARCALYST collaboration profit, which largely drives total collaboration expenses. On a year-over-year basis, ARCALYST collaboration profit grew faster than sales, up 83% to $140 million in the fourth quarter and up 96% to $459 million for the full year 2025. Lastly, regarding our balance sheet at the bottom of the slide, we ended 2025 with $414.1 million in cash, representing $170.4 million of net cash generation for the year, and we expect to remain cash flow positive on an annual basis under our current operating plan. With that, I'll turn the call back to Sanj for closing remarks. Sanj Patel: Thanks, Mark. As you've heard, Kiniksa continues to execute both commercially and clinically and is well positioned to build significant future value as we grow our IL-1 alpha and beta inhibition franchise. We've got a brilliant team that is dedicated to helping as many patients as possible with ARCALYST and to advancing the development of our clinical portfolio in order to bring additional therapies to patients suffering from debilitating diseases. With that, happy to turn it back to the operator for questions. Operator: [Operator Instructions] And our first question for today comes from the line of Nick Lorusso from TD Cowen. Nicholas Lorusso: So you guys have reported continuing increased penetration in the multiple recurrent setting. So I'm kind of wondering what do you think the peak penetration is for ARCALYST in this setting? And how could that evolve with the potential approval of KPL-387? Sanj Patel: Thanks, Nick. Maybe I'll start. This is Sanj Patel. I'm happy to pass over to the team or Ross, Nick for the comments. So at this point, we have not commented on the peak penetration. Suffice to say that as I think Ross mentioned, we do believe there's still an awful lot of growth that we can capture with ARCALYST. And obviously, a lot of the work that we're doing both through our sales force, through marketing, digital efforts are making a lot of inroads there. So we continue to crack on penetrating into that market. How far it will go, time will tell, but it really is an axis of how much work we put into it and how smart we work. Ross, any comments? Ross Moat: No, I think that's great. I mean maybe just to add that we feel like we're relatively nascent in the opportunity. We've got a huge opportunity left ahead. We announced we're around 18% penetrated into the target population of patients with 2 or more recurrences. That's a 14,000 population at the end of 2025. And that's without taking into account those patients that are earlier on in the disease on their first recurrence, which is a much larger group of patients, around 26,000 patients in any given year. So the opportunity is there for us to do much more, albeit that we're happy with where we are at this stage, but we're very excited about the future. Operator: Our next question comes from the line of Eva Fortea from Wells Fargo. Eva Fortea-Verdejo: Congrats on the quarter. A quick one from us. You've mentioned several times now that 20% of ARCALYST patients are in first recurrence versus 80% in 2 plus. And I guess my question is, is the pace of growth in these 2 different patient populations the same in terms of like ARCALYST? And does your market research suggest potential changes to the 20:80 ratio? Ross Moat: This is Ross. So I'll start to answer that. And John, if you've got anything to add, please feel free to do so. But you're right in stating that the percentage of patients that we have in the first recurrence has grown over time. It's around 20% of all ARCALYST prescriptions that seem to be in the first recurrence group at this stage. So we view that as a positive change as we've evolved the treatment paradigm and as physicians get more and more comfortable both with prescribing ARCALYST but also seeing the effect of having their patients on ARCALYST and what that does to them over the long term for dealing with this kind of multiyear chronic disease in most patients. That creates familiarity and confidence to go and prescribe earlier on in the disease and help more patients. So we think that's great. How that will evolve over time is to be seen. But we think it's kind of a positive stage for where we are right now. When we think about those patients in the first recurrence group, there are certainly patients there that are more high risk for longer duration of disease and suffering future recurrences, particularly those patients that have other risk factors or they're suffering from a significant effusion or even cardiac tamponade or constriction and that those patients could be helped within label for ARCALYST, which obviously covers recurrent pericarditis overall and is not -- is agnostic to the number of flares a patient has suffered. So the opportunity to help those patients as well and to avoid them going on and suffering future detrimental effects of this disease is very much there for the health care professionals to decide to prescribe within that population. So we're happy that more and more people so far seem to be doing that. Operator: And our next question comes from the line of Geoff Meacham from Citi. Geoffrey Meacham: Congrats on the quarter. Just have a couple. The first on the pipeline, so 387 or even 1161, what's the extent of FDA interactions of late? It does seem that the agency is maybe more open for novelty on design or maybe adding analytics just to speed up the development and maybe down the road, the review process. Just curious your thoughts on that and maybe how you could take advantage of that. And the second one, another one on first recurrence versus second or later. Are there differences in persistent rates between those 2 populations? I wasn't sure how any commercial metrics tease out between those 2 populations. Sanj Patel: Yes. Good to hear your voice, Jeff. Thank you for the question. Maybe I'll take a quick start and then John, pass over to you for the remainder of the interaction with the FDA and then Ross for you on the recurrences. So as always, we approach our development plans with absolute rigor no matter what we see in the agency. And I think a lot -- it's not lost on us that there have been some changes. But I think in the history of Kiniksa and even before, we've always took great pride in having a lot of thought, diligence, quality and putting really robust development packages together. That changes no matter what. But you're obviously right, we are quite excited about the new development of 387 and 1161, believe there's a lot of potential there. But I think no matter what John is about to say in terms of interactions with the FDA, we treat it the same, and we put together very robust development packages with well-thought out protocols. John? John Paolini: Thank you, Sanj. And thanks, Geoff, for your question. Yes. So we very much value our interactions with the FDA and have found them very productive. As I think we mentioned when we announced the program that we had with regard to KPL-387, that we have had interactions with the FDA that laid out the development program. It's important to note that we have already kind of laid out the entirety of the integrated development program, which includes not only the Phase II work that is ongoing, but also the subsequent Phase III trial that is planned as well as the long-term extensions. So that totality of the package has certainly been assembled. And the communications that we've had have affirmed, if you will, our belief that the Phase II trial would be sufficient and pivotal for registration in the U.S. Now that said, we are always looking for opportunities to move the program faster in order to develop what we believe will be potentially transformational and additional therapy for patients and an additional treatment option. So we'll, of course, be looking for ways to do that. With regard to 1161, of course, this program is still in its preclinical development activities. And so we'll have more to say about that as we progress. So thanks for the question. Ross Moat: Thanks, John. And Geoff, thank you for the questions. This is Ross. So to the part of your question around any difference in persistence rates between the 2 populations, we haven't seen anything meaningfully different between those 2 populations, whether it's those patients that have been suffering for 2 or more recurrences or on their first recurrence, but with additional risk factors signaling potentially longer disease duration, which is, I guess, as expected, we know that these groups of patients generally suffer from chronic multiyear disease. So we haven't seen any meaningful difference between those groups. And I think moreover, what we're seeing is that health care professionals have moved their mindsets in how to treat this disease, not only with the utilization of interleukin-1 alpha and beta inhibition opposed to reaching for steroids or other ways of trying to manage this disease, but also in their mindset shift around that this is actually a chronic multiyear disease in most patients and rather than treating for the short term, as used to be the case, particularly with the toxicity and the effects of trying to get patients off corticosteroids treating throughout the duration of the disease with interleukin-1 alpha and beta inhibition is really the goal for the management of these patients. So hopefully, that answers that part of your question as well. Thanks, Geoff. Operator: [Operator Instructions] Our next question comes from the line of Anupam Rama from JPMorgan. Unknown Analyst: This is Joyce on for Anupam. Maybe just a follow-up on the previous question. For KPL-387, once you've completed the dose focusing Phase II portion, how are you thinking about enrollment curve for the Phase III? And then are you seeing any differences in the types of patients you're enrolling relative to RHAPSODY now that ARCALYST is on the market? John Paolini: Thank you for those questions. They were quite excellent. So with regard to the latter portion of your question about the types of patients, what we've described in the study is bringing in patients with recurrent pericarditis. It's important to realize that this is a global study as well. So it's enrolling patients not only in the United States, but also globally. And at this point in time, ARCALYST is available in recurrent pericarditis only in the United States. And so it's a very robust study in terms of the types of populations that it's enrolling. And so the design is very straightforward in that regard. With regard to the transition to the Phase III study, so at this point, what we've guided to is that we would have data from the Phase II portion of the trial in the second half of 2026. And we've commented that we anticipate bringing this drug to patients in the 2028, 2029 time frame. So we have yet to provide guidance on the initiation of the Phase III study. And so in that sense, that will -- in clinicaltrials.gov is certainly a very reliable place to look for updates as well as any updates that we provide ourselves. Operator: And our next question comes from the line of Roger Song from Jefferies. Jiale Song: Congrats for the quarter. Also a question related to the 387. Just given the current Phase II/III and this Phase II transition from the standard of therapy, those study design and the planned studies, will this -- the label and then the potential reimbursement test will be similar to the ARCALYST when 387 launched? And then ultimately, when it's available, basically led the physician -- patient to choose between 387 versus ARCALYST? Is that the base case here? John Paolini: Thanks, Roger, for the question. Maybe I'll deal with the regulatory question and then hand it over to Ross in terms of market penetration. So yes -- so with regard to the regulatory program, so as you remember, the ARCALYST program, which was an sBLA at the time, with RHAPSODY, supported a label that was agnostic to a number of recurrences in prior therapy. So it simply states for the treatment of recurrent pericarditis and reduction in risk of recurrence. And so that is a very solid label, which gave us the foundations to grow and evolve the treatment paradigm. So the KPL-387 program, as you know, is designed in a very similar way in that except with the difference that it is a full BLA package, meaning that this is the first -- this would be the first labeled indication for KPL-387. And so in that sense, it carries with it a slightly larger base program in terms of some of the initial Phase I and Phase II work that's being done as well as the larger long-term extensions to provide the safety package. But importantly, the core of the study is the Phase III pivotal study, which, as you can see on clinicaltrials.gov, bears a remarkable resemblance to the RHAPSODY study design. And of course, we always bring forward new innovations. But the goal of the program is to support a similar type of indication statement, if you will, in terms of the population of being able to treat all patients with recurrent pericarditis regardless of prior line of therapy and number of recurrences as long as they have that -- meet that diagnosis of having recurrent pericarditis. So that's the regulatory framework. I'll now turn it over to Ross to talk about the practice environment. Ross Moat: And Roger, thank you for the question. So maybe just best to start off by saying we believe that ARCALYST has a substantial future left to help many, many more patients suffering from recurrent pericarditis. But also as we progress with KPL-387, this program is aimed to address key patient needs and to expand the market for interleukin-1 alpha and beta inhibition with a target product profile of being less frequent dosing and a streamlined preparation and in a patient-friendly administration format there being the potential to go into an auto-injector. So we believe that all those things could be important future treatment option choices for patients. And based on the market research that we have at this stage and what we've shared is that when you look at both patient and health care professional preferences, around 75% of all recurrent pericarditis patients that we shared the target product profile with for both KPL-387, but as well as current commercial and other investigational therapies in recurrent pericarditis, around 75% of those patients said that they would prefer the target product profile of KPL-387. And when you look on the health care professional side, greater than 90% of health care professionals say that they are highly likely to prescribe KPL-387 for new patients suffering from recurrent pericarditis. So we think that all bodes well for the future, but we continue to be highly focused on ARCALYST as well as the work that we do across our pipeline and portfolio. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Sanj Patel, CEO, for any further remarks. Sanj Patel: Thanks, operator, and I appreciate all the questions and all of you for joining the call today. Obviously, we look forward to providing additional updates in the future. I'm sure you can tell from today that we are very energized as we head into this year, and we are going for brilliance as always. So thank you very much for joining. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Clarivate's Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mark Donohue, Vice President, Investor Relations. Please go ahead. Mark Donohue: Thank you, and good morning, everyone. Thank you for joining us for the Clarivate's Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference call is being recorded and webcast and is copyrighted property of Clarivate. Any rebroadcast of this information in whole or in part without prior written consent of Clarivate is prohibited, and the accompanying earnings call presentation is available on the Investor Relations section of the company's website. During our call, we may make certain forward-looking statements within the meaning of the applicable securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the business or developments in Clarivate's industry to differ materially from the anticipated results, performance achievements or developments expressed or implied by such forward-looking statements. Information about the factors that could cause actual results to differ materially from anticipated results or performance can be found in Clarivate's filings with the SEC and on the company's website. Our discussion will include non-GAAP measures or adjusted numbers. Clarivate believes non-GAAP results are useful in order to enhance understanding of our ongoing operating performance, but they are a supplement to and should not be considered in isolation from or as a substitute for GAAP financial measures. Reconciliations of these measures to GAAP measures are available in our earnings release and supplemental presentation on our website. With me today are Matti Shem Tov, Chief Executive Officer; and Jonathan Collins, Chief Financial Officer. After our prepared remarks, we'll open up the call to your questions. And with that, it's a pleasure to turn the call over to Matti. Matti Shem Tov: Good morning, everyone, and thank you for joining us today. We are at a positive inflection point in the Clarivate journey. In 2025, we delivered on our initial full year financial guide for the first time since 2019. The value creation plan is working as evidenced by our improved performance and forward outlook. We have accelerated organic ACV, organic recurring revenue and enhanced our free cash flow conversion. Looking ahead to 2026, our guidance calls for 10% free cash flow growth and continued improvement in our KPIs. With strong cash generation, stable revenue retention rates of 93% and a business that generates 97% of its revenue from proprietary solution enhanced by AI, we see tremendous opportunity in front of us. Last February, we announced a strategic review of our business portfolio, which involves evaluating multiple options. After an in-depth analysis, we have launched a process to sell our Life Sciences & Health business, which if the deal is concluded, could accelerate value creation for shareholders. We believe selling this segment will allow further emphasis on the A&G and IP market and strengthen our balance sheet through reduced leverage. We are currently engaged in active discussion with interested parties. There are no guarantees we will reach an agreement. We will update the market when appropriate. While we understand the market's concern around AI disruption for software and information services companies in general, we believe our business is highly proprietary with significant moats. A few weeks ago, we launched a webinar titled Clarivate Intelligence Amplified in the Age of AI. If you have not viewed it yet, I encourage you to do so. For us, AI is not a disruption to our business model. It is an amplifier of what already sets us apart. Today, 97% of Clarivate's revenue come from proprietary assets, including intelligence solutions, workflow software and tech-enabled services. This reflects decades of strategic investment in proprietary content, expert enrichment and curation and the development of software products embedded across customer workflows. This strong and proven foundation provide us with a significant advantage in the age of AI. Our customers operate in high-stake environments such as research, intellectual property and highly regulated life science industry when provenance, accuracy and trust are essential and nonnegotiable. Let me explain our AI strategy. We are leveraging AI to capitalize on our strengths. By combining our proprietary data and deep domain expertise with cutting-edge technology, we are delivering what we call intelligence amplified. This shows up in 3 ways. First, AI research assistants provide a conversational contextual search and discovery, a front door to our trusted intelligence, where customers can simply ask questions in natural language and get a precise answer backed by our proprietary data. Second, AI workflow agents are embedded directly into customer workflows, acting as digital analysts that enable execution at speed. Tasks that used to take hours or days can now happen in minutes. Imagine a patent analyst who has an AI agent that can monitor thousands of patents, identify relevant prior arts and flag potential conflict automatically. That is the power we deliver. And third, through AI ecosystem access, we are extending our gold standard intelligence across the broader AI ecosystem via secured integrations such as MCP servers. By expanding our reach beyond cloud boundaries, we are ensuring our assets remain available to users as they develop new ways of working. For example, we recently introduced Nexus, which exemplify our ecosystem access strategy. As students increasingly begin their research in general purpose AI tools, Nexus meets them where they are, embedding our gold standard curated content such as Web of Science directly into public chat tools. This is how we extend the value of our proprietary assets beyond our own platforms, turning AI adoption into a distribution opportunity rather than a displacement risk. We will continue to capitalize on the benefits of AI by enhancing and developing solutions that are trusted by more than 45,000 customers globally. We see this new technology as a legitimate accelerant to our organic growth. Now let's turn to 2025 results. I am proud of the results we delivered in 2025, which lay a strong foundation for 2026. We delivered nearly 2% organic ACV growth at the high end of the range. We also improved the mix of organic recurring revenue to 88%, clear evidence of continued progress towards a more predictable subscription-based model. We delivered more than $1 billion of adjusted EBITDA and $365 million free cash flow. As Jonathan will cover in more detail, we expect approximately 10% free cash flow growth in 2026. Our value creation plan has built strong momentum and better focus across the organization, which has improved our operational and financial performance. We optimized the business model, which has led to an improvement in our recurring revenue mix. We improved our sales execution and as a result, delivered nearly 2% organic ACV growth, representing approximately 90 basis point improvement year-over-year. We drove innovation forward by introducing 12 major products and AI-powered features, strengthening our unique position in the market. Our strategic review has led to the initiation of a process to sell our Life Science business. If successful, this will focus our organization and strengthen our balance sheet. Let me take you through each of our business segments where we have made meaningful improvements, starting with Academia & Government. This segment delivered solid performance in 2025, achieving 2% organic ACV growth despite funding headwinds in the U.S. academic market. On the innovation front, we launched 10 AI assistants and AI-native agentic solutions, and these are being used by over 4,000 institutions today. And here is the foundation that makes this all possible. 97% of our A&G revenue is generated from proprietary solutions. Last year, we successfully transitioned the business model away from transactional revenues. This increased our organic recurring revenue mix to 93% with mid-90s retention rates. Looking ahead, we expect organic growth acceleration as our AI innovation continues to materialize, supported by improving market dynamics. Now let's us talk about the Intellectual Property business. It is powered by the industry's largest agent network and a comprehensive portfolio of solutions covering the full IP life cycle. This includes patent and trademark created proprietary data, decision intelligence, tech-enabled services, IP management software and the largest annuity book in the market. This gives us scale, reach and a competitive advantage no one else can match with a new leadership team, including the President, CTO and the Head of Software and clearer priorities, we are confident in returning IP to growth. On the innovation side, we launched 5 GenAI and AI native products and enhancements last year. 2026 will bring additional AI product launches across the IP landscape. The changes we have implemented are starting to show up in the results. We delivered 270 basis points of year-over-year improvement in annuities revenue, reflecting stronger execution. The outlook for IP is increasingly positive. The fundamentals are there. The team is aligned and the AI-led innovation and products are resonating positively with our customers. Turning to Life Science & Health. Life Science & Health is anchored in expert curated highly enriched data, which is optimized for compliance critical workflows where accuracy, governance and trust are essential. We now have 11,000 global active users leveraging our AI research assistant and workflow agent. That is incredible adoption in a market where accuracy and trust are nonnegotiable. And we are not slowing down. We are due to release more than 10 additional AI solutions this year. We have reached a clear inflection point. Cortellis, DRG and [indiscernible], our 3 major product lines are now moving in the right direction with consistent quarterly ACV growth. Based on deals we closed last year and our current pipeline visibility, we expect a return to organic revenue growth in 2026. Now let's talk about where we are headed and why we are confident in the outlook. For 2026, we are guiding to 2% to 3% organic annual contract value growth. That is a meaningful acceleration from where we were just 2 years ago. On recurring organic revenue, we are targeting 1% to 2% growth for 2026, an improvement of almost 100 basis points compared to last year in the middle of the range. Finally, free cash flow is expected to grow to about $400 million, that is approximate 10% increase over last year. I am optimistic that we can achieve our target in 2026 because we have built the foundation. We have optimized the business model. We have strengthened sales execution. We are accelerating innovation, and we are rationalizing the portfolio. In closing, 2025 was a turning point for Clarivate. In 2026, we expect to continue to improve our key financial metrics. Under my leadership, we have built a more focused, accountable and performance-driven culture, and we will maximize shareholder value through portfolio simplification and disciplined capital allocation. I will now turn the call over to Jonathan for a review of our financial results and outlook. Jonathan Collins: Thank you, Matti. Slide 17 is an overview of our fourth quarter and full year financial results compared with the same periods from the prior year. Q4 revenue was $617 million, bringing the full year to $2.455 billion. The change in the quarter and the year was entirely inorganic as we disposed of and divested businesses over the last year. Fourth quarter net income was $3 million. The $195 million improvement over Q4 of the prior year and the full year improvement of $436 million was driven by the noncash impairment charges recorded in the prior year that did not recur in 2025 as well as lower income tax and interest expense. Adjusted diluted EPS, which excludes items like the impairment, was up $0.02 sequentially at $0.20. The change over last year was entirely inorganic. Operating cash flow was $160 million in the quarter. The $19 million improvement compared to last year is driven primarily by working capital and lower interest and taxes. Please turn with me now to Page 18 for a closer look at the drivers of the fourth quarter top and bottom line changes from the prior year. As expected, the changes over the prior year were driven by four primary factors. First, while organic subscription revenues continued to grow at 1% followed the continued acceleration in our ACV, total organic revenue declined by about 1% as the subs growth was offset by reoccurring in transactional. Fourth quarter operating expenses were higher as we continue to invest in innovation and incurred higher incentive compensation expense as we delivered our full year guidance, resulting in a $16 million profit decline. Second, during Q4, the businesses we are disposing decreased by $43 million over the prior year. But was largely offset by cost reductions in these businesses, yielding a net $10 million reduction in adjusted EBITDA. Third, as we have seen in the last couple of quarters, we experienced a modest inorganic impact from the ScholarOne divestiture. And fourth, the U.S. dollar remained relatively weaker against the basket of foreign currencies, which caused a foreign exchange tailwind on the top line that was partially offset by fewer transaction gains than the prior year, resulting in a small profit impact. We exited 2025 with a Q4 profit margin run rate of just over 41%, which was about 50 bps higher than the full year results. Please turn with me now to Page 19 to review how these same drivers impacted the top and bottom line changes on a full year basis compared to 2024. As Matti noted in his remarks, our full year revenue and profit results were above the high end of the original guidance ranges we provided a year ago. While recurring organic growth approached 1%, this was offset by organic transactional revenues, resulting in essentially flat organic revenue. Full year operating expenses were higher than the prior year as we continued to invest in growth and incurred higher incentive compensation expense as we delivered our full year guidance. The entire revenue change and the vast majority of the profit difference came from the combined impact of the disposals and divestitures, which lowered revenue by about $116 million and adjusted EBITDA by about $44 million compared to the prior year. Both the top and bottom lines benefited from foreign exchange translation as the U.S. dollar weakened compared to a basket of foreign currencies. Please turn with me now to Page 20 for a look at how the Q4 and full year adjusted EBITDA converted to free cash flow and how we allocated the capital. Free cash flow was $89 million in the fourth quarter, bringing the full year to $365 million towards the higher end of our guidance range, which is about 2% growth over the prior year as lower adjusted EBITDA and higher onetime costs were more than offset by lower working capital, capital spending, interest and taxes. We used the free cash flow we generated to buy back $225 million worth of stock, and we called $100 million of the bonds that were due later this year and then called the remaining $100 million in January of 2026. This balanced deployment of capital allowed us to maintain net leverage at approximately 4 turns while retiring $56 million or 7% of our outstanding shares. Please turn with me now to Page 21 for a look at our full year financial guidance ranges for this year. Beginning at the top of the page, we anticipate the acceleration of our organic annual contract value last year will continue in 2026, resulting in growth of between 2% and 3%, representing continued steady progress and an increase of about 0.75 percentage point at the midpoint of the range. We expect recurring organic growth of about 1.5% at the midpoint of our range, which is an improvement of nearly 1 percentage point over last year. Due entirely to the wind down of the businesses we are disposing, we expect revenue to decline by almost $100 million at the midpoint of the range to $2.36 billion and that our organic recurring revenue mix, which excludes the impact of the disposals, will improve to between 88% and 90%. Moving down the page, we expect adjusted EBITDA will grow modestly despite the lower revenue, increasing our profit margin to nearly 43% at the midpoint of the range. We anticipate diluted adjusted EPS will grow about 9% at the midpoint of the range to $0.75, largely due to the share repurchases we completed last year. Finally, free cash flow is expected to grow by about 10% to $400 million at the midpoint of the range. Please turn with me now to Page 22 for more details on the full year top and bottom line changes we are expecting compared to last year. We expect adjusted EBITDA margin will expand by about 200 basis points at the midpoint of the ranges, driven by a return to organic growth, continued aggressive cost management and completing the strategic disposals. We anticipate organic growth of about 1%, led by subscription revenue growth from continued ACV acceleration. We have plans in place to achieve cost efficiencies to fully offset inflation, resulting in a full flow-through of the approximately $25 million of revenue growth to profit. This will account for about 1/3 of the profit margin expansion. The strategic disposals are expected to lower revenue this year by approximately $130 million, and we are reducing operating expenses by more than $100 million, which yields a profit impact of about $25 million, delivering the remaining 2/3 of the profit margin expansion. As Matti highlighted, we are pursuing the sale of our LS&H segment. However, our financial guidance for this year assumes we will own this business for the entire year. And if agreement is reached, a revision to our guidance for this potential divestiture may come later in the year. We continue to anticipate a modest foreign exchange translation benefit to the top and bottom lines of $10 million and $5 million, respectively, as the U.S. dollar is expected to remain slightly weaker against other foreign currencies compared to last year. Please turn with me now to Page 23 to step through a high-level overview of the expected seasonality of our revenues and profits this year. Broadly speaking, we expect to make continued progress as we move through the year. However, it's worth highlighting some timing differences that will affect our trajectory. First, in our annual contract value, we often see timing differences with renewals in the first quarter. And as a result, we anticipate a slight sequential pullback in Q1, but steady acceleration through the balance of the year. Second, last year, we saw mid-single-digit organic growth in our reoccurring revenues in Q1 due largely to patent renewal accelerations in the U.S. that will not recur this year and will unwind in the first half. The combination of these two factors should result in recurring organic revenue growth that is essentially flat in Q1 and will result in a profit margin that's similar to Q1 of last year with the margin expansion occurring in the balance of the year. Finally, it's worth noting that our transactional books revenue will cease this summer, resulting in a sequential step down from the first to second half. But as I noted on the prior page, this disposal will expand our profit margin. Please turn with me now to Page 24 to step through our expected path to delivering approximately $400 million of free cash flow this year. At the midpoint of our range, we expect free cash flow will grow about $35 million or 10% over last year. Onetime costs are expected to abate primarily on lower restructuring costs. As noted a couple of pages ago, our guidance does not contemplate the sale of our LS&H segment. If we reach an agreement, this is an area we would update later this year. We expect cash interest to improve by about $20 million over the prior year as a result of the debt we prepaid last year and last month, additional debt we plan to prepay this year and some savings associated with the projected forward base rate curve. Cash taxes are expected to be $5 million to $10 million higher than last year due largely to new corporate tax in Jersey. We anticipate the change in working capital this year will be a use of approximately $20 million compared to last year's source of just over $10 million, primarily due to incentive compensation payments early this year. We're also expecting a $10 million benefit associated with lower impaired contractual costs. And while we remain committed to investing in product innovation, the strategic disposals and cost efficiencies will improve capital spending by another $15 million following last year's savings of more than $25 million. From a capital allocation perspective, we plan to lean more towards deleveraging this year and started last month by retiring the final $100 million of bonds that were due later this year. In closing on Page 25, I want to draw attention to the consistent free cash flow we have generated over the past 4 years. Last year's free cash flow of $365 million resulted in a 4-year cumulative average growth rate of 6% with expected accelerated growth this year of 10%. At the current stock price, our stock is yielding a free cash flow return of 30%. Over the past 4 years, we generated a combined $1.9 billion of free cash flow and asset sale proceeds, which we used to repay $1.2 billion of debt, lowering our net leverage by more than a turn and to repurchase about $700 million of stock, lowering our share count by 13%. And we expect to generate another $400 million this year and may generate proceeds from the potential sale of our LS&H business to further strengthen our balance sheet. We continue to believe executing the value creation plan will lead to healthy, sustainable organic revenue growth, further accelerating our free cash flow growth in the coming years, delivering meaningful value for shareholders moving forward. I want to thank everyone for listening in this morning. I'll now turn the call back over to the operator to take your questions. Operator: [Operator Instructions] Your first question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: I was hoping you could talk about your monetization model for your subscriptions and for the new AI products. I think historically, some of your subscriptions at least were based on seat licenses and which products were being used by clients as well. So is that still the model that is underlying the subscriptions? Or have you been changing that? And I guess, approximately what percentage of revenue is based on seat licenses? Matti Shem Tov: So, thank you, Toni. This is Matti. We continue to use AI to our advantage with protecting and growing the base of our subscription revenue. We have an upsell opportunities, upselling some of the AI innovation for existing products. And then we are constantly introducing new products. We are totally new revenues. In terms of the business model, we have quite a number of different products with different pricing models. We have rationalized some of our business model. For example, Web of Science, we have actually streamlined to be more and more subscription-based product as opposed to onetime. I'm not sure we can share the numbers. Maybe Jonathan can add to this in terms of the breakdown? Jonathan Collins: Yes. Thanks, Toni. More broadly, for example, within the A&G segment, as Matti highlighted, the pricing of the subscriptions is based on the size of the institution, so not necessarily the exact amount of students or researchers, but the size of the institution certainly affects that model. As we think about the adoption of AI, we believe that as we bring those features and capabilities into the products, whether it's the researcher assistants, the workflow agents or access to our content via the broader AI ecosystem, there's an opportunity to continue to harden the renewal rates, demonstrate more value and drive better pricing and offer new AI-type solutions such as the researcher intelligence that we just featured in that market. In our corporate markets and in the law firm markets, it's similar based on the size of the company and based on the size of the law firm is effectively how the pricing grid works for the subscription products. We expect that to continue based on the size of the institution will be broadly how we price the subscription products. Matti Shem Tov: But just for clarity, there are some products that are also based on the combination of the size of institution and also the actual FTE that actually -- the actual end user are actually using it just for clarity and full transparency here. I don't see this as a major concern at this point of time. I know where the question is coming from. We don't see this concern. We have quite a good -- if we look at our renewal rates, going up, usage is going up. If you look at -- maybe you can talk about -- slightly about where we are in -- do you want to talk about Q1? Jonathan Collins: Yes, we continue to -- early in Q1, we continue to see progress across our key metrics. And when we're out with our Q1 results in just a couple of months, we think we'll continue to demonstrate that we're on the right path. We continue to move in the right direction, and that's the best demonstration of the value we think we can capture the technology shift. Operator: Your next question comes from Scott Wurtzel with Wolfe Research. Scott Wurtzel: Just wondering if you can explain or give a little bit more detail on the 97% of revenue coming from proprietary data and specifically on how the tech-enabled and workflows kind of fits into that would be great. Matti Shem Tov: Basically, these are two questions. There is the AI question and there is the workflow question, which is kind of different for us. Just to remind ourselves, 97% of our business derived from proprietary data, about 60% is information services. We do have a component of about 20%, which come from enterprise software. I can address both of them. So let's talk about -- start with information services. Our data is originated in three sources: public, license and some which are exclusively and internally generated. The value we deliver is regardless of the source of the data. Almost entirely, the value lies with our creation enhancement, harmonizing and embedding the data with the right algorithm in the workflow ecosystem of the end customers. I want to give just two examples, some life example we will make it a bit clearer. Let's take, for an example, Web of Science in Academia & Government. The created harmonized data is then embedded directly into research and valuation, funding allocation, publishing decision and national science policy workflow. Transparency and auditability are very, very essential. This is why Web of Science underpins decisions such as where researchers publish, how government allocate funding and how universities assess performance. General purpose AI tool, which lacks the provenance of government and governance cannot substitute this high-stake workflow. Let me give you another example. When pharmaceutical companies use general purpose LLM to ask about drug safety profile, it returns publicly available information that is useful, but incomplete and potentially outdated. When the customers use Clarivate's Cortellis platform, they access 3 million safety and toxicity alerts that have been expertly created linked across Cortellis data sets and continuously updated by our in-house scientists. This is not just better data. It is a different category of intelligence that directly impact billion-dollar decision in the drug and medical device development. At the high level, it's positioned us very, very well, 97%, and this is why we are continuing to see an improvement in our renewal rate of 93%. I can also go and talk about the workflow element of the business. It's 20% of our business. Just remind ourselves, the IPMS business, the IP business is driven also by strong recurring and growing IPMS software business. Within IP, we have also a major component of software within A&G and the Alma product, the Polaris product. And I can speak here from a vast experience. I've been in the enterprise software space for almost 30 years. We hear out the issue of like AI sweating us by commoditizing the coding. But I do believe that we are in the best position here. It's not for AI to develop code. I understand. We actually use it ourselves, accelerating our development process. But we have some inherent competitive advantage as an enterprise software vendor, including the commercial channels that we have developed and supported over years. The switching and implementation dynamics, the workflow integration. And I think the most important one is security and governance. That is why we believe the 93% of our business is proprietary, and we will continue to demonstrate this in quarters to come. Thank you for the question. Operator: Your next question is from George Tong with Goldman Sachs. Keen Fai Tong: What were the key considerations that led you to initiate a sale process for your Life Sciences & Healthcare business? Why did you deem LS&H as nonstrategic and A&G and IP as... Matti Shem Tov: So first, as we -- as I mentioned when I joined the company, I think the first earnings call was late 2024, our ultimate goal is to create shareholder value. We have initiated the value creation plan with four pillars. The fourth pillar was the strategic alternative one. We -- I think we've demonstrated the success of the value creation plan. We've gone from 80% recurring to 88% execution of the sales execution. We see a tremendous momentum on the AI innovation. We do believe there is also shareholder value to -- shareholder value that we can create through the strategic alternative side. We've run a process. We looked at our different alternatives, and we have concluded that Life Science segment is the one that we will -- that's the one that we have the opportunity to increase to sell, and then we will increase our focus and operational execution across A&G and IP segment to further strengthen our balance sheet. It makes sense for us to keep IP and A&G together because we benefit tremendously from the shared content assets, technology platform, commercial channel scales and strengthen our innovation. If any time in the future, we feel better off separating them, we will definitely keep you informed. Operator: Your next question is from Manav Patnaik with Barclays. Manav Patnaik: I just want to follow up on that last comment, Matti, in terms of the -- I guess, the strategic synergies between IP and Academia & Government, I guess, could you just elaborate on what you said towards the end there? Like how do those two segments potentially work with each other? Matti Shem Tov: I think it makes sense to keep IP and A&G together because we benefit from shared content. We are some -- there is some content flowing between the two different segments. We're using technology platform. We see -- I mentioned already on the call that IPMS is software. Alma is software. We do have agentic capabilities that we are currently building in Alma. We're definitely going to take advantage of the advanced stage on the expertise around Alma and Polaris, and we are working together. We have a new -- I mentioned we have a new head of -- as new CTO and a new Head of Software in IPMS. So first a collaboration between the software expertise that lies within A&G and the IPMS software arm of IP, which running behind the scenes is a major, major part of the business. So far, we haven't seen much of a collaboration between the two, definitely an opportunity. There are commercial channels. We have some customers that buy both from IP and -- buy from both IP and from Academia. In last year, we've seen some major universities tech transfer accounts. I can't mention the names, but we're actually taking over the annuity business. So we expanded the market and sold the annuity service to some of the top universities in the U.S.A. definitely innovation. We see the academic AI capabilities of A&G definitely going to help accelerate AI innovation even further. There are some common projects that we run on cost cut out that is in a collaboration with the three segments going through some further opportunities. So there's a lot of opportunities. And at the same time, we can run the companies as we can run the three segments independently. We are currently and we will continue to take the benefits of being together but we will maintain the strategic flexibility to operate separately in the future just to create more value for shareholders. Operator: Your next question is from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Can you talk a little bit about the IP segment and what it will take to really return that business from -- to organic revenue growth from the declines? And what's going on behind the scenes that's going to make that happen? And what's a realistic time frame for investors to expect that to happen? That's probably the biggest value driver from an operational standpoint for your company. Matti Shem Tov: Yes. So let me start and then Jonathan can join later. So first of all, let's just remind ourselves, we are the biggest player in IP. We have the greatest assets. We have -- we are in a unique position, and I mentioned this on the call, we have the largest annuity book. We have IPMS technology behind the scene, and we keep winning new more and more IPMS customer. We have the patent search and we have the trademark services. Yes, there are some -- in the recent years, we've noticed some weaknesses. I think we are -- but we are coming from this from a position -- from a very strong position. It's almost $800 million business. We have vast majority -- we have an amazing customer base, and we have some tremendous assets I think with Maroun joining with the new CTO, the new Head of Software, we're just going to need -- we need to be much more focused on innovation, execution, subscription, reoccurring. And I have -- very confident. I believe we can turn this company, this IP segment around. And we're starting to see the initiation of this turnaround. We've grown in 2025, 200 basis points year-over-year improvement in the annuity books. We've done different surveys about the annuity book, the worldwide annuity book, the overall pattern is growing. We will take -- we'll definitely take our share back. And we have outlook of IP is increasingly positive. The fundamentals are there. The team is very aligned. And I think I'm very optimistic about this IP turnaround. It will take time. It's not going to be done overnight. Anything, Jonathan? Jonathan Collins: Yes Shlomo, two things I'd emphasize that Matti touched on. The first is the commercialization and adoption of new product innovation is definitely going to be a driver for the intelligence offerings within IP. So we launched the new Derwent Patent search last year, went live early in the market. Derwent Patent monitor came to market using agentic AI capabilities to look for potential infringements and help companies in the process of protecting their IP. So the adoption of those tools and driving growth in the patent intelligence. We're really excited. Matti touched on it earlier in the script about the new RiskMark product on the trademark side, which leverages AI capabilities and native AI development to help companies protect their brands and their trademarks as well, too. So certainly, product innovation is a big piece, as he said. And I think the second piece is the continued market recovery. So as Matti touched on, this is a business -- the annuity business that 2024 declined by a few percent. It returned to about flat last year. And the leading indicators there, as we've said before, are growth in the overall patent in force around the world. And we've seen a couple of years in a row where that has returned to a more healthy growth level. There's usually a 2- to 3-year lag on that before it really starts to affect the annuity business, but we feel good about the market recovery in global IP. And we touched on last year that the AI boom, we think, is also going to continue to drive more new patent filings around the globe and be a healthy wind in our sales for that business. So it's definitely a combination of the things that we control and the market recovery. Operator: Your next question comes from Ashish Sabadra with RBC. Ashish Sabadra: Solid free cash flow generation in the quarter and the guidance also reflects on robust free cash flow generation. My question was more focused on capital allocation priorities. You talked about leaning more towards deleveraging, but at the same time, talked about stock trading at 30% free cash flow. So I just wanted to better understand the rationale for deleveraging over buyback this year. And just if you could provide us incremental color on when is the debt due? My understanding is it's not due till 2028. So any color on those capital allocation priorities? Jonathan Collins: You got it, Ashish. This is Jonathan. Yes, I'll just touch on that second point. You're right. We have a patient capital structure. We don't have any maturities for the next couple of years. But our current judgment is that just based on the overall market environment, we will best serve all of our investors by focusing on deleveraging this year. So we noted in the materials that we've done a balance over the course of the last 4 years. Most of it's been deleveraging, but we've also lowered the share count in the business by 13%. And we do think that the stock is yielding a very attractive free cash flow return. But on balance, we think leaning more towards repaying debt over the next 2026 time frame makes the most sense. So we'll continue to look at conditions in the market, but our judgment right now is leaning towards deleveraging is the best way to create value. Operator: Your final question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I just wanted to ask about price realization. Can you speak a little bit to the composition of both ACV and recurring revenue growth in '25? How much of that came from price and what your expectation is in terms of price realization going forward? Jonathan Collins: Yes. Thank you for the question, Andrew. It's Jonathan. Just a couple of points here. The headline is our price realization has been pretty consistent over the last couple of years. Where we are seeing improvements in our ACV and in our recurring organic growth is really from volume. So we're seeing improvements in our renewal rate. We're seeing acceleration of new subscription sales. That's what's driving the improvement there. We continue to see opportunities to monetize investments that we make into the product through the price increases, but we do expect that it's that volume component of our subscription and reoccurring organic growth that's really going to help us to continue to accelerate through this year, monetizing the investments that we've made into the products with fewer cancellations and downgrade, more new subscription sales, and we think that's really what's going to help propel us to an improved outcome in 2026. Operator: There are no further questions at this time. I'll now turn the call back over for closing remarks. Jonathan Collins: Yes. Thank you, everyone, for listening in this morning. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Iovance Biotherapeutics Fourth quarter and Full Year 2025 Financial Results and Corporate Updates Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sara Pellegrino, Senior Vice President, Investor Relations and Corporate Communications at Iovance. Sara Pellegrino: Thank you, operator. Good morning, and welcome to the Iovance webcast to discuss our fourth quarter and full year 2025 financial results, business achievements and corporate updates. This morning, we issued a press release that is available on our corporate website at iovance.com. This conference call will include forward-looking statements regarding Iovance's goals, business focus, business plans and transactions, revenue, commercial activities, clinical trials and results, regulatory approvals and interactions, plans and strategies, research and preclinical activities, potential future applications of our technology, manufacturing capabilities, regulatory feedback and guidance, payer interactions, licenses and collaboration cash position and expense guidance and future updates. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected during today's call. We undertake no obligation to publicly update any forward-looking statements. I will now turn the call over to Dr. Fred Vogt, Interim CEO and President of Iovance. Frederick Vogt: Thank you, Sara. In 2025, Iovance delivered substantial revenue growth, achieved groundbreaking data milestones and strengthened our financial performance. Our fourth quarter and full year 2025 results underscore our focus on value creation for patients and shareholders. We drove Amtagvi adoption while streamlining costs and optimizing operations. Our operational strength resulted in a robust 30% revenue growth, driven by Amtagvi and our best ever 50% margin from cost of sales in the fourth quarter. For the full year, total revenue of about $264 million was well within our annual guidance range. Our cash runway bolstered by our ongoing cost savings initiatives now extends into the third quarter of 2027. Following our exceptional performance in 2025, we are well positioned in 2026 to surge toward a highly profitable and broad business in solid tumor cancer immunotherapy. We plan to execute across 3 core pillars: First, continue accelerating our U.S. commercial launch of Amtagvi in advanced melanoma; second, harness the power of our TIL pipeline to expand into new indications and next-generation products; and third, hone our operational excellence as our foundation for success. First and foremost, we are gaining positive uptake commercially with a significant potential for Amtagvi and Proleukin to reach $1 billion plus U.S. sales at peak. After a considerable increase in fourth quarter demand for Amtagvi, enrollment volumes in 2026 are accelerating within our broad and continuous expanding network of both academic and community authorized treatment centers, or ATCs. These ATCs are further reinforced by excitement surrounding the real-world experience and benefits of early treatment with Amtagvi. On top of increasing demand, we are benefiting from operational improvements throughout the entire Amtagvi treatment journey, from patient identification through manufacturing to infusion. On the heels of positive momentum in the fourth quarter, we expect remarkable revenue growth in 2026, driven by Amtagvi. In the very near future, we will provide revenue guidance with our growth projections. Our second color is the massive expansion potential for our TIL platform to positively impact patients into new indications. We are harnessing the overlap and scalability of our TIL platform, manufacturing leadership and commercial capabilities across solid tumors. Our lead indication for lifileucel is in previously treated nonsquamous non-small cell lung cancer. This blockbuster U.S. market is about 7x larger than our PQS sales opportunity in advanced melanoma. In our registrational patient population, lifileucel has demonstrated best-in-class clinical response rates and durability. This morning, we announced the FDA has granted fast-track designation that validates our clinical trial data and reaffirms the substantial unmet medical need for lifileucel in this indication. We are rapidly advancing towards a supplemental biologics license application with a potential accelerated approval and launch in the second half of 2027. This morning, I am also excited to introduce entirely new indications for lifileucel announced in a press release alongside positive early data. In previously treated patients with two aggressive difficult-to-treat advanced soft tissue sarcomas, lifileucel demonstrated an unprecedented 50% confirmed response rate. As Brian will highlight, lifileucel may offer the first durable immunotherapy option in this treatment setting. Current outcomes with standard of care are abysmal, with response rates below 5% and short median overall survival of only 9 to 10 months. Together, these sarcomas impact more than 8,000 patients in the U.S. and Europe annually, significantly increasing our market opportunity for lifileucel in the U.S. and beyond. We are working expeditiously to initiate and complete a single-arm registrational trial to launch in the sarcomas. Our robust pipeline is the backbone of immuno-oncology and multiple cell tumors today and in the future as we build upon our established global leadership and define next-generation approaches for TIL cell therapy. Our two clinical-stage genetically engineered TIL therapies have the potential to transform the treatment paradigm across a vast number of solid tumor cancers, where patients have few options. Our next-generation IL-2 product may facilitate more accessible TIL therapies, and we expect to provide many more updates on our pipeline in 2026. Finally, our third pillar is operational excellence as we increase revenue, optimize costs and drive efficiencies toward profitability. In the fourth quarter, we reported our best ever gross margin as Corleen will discuss. Additionally, our ongoing execution, discipline and focus on financial excellence will improve current and future gross margin and further extend our cash runway. Within our operational excellence pillar, as Igor will highlight, manufacturing success has improved across the board. By optimizing our processes, we have infused more patients while reducing dropouts to be more efficient ahead of future launches. Importantly, we own and control all manufacturing for Amtagvi within our U.S.-based Iovance Cell-Therapy Center, or ICTC, as well as critical components of our supply chain. We have never been in a stronger position to execute while scaling to new heights. In 2026, we are laser-focused on maximizing shareholder value, ending dilution and supercharging future profitability. I'll now turn the call over to Corleen Roche, our Chief Financial Officer, who will provide further updates on our fourth quarter and full year financials. Corleen Roche: Thanks, Fred, and good morning, everyone. Iovance finished 2025 with positive momentum as we reported approximately 30% revenue growth with 50% margin from cost of sales in the fourth quarter. Fourth quarter product revenue of $87 million demonstrated meaningful growth of approximately 30% from the prior quarter driven by Amtagvi. In our first full year of launch, total product revenue of $264 million increased by 61% over the prior year, driven by Amtagvi revenue growth of 112% year-over-year. That was well within our annual guidance range. We drove this impressive revenue growth in 2025 through ongoing market penetration and earlier treatment with Amtagvi for more patients and an expanding number of treatment centers. The impact of gross to net adjustments remains minimal at less than 2% overall in 2025. Fourth quarter gross margin from cost of sales increased to 50% from 43% in the third quarter. This margin improvement resulted from ongoing operational optimization and disciplined use of capital. The full internalization of manufacturing operations at ICTC also provides uninterrupted supply with agility for further efficiency. Today, we are capable of scale and expansion into new indications globally to bolster revenue without the need for significant capital expenses. Turning to our balance sheet. Our cash position was approximately $303 million at year-end, driven by our commitment to commercial and clinical execution, operational efficiency and financial discipline. We successfully extended our cash position to fund operations into the third quarter of 2027. In closing, our 2025 financial results reflect our commitment to flawless execution and commercial utilization, improved margin and extended cash runway that supports our path to profitability. I will now turn the call to Dan Kirby, our Chief Commercial Officer, to provide additional context. Daniel Kirby: Thank you, Corleen. Over the course of 2025, we made tremendous progress in 3 key areas towards our ultimate goal to establish Amtagvi as the preferred treatment option for all-eligible patients, who deserve a onetime cell therapy with curative intent. First, our ATC network is continuously expanding. In the fourth quarter, new community centers as well as high-volume academic centers contributed to our highest ever quarterly demand for Amtagvi, which drove our Q4 revenue. Second, penetrating the community market will unlock Amtagvi's tremendous potential as we expedite higher quality referrals to ATCs and begin to treat patients in the community setting. Recently launched campaigns focused on health care professionals and patients are having a positive impact. The community market will expand further and accelerate growth as we build awareness and access. Our third key focus area is to drive treatment and increase penetration earlier when patients benefit most from Amtagvi. Real-world data resonating with medical oncologists has shown unprecedented efficacy with more than 1 in 2 patients responding in the second-line setting, and 1 in 3 patients in later lines of therapy. Initiatives within academic ATCs are also generating positive results from earlier tissue procurement and earlier treatment for specific patient types. For example, ATCs are offering Amtagvi treatment before health status declines in patients with a BRAF mutation, who have no current or pending options beyond targeted therapy. On the heels of our substantial fourth quarter performance, positive trends and an increasing demand have persisted into the first quarter and support our confidence in remarkable growth for 2026. Globally, Amtagvi has the potential to reach more than 30,000 patients annually with previously treated advanced melanoma. We have made significant strides towards expansion, including Amtagvi approval in Canada, pending approvals in the United Kingdom, Australia and Switzerland and additional progress towards resubmitting a marketing authorization application to European Medicines Agency this year. Beyond melanoma, we are preparing for commercial launch in previously treated nonsquamous non-small cell lung cancer, the most common form of lung cancer. This blockbuster opportunity is approximately 7x larger than our current melanoma opportunity, with 50,000 addressable patients for peak sales of $10 billion in the U.S. alone. Our entire Amtagvi ATC network of U.S. academic and community practices can leverage their existing TIL infrastructure for rapid adoption in non-small cell lung cancer upon approval as well as future pipeline indications, such as sarcomas. After recently celebrating my 1-year anniversary at Iovance, I am proud of our accomplishments and inspired by our science and the patient stories that paint a bright future. I will now pass the call to Igor. Igor Bilinsky: Thank you, Dan. In the fourth quarter of 2025, we achieved both our largest manufacturing volume and highest commercial manufacturing success to date. Building upon this progress, all lifileucel manufacturing has transitioned to the ICTC, which is a significant milestone to optimize internal capacity utilization, improve operational excellence, reduce cost of sales and further improve gross margin. I'll also highlight that around year-end, we successfully completed routine annual maintenance at ICTC. During this time, we minimized the impact of manufacturing volume by leveraging our contract manufacturer and increasing internal capacity surrounding the maintenance window. Importantly, ICTC has transformed into a modular facility with capability to provide uninterrupted supply and fully support anticipated global demand today and scale up for the future even during future annual maintenance periods. I will now pass the call to Friedrich. Friedrich Graf Finckenstein: Thanks, Igor. Today, I'll focus on our 2 registrational programs. First, enrollment is accelerating across a broad and expanding global footprint on our Phase III TILVANCE-301 trial. We are investigating Amtagvi to support a potential U.S. full approval in the current labeled indication and accelerated and full approval in combination with pembrolizumab in frontline advanced melanoma. Shifting to our IOV-LUN-202 registrational trial, lifileucel has demonstrated a best-in-class clinical profile and recently received fast track designation from the USFDA. The objective response rate was 26%, disease control rate was 72% and median duration of response was not yet reached after more than 25 months of follow-up. We plan to present updated data at a medical meeting this year. Key opinion leaders are enthusiastic about these data, which resulted in a meaningful uptick in recent enrollment. We are excited to be on track to complete enrollment this year in support of a supplemental biologics license application. We are also pleased with the progress across the rest of our pipeline, which I am happy to discuss during the Q&A session. I now give the floor to Brian for the sarcoma update. Brian Gastman: Thank you, Friedrich. I am excited to share positive initial data from a pilot clinical trial in patients with previously treated advanced, undifferentiated pleomorphic sarcoma or dedifferentiated liposarcoma that have no approved immunotherapy options. Among 6 evaluable patients, the confirmed objective response rate was an unprecedented 50%. Responses were deep and improved over time, consistent with the durability for lifileucel in melanoma and non-small cell lung cancer. These high mortality, aggressive soft tissue sarcomas effect more than 3,000 patients in the United States and more than 5,000 in Europe, including more than 3,500 cases of advanced disease. These patients have poor prognosis and a very high unmet medical need. Grim outcomes with second-line standard of care include response rates below 5% and median overall survival of less than 1 year. In summary, these extraordinary results are what I hoped and believe I would see TIL therapy do in solid tumor cancers when I chose to leave academic medicine to join team Iovance. I'm heartened by this major opportunity for patients and the future of TIL therapy. We look forward to commencing and advancing a single-arm registrational trial as soon as possible. As part of this developmental program, we will also explore other subtypes of high-grade soft tissue sarcoma where patients have no approved effective therapies and urgently await better treatment options. I will now hand the call back to the operator to begin with the question-and-answer session. Operator: [Operator Instructions] Our first question comes from Andrew Tsai with Jefferies. Lin Tsai: Thanks for the update. Maybe for the TILVANCE update that you provided, it sounds like enrollment is picking up nicely. So is it possible that we could get first-line melanoma data with Amtagvi PD-1 combo data later this year? But regardless of timing, what kind of ORR and PFS do we want to see compared to PD-1 alone? Frederick Vogt: Maybe I can take the first part of that, Andrew, and then Friedrich can cover the rest of it. We do have an early interim read in this study, which is the benefit of some of the agreement we have with FDA on this, where we can read ORR as an interim partway through the study. It's in the near term that we'll be able to do that. We can't really commit to doing that in 2026 right now. It's such a large study, but we are very excited to be able to get that data read. And then, of course, if we read that data, it's a blinded study, we don't bind to do the analysis. And if we announce that, we're basically announcing that we're coming to a supplemental BLA at the same time. That's what we'll point out. Friedrich, do you want to talk about the ORR and PFS considerations on that trial, please? Sounds like Friedrich is muted. Friedrich Graf Finckenstein: I'm sorry about that. I needed to find my window here. Glad to do so. So I think the best idea around the benchmark for this is the pembrolizumab monotherapy data from the KEYNOTE-006 trial. Remember, the trial design of TILVANCE is a comparison of the combination of pembro plus TIL versus pembro monotherapy. The trial is designed with 2 dual primary endpoints with one of them being ORR and the other one being the PFS. So ORR giving us an opportunity for an early read. The benchmark in the KEYNOTE-006 trial for ORR was about in the mid-30s, probably the true real life ORR with the pembro monotherapy is probably more in the 30 and is slightly below percent range. Remember, we have very encouraging data on the efficacy of the combination from our COM-202 cohort IA, which showed response rates up into the 60% range. So that's what's giving us the confidence around a successful readout for the ORR endpoint. Operator: Our next question comes from Tyler Van Buren with TD Cowen. Tyler Van Buren: Can you please elaborate on the big quarter-over-quarter jump in Proleukin revenue and the anticipated split of Amtagvi to Proleukin revenue moving forward? And if the gross margin can continue to improve quarter-over-quarter despite Proleukin likely contributing to a smaller percentage of sales in subsequent quarters? Corleen Roche: Tyler, it's Corleen. First, you talked about Q4 split. We did have all 3 distributors ordering in Q4, and we also took [Technical Difficulty] so there's a little bit of buy in there, not crazy. We haven't guided, so I don't have a split for you going forward. What I can tell you on the margins is, yes, we expect further improvement. Daniel Kirby: And I'll just add on to that, Tyler. We did see all 3 wholesalers, as Corleen mentioned, order in Q4. We've already seen reordering happen in Q1. And moving forward, you should see again regular orders for Proleukin to go with Amtagvi sales. That's our major line of business there. Other two channels will come on this year as they did last year, but it mainly is driven by Amtagvi demand for Proleukin sales. Operator: Our next question comes from Yanan Zhu with Wells Fargo. Unknown Analyst: This is Kwan, on for Yanan. Can you share with us how the manufacturing success rate change over time? And what is the scrap cost for this quarter? Frederick Vogt: Can you clarify the last part of that question, what cost? Unknown Analyst: The scrap cost. Frederick Vogt: Scrap costs will be in our 10-K filing that will come out around 9:15. But it's consistent with prior quarters. Maybe I'll give some comments on manufacturing success, and Igor can jump in and help as well. I think we don't release actual percentages and stuff here. We don't think that's helpful to investors. It's improving. We're getting better at it. The margins reflect that. You can see the margins are growing. As Corleen mentioned, these margins are being driven, not just really being driven by Amtagvi performance. Proleukin there, it comes in and out. But we've had good margins for 2 quarters in a row now with Proleukin moving up and down. And we expect that to continue and manufacturing success is driving that improvement at the end of the day. Igor, do you want to make any comment specifically about what you said in the earlier part of the call. Igor Bilinsky: Yes, happy to. Thanks for the question, Yanan. So there are really two avenues for improving success rates. One is internal, where we continue implementing improvements in manufacturing and those are a lot that have been implemented and more are coming. And the other avenue is commercial and medical affairs teams working with ATCs and physicians to improve tumor procurement that also results in better product. So both of those have bear fruit so far, and we continue working on both fronts. Operator: Our next question comes from Salim Syed with Mizuho. Salim Syed: Maybe just one on guidance from us. So you didn't provide '26 guidance. Fred, you mentioned that you plan to provide it shortly. Just curious what was the logic not to provide it now? And when we do get it, can you just give us some context like, is it going to be total revenue product? Is it more like a mean or a conservative guidance? Just help us framework how we should be thinking about that? Frederick Vogt: Yes, right now, we're seeing remarkable growth in the Amtagvi business. We do need to be sure that our projections are well supported. So we're taking some time to do that. It's very early in the year right now, of course. But as I mentioned during the prepared remarks, we're going to be putting guidance out very, very soon. I think you'll see total product guidance. You'll see some guidance potentially on quarters. We'll have to see how our data is supported. One thing I do want to mention is when -- I know you asked about breaking out the products. For the full year of 2025, the revenue from Proleukin, the revenue from Amtagvi have now fallen right in the line with what we were saying a year ago. And that Proleukin generates about 17% of our revenue. If you recall, many, many calls we talked about the 16% number based on the ratio of the price. So we are seeing that long-term balance come into play. And as Dan mentioned, ordering patterns are stabilizing. And we expect normality on that through the year. So you may not see us particularly put a number on Proleukin for one quarter over another, but you can be confident in the long-term ratio of these things and use the numbers you have right now to help support that. Operator: Our next question comes from Reni Benjamin with Citizens. Reni Benjamin: Congrats on hitting the guidance. Maybe just a couple of questions. One, can you talk a little bit about the fourth quarter kind of acceleration? How much of that came from new community ATCs versus existing academic centers? And as we think about going into 2026, do we hope that the new community ATCs, that number will maybe double, does it triple? Can you give us a sense as to how this is going to grow potentially this year? And then I have a follow-up on the sarcoma data. Daniel Kirby: Reni, it's Dan. Thank you very much for the question. So for Q4, our base book of business is the academic ATCs, and we saw significant growth in that segment. We did see new community ATCs come on the line -- come online last year. They're coming online as well this year. We expect a learning curve as we saw with the initial academics coming online, so you'll see them slowly increase as the year goes forward. But for Q4, what we saw in the academic ATCs, which is carrying over to what we're seeing in Q1 is that there are certain patient types there that we're not making into Amtagvi treatment, that I mentioned during the script. We have earlier procurement strategies for patients such as BRAF mutated patients, which make up a significant number of those patients inside of the academic ATCs that we were not previously able to access, that our initiatives now are allowing us to access. So we expect growth to continue in the academic segment. And then the community ATCs are coming online now. They're having their process of testing a few patients out and we'll be ramping up as the year goes on. So we'll see more of them starting in the second quarter through the end of the year into '27. Right now, our base book of business is strong and growing with the academics. Reni Benjamin: Got it. And then just a follow-up regarding the sarcoma data. It's quite new and, as you mentioned, unprecedented. Can you -- it's in 6 evaluable patients, can you give us, a, sense as to when we might see the full data and at what medical conference? And then also, can you share with us maybe any details on the depth and durability of response, right, that you're seeing here for these patients? And I guess if you can just -- if I can squeeze one more in regarding the registrational study. How big do you think this study could be given this rare disease? Frederick Vogt: Reni, I'll take the first part of that, and then I'll ask Brian and Raj to answer the other part of it. We're excited to present this at a medical congress this year. We haven't identified that congress yet, but obviously, we really like the big ones, like ASCO and ESMO. We'll have to see how the timing goes, but the data is available right now. I do expect we'll be able to put together very quickly for a presentation. So stay tuned for that. It should be pretty exciting. Brian, do you want to take the second part? Brian Gastman: Yes. So in terms of depth and durability, I think it's important to note that, obviously, the trial has been running for years. Like all of our trials, our durability tends to be measured in a very long time frame. So I think it will be a while before we'll be able to tell you because of the power of having living therapy on board. In terms of though the depth, what's really exciting to see is these responses, similar to what we saw in lung and melanoma cancers, we can actually see them get stronger over time. Of course, sometimes it happens right away, but we've actually watched really excitingly, these scans get better and better and better. And so we still have patients that, if it was on a swimmers plot, we would see them swimming and on a spider plot, they'd still be dropping. And so we don't even know how good these patients will get. But I think for all of us, it was really remarkable when we saw how many responders we got and how they were deepening. So I think more to come there, but I think it gives us a lot of encouragement. Raj Puri: Marc will provide sample size for the... Marc Theoret: Yes. Thank you for the question. So based upon the prior approvals in various soft tissue sarcoma, subtypes recently by FDA, approval size for the various subtypes range between 30 patients and 60 patients, but predominantly in the 40-patient range. And based on the characteristics of this these 2 cell types that we are discussing today, we really expect very similar patient numbers for registration strategy. Operator: Our next question comes from Colleen Kusy with Baird. Nick Quartapella: This is Nick, on for Colleen. Just for a commentary on the recent enrollment trends for the non-small cell lung cancer study. And could you talk about just latest thoughts on path to full approval in non-small cell lung cancer? And then I have a follow-up question as well. Frederick Vogt: The fast track designation that we announced today, Nick, was obviously very helpful that provides us with a lot of benefits in working with FDA. As I mentioned in the prepared remarks today, we are planning on the same timing we mentioned before, with this potentially launching in 2027. This is pretty exciting to us. We're finishing the trial right now. And we're very confident that this product provides a great benefit for non-small-cell lung patients. Nick Quartapella: And then just a quick one on sarcoma. Just wondering if you're considering expanding into other subtypes of sarcoma outside of these initial two? Frederick Vogt: Yes. And we mentioned that in both the press release and in the prepared remarks, we are looking at additional subtypes. Maybe on one of the private calls, Brian can tell you more about it, but we are looking at additional -- besides UPS and DDLPS, there's a number of other sarcoma subtypes that are of interest and now we see strong activity for TIL in the space, and a lack of approved options, including approved checkpoint options for these patients, nor are there anybody interested apparently getting their checkpoints approved here or they lack the efficacy to do so? We're really going to look across the entire space and really try to tap into this area of unmet medical need. Operator: Our next question comes from David Dai with UBS. Xiaochuan Dai: Congrats on the progress. Just first on the Proleukin sales, we see a little uptick in the fourth quarter. I'm just curious how much is coming from restocking and how much is coming from real Amtagvi demand? And then moving forward with Proleukin, is it fair to assume that it will stabilize around that level with the majority of that contributing to real demand from Amtagvi demand? And then I have a follow-up question. Daniel Kirby: Sure, David. This is Dan. I'll take the question on Proleukin. We saw in Proleukin, as you recall, all throughout last year we had -- when first wholesaler came on in Q2, two were reordering in Q3, all three reordered in Q4. We started to see regular demand come in. We did do a price increase effective February 1. So there was a little bit of buy-in, but not much going into the end of the year with it. The primary driver for Proleukin in Q4 was Amtagvi demand. As we look at Q1, we already have the wholesalers reordering. Two have already placed orders. We're expecting the third to order soon. And then they will continue to move forward with Proleukin orders based on Amtagvi demand. That is our number one source of revenue. You are going to see this level out. And as we look at having Q1 price increases in the future, this will even out as you look at yearly forecast demand. Xiaochuan Dai: Got it. And then just a follow-up on Fred's earlier comment around Amtagvi being a $1 billion peak sales opportunity. Maybe just help us understand how you get there, especially, how should we think about contribution of melanoma and nonsquamous non-small cell lung cancer and also soft tissue sarcoma? Frederick Vogt: I think when I talk about that, David, I'm talking about continued growth in the Amtagvi melanoma in the U.S. franchise, and we're seeing that grow. So we're only in our first year launch here and we're at $264 million in revenue. And again, I know this is all this discussion about Proleukin versus Amtagvi, but Amtagvi is driving the whole thing. Yes, we do sell a small amount of Proleukin for other things, but the vast majority of these numbers are coming from Amtagvi. That's the point we're trying to make. We talk about $1 billion, we think that's the ultimate potential for this product in the U.S. and melanoma. On top of that, you've got non-small cell lung at 7x. On top of that, you've got sarcoma, on top of that you've frontline melanoma. So just bear that all in mind. Do you want to follow up, Dan? Daniel Kirby: Sure. So $1 billion in melanoma alone is completely achievable. If you look at where we are right now, we're a quarter away through that journey, and we are just loading up the community ATCs right now. If you look at cell therapy launches in the liquid tumor space, they did have the advantage of following an allo transplant treatment modality with hematology and oncology pathway. We're creating a pathway with the solid tumor medical oncologists. So we are standing that up now. And in the initial phase, we're doing over $0.25 billion with both products. And we see that escalating in the U.S. alone to over $1 billion. We talk about layering lung in, and I mentioned in the script, that is a $10 billion opportunity, a much larger market to go into. And sarcoma we do see as being equivalent to melanoma. So we do see tremendous potential to be well over $10 billion to $12 billion in the U.S. with Amtagvi. Operator: Our next question comes from Etzer Darout with Barclays. Etzer Darout: Just on gross margins. Wondered if you could comment at all on what may be the near-term impact on the ex U.S. commercial launches, Canada and others could have on gross margins, given the improvement that you've seen to date? Corleen Roche: Etzer, I think I just want to make sure I'm understanding. You're asking, what will be the ex U.S. launches, what impact will they have on margins? So all of our manufacturing operations today are in-house. So we're going to have economies of scale. I think that can only help margin, right, as we grow and add in additional volume from those launches. Daniel Kirby: I can add on to that, Corleen. As we look at it, manufacturing for ex U.S. launches will be out of our Philadelphia facility. So we do not plan on adding additional manufacturing facilities worldwide. We're already servicing those regions in our clinical trials, and we can service them commercially. So there no added expense there. Also, two, if you look at what's going on in the landscape, most favor nation, et cetera, we do not have an ex U.S. price negotiated yet. We're in the process of that as our approvals come. So we do not have a lower price outside the U.S. We are going to see how this situation evolves, but we are in a good position not to have that as we're going through our negotiations with the U.K., Canada, et cetera. Operator: And our final question comes from Asthika Goonewardene with Truist. Asthika Goonewardene: So when we start to think about your penetrating into the community in the U.S. and say you have ATCs there. Is there going to be a material difference in the timing it takes to get a community site up and running versus, let's say, what on average it takes you to get an academic center up and running, and how should we think about that? Is there a lot of diversity in the different community settings, maybe ones who already have some sort of a cell therapy program versus those who don't? And then I have two more follow-up questions. I'll ask one of them now. Can you comment on the Tandem data and the better ORR that was seen early this year when that was presented. Can you use this real-world data when your MSLs are talking to physicians? Daniel Kirby: Great questions. I'll start with the first one regarding the community uptake. One of the things that we do see with the community will be similar to what we saw in the academics and that is just the relationship with the surgeon, the medical oncologist and the cell therapy lab to get up and running for it. That should be a similar learning curve. We did have some academic sites in the clinical trial, so that was the initial wave with the Amtagvi launch. But we are seeing them come online. This is also balanced with the fact that they are closer to where these patients are being treated with frontline melanoma and subsequent therapies, so we can get them to treatment quicker. So the learning curve will go up. As you see with most ATCs, it is a financial reimbursement where they want to run 1 or 2 patients first, make sure the financial reimbursement is there with the payers. We have that established and tremendous coverage with Amtagvi and Proleukin throughout all the payers. So once they see the first two go through, they start to accelerate patients and treatment. So it should be similar to the academics when we look at getting them up and running. You can see the first couple are even on the website right now. In regard to the real-world evidence that was presented at the cell therapy meeting earlier this month, I will say that the MSLs already have that information reactively, and we are submitting that for publication as well to allow it to be more broadly distributed. I don't know if Brian has anything to add on to the real-world data. It is tremendous news about the earlier line treatments. Brian? Brian Gastman: Thank you, Dan. Well, first of all, we presented nationally or internationally at the Tandem meeting in Salt Lake City a couple of weeks ago. It got a lot of attention. I've heard personally people very excited but not just because the detail was out, but also it validated what many PIs, KOLs, physicians have been seeing in the clinic. And they need this data and actually help get their message out to their local physicians because the right time to treat the patient is as soon as possible. And you can see what happens, how great the responses are. They're better than we saw in our trial, they're the best in class, and this is the kind of results that we've been looking for. Asthika Goonewardene: And then lastly, just on the Proleukin reordering that happened in Q1. Just curious, you mentioned you had a February 1 price increase. Did any of the reordering happen after the February 1 price increase? Daniel Kirby: So they typically over before the price increase. Wholesalers operate on very low margins. So we did a 9% price increase on both products effective February 1 of this year. So they would do the buy-in for Proleukin in advance of that price increase. We did announce it to allow for payer case rates to adjust, which have happened because we're post price increase right now. So they were aware of the price increase pending and would buy accordingly. Operator: Thank you. This concludes the question-and-answer session. I would now like to turn it back to Fred Vogt for closing remarks. Frederick Vogt: Thank you again for joining the Iovance Biotherapeutics Fourth Quarter and Full Year 2025 Conference Call. We plan to provide more detail on the U.S. launch growth when we introduce our full year revenue guidance in the near future. Please stay tuned to updates to 2026 on our commercial launch and pipeline as well as our cost optimization initiatives to drive towards profitability. We are motivated by the frequent stories for more and more patients who are benefiting from our TIL cell therapies. As always, we're thankful to our patients, health care professionals and advocacy communities as well as our partners. I would also like to thank our exceptional Iovance team in addition to our dedicated shareholders and covering analyst for their commitment to the mission to remain the global leader in innovating, developing and delivering current and future generations of TIL cell therapies for patients with cancer. Thank you. Operator: This concludes today's conference call. 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Operator: Good morning, ladies and gentlemen, and welcome to Genworth Financial's Fourth Quarter 2025 Earnings Conference Call. My name is Lisa, and I'll be your coordinator today. [Operator Instructions]. As a reminder, the conference is being recorded for replay purposes. [Operator Instructions]. I would now like to turn the call over to Christine Jewell, Head of Investor Relations. Please go ahead. Christine Jewell: Thank you, and good morning. Welcome to Genworth's Fourth Quarter 2025 Earnings Call. The slide presentation that accompanies this call is available on the Investor Relations section of the Genworth's website investor.genworth.com. Our earnings release and financial supplement can also be found there, and we encourage you to review these materials. Speaking today will be Thomas McInerney, President and Chief Executive Officer; and Jerome Upton, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. In addition to our speakers, Jamala Arland, President and CEO of our Closed Block Insurance business; Gregory Karawan, General Counsel; Kelly Saltzgaber, Chief Investment Officer; and Samir Shah, CEO of CareScout Services, will also be available to take your questions. During this morning's call, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward-looking statements in our earnings release and related presentation as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. Today's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our investor materials, non-GAAP measures have been reconciled to GAAP where required in accordance with SEC rules. Additionally, references to statutory results are estimates due to the timing of the statutory filings. And now I'll turn the call over to our President and CEO, Tom McInerney. Thomas McInerney: Thank you, Christine. And thank you for taking the time to join our fourth quarter earnings call this morning. Genworth reported net income of $2 million with adjusted operating income of $8 million. This quarter's results were driven primarily by strong performance from Enact, which contributed $146 million to Genworth's adjusted operating income, partially offset by a loss of $114 million in our Closed Block, primarily from LTC. Our estimated pretax statutory income for our U.S. life insurance companies was approximately $71 million for the full year, including the net favorable impacts to annuities from equity market and interest rate movements. We will provide full statutory results in our annual filings later this month. Genworth ended the quarter with a healthy liquidity position, holding $234 million of cash and liquid assets. We also continue to advance our strategic priorities in 2025. First, we continue to create shareholder value through Enact's growing market value and capital returns. Our approximately 81% ownership stake in Enact remains a key source of cash to Genworth with $407 million received in 2025, fueling our share repurchases and investments in CareScout. Supported by these strong cash flows, we continue to execute our share repurchase strategy throughout the fourth quarter, making progress on our $350 million authorization announced in September. In 2025, we repurchased $245 million of shares. Since May 2022, we have repurchased approximately $828 million of stock as of February 20, reducing shares outstanding by about 24% from 511 million to 388 million. These share repurchases create meaningful long-term value for shareholders by deploying capital at prices we believe represent a discount to Genworth's intrinsic value. Turning to our second strategic priority. CareScout represents our long-term growth strategy and our vision for how aging care should work in the future. We are building an innovative consumer-focused platform that helps people understand, find and fund the quality long-term care they need while creating a capital-light, scalable, data-driven business for the future. CareScout is designed to engage families across the aging journey from navigating care decisions today to preparing for future needs. Our services business often begins with adult children helping their parents find care, many of whom will become the next generation of long-term care insurance customers. Our insurance products are being built with that in mind, combining financial protection with access to personalized services when customers and their family members need them the most. This integrated approach allows us to support families in moments of urgency while building long-term relationships and recurring revenue streams. Underpinning it all is continued investment in technology and AI. We are leveraging and plan to continue exploring additional capabilities for AI-enabled tools and automation to improve human-centered customer service at scale in order to strengthen underwriting risk management and enable more efficient capital deployment and product development and marketing. Together, these and other capabilities will position CareScout to lead in a large and growing addressable market and to redefine how long-term care is delivered over time. Let's begin with a closer look at CareScout services, where we made significant progress in 2025, maintaining a rapid pace of network expansion. The CareScout Quality Network now includes roughly 790 home care providers with more than 1,000 locations nationwide, covering 97% of the U.S. population aged 65 and older. Each provider in the network must meet CareScout's rigorous credentialing standards, ensuring quality and consistency for people who rely on our services. The team executed well in the fourth quarter, facilitating 925 matches between LTC policyholders and home care providers in our network. We ended the year with 3,255 matches nationwide, well above our original target of 2,500 and our updated estimate of 3,000 and representing a 3x increase versus 2024. In the fourth quarter, we closed the acquisition of Seniorly, a leading platform with a large network of senior living communities that helps families with care planning and placement. Integration is progressing well and is expanding our reach into the direct-to-consumer market. Seniorly's team has brought deep industry and consumer experience, accelerating our efforts to scale beyond Genworth's preexisting policyholder base and add senior living options to our network. Credentialing of major national senior living providers is underway and is expected to be complete by the end of 2026. In Care Plans, our fee-for-service offering that delivers personalized guidance, we continue to see momentum with consumers and B2B audiences. Notably, we now have the ability to deliver care plans both in person and virtually on a nationwide basis. Care plans are built on a proven and growing assessment capability, enabling faster and more consistent care recommendations at scale. We continue to expand partnerships with employee assistance programs and carriers with referral volumes exceeding our expectations in 2025. Assessment volumes continue to grow and are expected to scale over time, supported by strong operational execution and cost discipline. Care Plans and Assessments enable recurring fee-for-service revenue opportunities supported by increased capabilities due to expanded distribution across carrier, employer and EAP partnerships. In 2026, we will continue to expand the range of services CareScout offers and the number of customers we serve. As the CareScout Quality Network continues to expand and brand awareness grows, we will drive increased traction with consumers. We also expect more of Genworth's long-term care claimants to choose CQM providers, stretching policyholders' dollars further while generating claim savings for Genworth over time. Turning to the Insurance business. We successfully launched Care Assurance, CareScout's inaugural stand-alone LTC insurance product in the fourth quarter. Care Assurance is now live in 40 states with 4 more pending approval. The launch of Care Assurance reestablishes our presence in the long-term care insurance market and lays the foundation for disciplined, scalable growth. We are actively engaging with partners to broaden our distribution channels and plan to launch worksite and association group offerings later this year. Importantly, Care Assurance has been designed and priced for the long term, reflecting the evolution of the market and a more conservative and durable product structure aligned with today's LTC environment. Care Assurance will be differentiated through a variety of additional services, which create a holistic care experience for our customers and their families, such as access to the CQN, wellness support tools and care planning services. This is a unique offering in today's market, blending coverage and services in a way others don't. To support sales, we're actively educating and equipping distributors to position Care Assurance effectively with our clients. While we expect adoption to build gradually, we are confident this product will create significant value for consumers and distribution partners alike. From services to insurance, CareScout is building a human-centered tech-enabled platform to simplify and dignify the aging journey. Our approach combines AI and digital technology with a human touch and reflects our deep expertise in delivering high-quality, personalized support for long-term care decisions. As we expand into new care settings, products and customer segments, we'll continue to grow organically while evaluating select inorganic add-on opportunities like Seniorly. Turning to our third strategic priority. We continue to actively manage our self-sustaining customer-centric LTC, Life and Annuity legacy business. Notably, this business is now focused exclusively on serving existing policyholders with no new sales and is being managed as a closed block. Our priorities here are clear. We aim to deliver a high-quality policyholder experience, maintain capital discipline and ensure long-term sustainable risk management. We are also leveraging AI and digital technology to drive more efficient and lower cost processes around customer service and operating performance. Jerome will provide additional detail on the resegmentation of our Closed Block later in the call. Genworth secured $100 million of gross incremental LTC premium approvals in the fourth quarter and $209 million for the full year in 2025, with average premium increases of 35.6% and 38%, respectively. We are in the 13th year of our multiyear rate action plan, which has achieved $34.5 billion in net present value since 2012, driven primarily by benefit reductions and premium increases. The MYRAP continues to be our most effective lever for stabilizing our Closed Block business. Next, I'll provide a brief update on the AXA litigation. As shared on our second quarter earnings call, the U.K. High Court issued a favorable judgment in July. Santander was granted permission in October to appeal the claim on which AXA prevailed and AXA was recently granted permission to cross appeal with respect to one of the claims, which was denied. The hearing on the appeal has now been set for July 21 through 23 of this year, and we expect the Court of Appeal to reach a decision within approximately 3 to 6 months of the hearing. If the ruling is upheld, we expect our total recoveries to be approximately $750 million, subject to exchange rates at the time. We do not expect to pay taxes on this recovery and recoveries are not factored into our capital allocation plans, but if and when received, would be deployed in line with our priorities, investing in CareScout, returning capital to shareholders and reducing debt. Before I turn it over to Jerome, I'd like to briefly reflect on the broader LTC environment. Recent federal budget debates have underscored a growing bipartisan focus on health care affordability and the long-term sustainability of public programs like Medicaid, particularly as the U.S. population ages. The very high LTC-related costs continue to be a meaningful part of that conversation. As demand continues to rise much faster than available resources, families are being asked to navigate an increasingly complex care landscape for their loved ones. This dynamic reinforces our conviction that the future of LTC will require not only flexible insurance and financing options, but also greater transparency, coordination, accessibility and support services for policyholders and their families. We are designing CareScout to help aging Americans and their families understand, find and fund the long-term care they need. As the nearly 70 million baby boomers continue to age, CareScout will serve as a complete solution in a very fragmented market built for the realities of today and in the future. Now let me turn the call over to Jerome to walk you through our financials and business trends in more detail. Jerome Upton: Thank you, Tom, and good morning, everyone. I am pleased with our strong performance in 2025. We continue to advance our strategic priorities and further position the company for long-term success. Our disciplined capital allocation balanced returning capital to shareholders, reinvesting in opportunities that support long-term growth through CareScout and continuing to strengthen our financial flexibility. Enact delivered another quarter of strong performance, supported by a strong balance sheet and capital and liquidity positions with returns that enabled our own capital allocation priorities. At the same time, we continue to make meaningful progress advancing CareScout and enhance the self-sustainability of our Closed Block. I will begin this morning's discussion with our fourth quarter and full year financial results, followed by an update on our annual assumption reviews before covering our investment portfolio and an update on our holding company liquidity. Finally, I will share some guidance for 2026 before we open the call for Q&A. Before I cover the financial results in more detail, I would like to discuss the resegmentation we completed in the quarter to report our Long-Term Care, Life and Annuity businesses under a new Closed Block segment. With the launch of our new CareScout Care Assurance product, we formally ceased LTC sales in Genworth Life Insurance Company or GLIC. In recent years, there was very limited business being issued from GLIC. And now that new policies will be issued from CareScout, this new presentation better aligns with the way we run the business, including our continued commitment to manage these entities as a closed system. This is a presentation change only and does not change the economics of Long-Term Care, Life and Annuity products. We will continue to provide a breakdown of our results by product within the new Closed Block segment. Now turning to the financial results on Slide 9. Fourth quarter adjusted operating income was $8 million, driven by strong performance in Enact, offset by losses in our Closed Block and Corporate and Other. Enact delivered another strong performance in the quarter with adjusted operating income of $146 million to Genworth. The net reserve release of $60 million was higher than the prior quarter and prior year, reflecting continued strong cure performance. Our Closed Block reported an adjusted operating loss of $114 million. This was driven by LTC with an adjusted operating loss of $159 million as a result of a liability remeasurement loss related to the actual variances from expected experience or A/E as well as the net unfavorable impact of assumption updates. The unfavorable LTC A/E of $124 million pretax was driven primarily by higher claims and lower terminations in the capped cohorts. Life Insurance and Annuities reported adjusted operating income of $13 million and $32 million, respectively, both reflecting the favorable impacts of assumption updates. In Corporate and Other, we reported an adjusted operating loss of $24 million for the fourth quarter, reflecting continued investment in CareScout and ongoing holding company debt service, partially offset by favorable tax items. Turning to our full year results on Slide 10. Adjusted operating income for 2025 was $144 million, driven by Enact. 2025 was another year of strong execution and value creation at Enact with adjusted operating income to Genworth of $558 million. Genworth's share of Enact's book value, including AOCI, has increased to $4.4 billion at year-end 2025, up from $4.1 billion at year-end 2024. These results underscore Enact's continued contribution to Genworth's earnings and value. Our Closed Block segment reported an adjusted operating loss of $317 million in 2025. In LTC, the adjusted operating loss of $326 million was primarily driven by a remeasurement loss, including unfavorable A/E and cash flow assumption updates in the capped cohorts. In Life, the adjusted operating loss of $66 million for the year reflected continued block runoff, partially offset by a favorable impact from assumption updates. Annuities income of $75 million was driven by favorable assumption updates and spread income, though lower than the prior year as the block runs off. Since adopting LDTI, the Closed Block has experienced A/E losses driven by short-term experience relative to long-term assumptions. In 2025, these losses averaged $75 million per quarter, and we could continue to see losses at this level in 2026. However, results may vary with seasonal trends around the $75 million average as we typically experience net favorable impacts from higher mortality in the first quarter that trend worse through the remainder of the year. As a reminder, fluctuations in our U.S. GAAP financial results do not impact actual cash flows, long-term economics or the way we manage the Closed Block. Rounding out the full year performance, Corporate and Other reported a $97 million loss for the year, which was in line with the prior year, reflecting continued investments in CareScout and debt service expense, partially offset by favorable tax items in the current year. Now taking a closer look at Enact's performance underlying its strong financial results, beginning on Slide 11. New insurance written of $14 billion in the quarter increased versus the prior quarter and prior year. Primary insurance in-force grew slightly year-over-year to $273 billion, supported by both the growth in new insurance written and continued elevated persistency. Earned premiums in the quarter were $245 million, relatively flat to the prior quarter and prior year. As shown on Slide 12, Enact's net favorable $60 million pretax reserve release drove a loss ratio of 7%. Enact's estimated PMIERs sufficiency ratio remained strong at 162% or approximately $1.9 billion above requirements. While maintaining its strong balance sheet, Enact has continued to deliver significant capital returns to Genworth. We received $127 million from Enact in the fourth quarter. For the full year, Enact generated a total of $407 million in proceeds to Genworth, basically in line with our expectations for the year. Enact announced earlier this month that it received Board approval for a new share repurchase authorization of $500 million. Genworth will participate in the share repurchase program in order to maintain its overall ownership at approximately 81%. Enact ended the year with a strong balance sheet, well positioned for another successful year in 2026. Turning to a discussion of our Closed Block starting on Slide 13. We continue to proactively manage LTC risk and maintain and improve self-sustainability in the Closed Block through a comprehensive set of in-force management actions. Benefit reductions and premium rate increases continue to be our most effective tools for mitigating tail risk in LTC. As of the end of the fourth quarter, we have achieved approximately $34.5 billion of in-force rate actions on a net present value basis since 2012. This includes $1 billion related to rate increase approvals this year. These approvals were lower than in recent years, in line with our expectations following the large approvals we've secured previously. As part of this program, we offer a suite of options to help policyholders manage premium increases while maintaining meaningful coverage. These options enable us to reduce our exposure to certain higher cost features such as 5% compound benefit inflation options and large benefit pools. About 61% of our policyholders offered a benefit reduction have elected to take one, lowering our long-term risk. These initiatives have helped reduce our exposure to the riskiest LTC policy features. Notably, our exposure to the 5% compound benefit inflation option has decreased to less than 36%, down from 57% in 2014, and the percentage of our policies with lifetime benefits has decreased to 11%. Benefit reductions continue to provide risk resiliency beyond the point of election, helping to protect against potential assumption pressure in the future. The value recognized from benefit reductions already achieved increased by $2.3 billion in conjunction with our annual assumption updates this year and could continue to increase over time with any future changes to liability assumptions and as we approach peak claim years. Looking ahead, the remaining value we currently have left to achieve is approximately $5 billion. We will continue to work with state insurance regulators to maintain and strengthen our claims paying ability through premium rate increases while supporting customers with a wide range of benefit reduction options as demonstrated by our strong track record over the past 13 years. In addition to the rate increase program and other benefit reduction options, we're reducing risk in innovative ways through the CareScout Quality Network and our Live Well | Age Well intervention program. The CareScout Quality Network provides direct claim savings and mitigates inflation risk via provider discounts. We continue to expect to benefit from these savings of $1 billion to $1.5 billion on a net present value basis in our Closed Block. Our Live Well | Age Well program delivers value for policyholders while also driving claim savings over time by delaying the onset of a claim. We continue to see strong engagement from our policyholders participating in the program. Connecting with our policyholders on Live Well | Age Well is also an opportunity to refer them to the CareScout Quality Network, which can further reduce the risk in our closed LTC block. We remain confident in the value these initiatives are expected to deliver to our in-force management program over time, and we'll continue to monitor their progress as they mature before incorporating them into our assumptions. As we have said before, we are committed to managing GLIC and its subsidiaries as a closed system, leveraging their existing reserves and capital to cover future claims. We will not put capital into these companies. And given the long-tail nature of our LTC insurance policies with peak claim years still over a decade away, we also do not expect capital returns. Next, turning to Slide 14. We completed our annual assumption reviews for the Closed Block in the fourth quarter. We are pleased that assumptions held up in the aggregate, and we remain confident in our ability to manage these companies as a closed system. Overall, the updates resulted in a net unfavorable impact to the GAAP adjusted operating loss in the Closed Block segment of $6 million after tax. As part of this year's review, we updated the LTC healthy life and near-term cost of care inflation assumptions to better align with recent trends. These updates also recognized favorable claim termination experience and reflected continued favorable experience in the future rate increase and benefit reduction outlook. These changes resulted in a net unfavorable $47 million pretax impact to the adjusted operating loss. The favorable $15 million pretax impact to life insurance adjusted operating income was related to updates to reflect the recent interest rate environment. Annuity assumption changes resulted in a favorable $25 million pretax impact to adjusted operating income, primarily related to mortality. Impacts to statutory pretax income were primarily driven by favorable changes to the prescribed assumptions for certain universal life and term universal life products with secondary guarantees, including mortality improvement. This was partially offset by unfavorable impacts in LTC and annuities. Slide 15 shows the pretax statutory income for the U.S. life insurance companies of $3 million in the quarter, including the net favorable impact of assumption updates. On a full year basis, we had pretax income of $71 million, down from the prior year, where results included a $355 million benefit from LTC legal settlements, which were materially complete by the end of 2024. Though the total statutory earnings from in-force rate actions decreased as a result of the lower settlement benefits, we continue to see higher income from IFA premiums as we successfully execute and implement our rate increase program. GLIC's consolidated risk-based capital ratio was 300% at the end of 2025 with capital and surplus of $3.6 billion. This was down from 306% at the end of 2024, reflecting higher required capital as we continue to grow our limited partnership portfolio, partially offset by statutory earnings in the year. The cash flow testing margin in GLIC remain in the $0.5 billion to $1 billion range at the end of 2025. Our final statutory results will be available on our investor website with our annual filings at the end of this month. Turning to our investment results on Slide 16. Our portfolio continued to perform well in a dynamic market environment. We remain primarily allocated to investment-grade fixed maturities that support our long-duration liabilities. Reinvestment activity continued to benefit the portfolio with new money yields again exceeding those on sales and maturities. New investments made within our life insurance companies, including alternatives, achieved yields of approximately 6.5% for the quarter. Net investment income benefited from solid base portfolio performance, along with steady contributions from our alternative asset program. Primarily comprised of diversified private equity, our alternative assets generated approximately 9% returns for the year. We continue to monitor our commercial real estate exposure. The portfolio is concentrated in high-quality investment-grade assets with conservative office exposure and performance has remained stable. Looking ahead, our liability structure supports a stable liquidity profile, allowing us to invest for the long term, hold high-quality assets through cycles and grow alternatives prudently within regulatory limits. Next, turning to the holding company on Slide 17. We ended the year with $234 million in cash and liquid assets. When evaluating holding company liquidity for the purpose of capital allocation and calculating the buffer to our debt service target, we exclude approximately $127 million cash held for future obligations, including advanced cash payments from our subsidiaries. Moving to Slide 18. Our capital priorities remain unchanged. We will continue to invest in long-term growth through CareScout, return cash to shareholders through our share repurchase program when our share price trades below intrinsic value and opportunistically retire debt. We invested $85 million in the CareScout Insurance Company in 2025 to support regulatory requirements as we advanced our strategy to launch modern funding solutions for long-term care. Additionally, we invested approximately $50 million to fund working capital in CareScout services in 2025 as we scale the platform, expanded its customer base and positioned the business for sustainable long-term growth. We also invested $15 million through the purchase of Seniorly, and we are very pleased with the value of that investment and the progress of the integration. We continue to return significant capital to shareholders, repurchasing $245 million of shares in 2025, including $94 million in the fourth quarter at an average price of $8.66 per share. We also repurchased an additional $38 million through February 20, 2026. Finally, we also retired approximately $7 million of principal debt in 2025 for $6 million in cash, bringing our holding company debt down to $783 million. We maintain a disciplined capital structure with a cash interest coverage ratio on debt service of approximately 8x. Building on the strong execution of our strategy and disciplined capital deployment in 2025, I'll now turn to our outlook and walk through some guidance and how we'll continue this momentum into 2026. First, as indicated on this earnings call earlier this month, Enact expects to return approximately $500 million of capital to its shareholders in 2026. Based on our approximately 81% ownership position, we expect to receive around $405 million from Enact for the full year. Second, we continue to create value for our shareholders through our share repurchase program. For the full year of 2026, we expect to allocate between $175 million and $225 million to share repurchases. As we have said before, this range may vary depending on market conditions, business performance, holding company cash and our share price. Third, turning to CareScout. In the services business, building on the success of our match growth in 2025, we are targeting approximately 7,500 matches in 2026, including matches to providers in both the home care and assisted living space. In addition to matches, we are also sharing our first revenue outlook. For the full year 2026, we expect revenue of at least $25 million from the services business. This reflects growing external demand as well as the revenue contribution from our legacy insurance companies, which continue to play a meaningful role as we scale the platform. We plan to invest approximately $50 million to $55 million in CareScout services in '26 as we continue scaling the business and expanding its reach. These investments will support the continued build-out of our technology platform, the addition of new products and care settings and growth across both consumer and B2B channels. We are also deepening carrier partnerships and enhancing operational infrastructure to support higher volumes, recurring revenue and long-term scalability. Following our $85 million investment to launch CareScout Insurance in 2025, which funded regulatory capital and start-up costs, we expect our incremental investment in 2026 to be much lower. The level of investment will vary based on sales volume and mix, investment performance and operating expenses associated with scaling the business. We are pleased with the progress we've made in CareScout this year and our continued expected growth in 2026. As we have said previously, it will take time to scale these businesses and reach breakeven. In closing, we are delivering on our strategic priorities while proactively managing our liabilities and risk. As we look to the year ahead, our focus remains on driving durable growth through Enact and CareScout, which serve as the foundation of our long-term value creation strategy. Our 2025 achievements have improved Genworth's financial strength, evidenced by our ratings upgrade from Moody's and positioned us well for 2026. We have greater financial flexibility and continued confidence in our long-term strategy, including our investment in growth through CareScout, our commitment to return capital to shareholders through targeted share repurchases and opportunistic debt retirement. Now let's open up the line for questions. Operator: [Operator Instructions] I will turn the call back to Ms. Jewell to read questions received via e-mail. Christine Jewell: Thank you, Lisa. We received a question around the importance of offering both services and insurance under the CareScout umbrella and why it makes sense to invest in both at the same time. Tom, can you please provide some additional color around this one? Thomas McInerney: I think that's a very important question about CareScout's future growth. I'd start by saying the LTC market is fragmented. LTC care is very expensive and the annual cost of care inflation is significant and as shown in the CareScout cost of care survey that we've been doing for about 20 years, CareScout is the only LTC competitor that can deliver the full value chain in the LTC ecosystem. First, CareScout services is focused on delivering LTC care advice, providing assessments of LTC care needs, working with families to develop care plans and providing access to the extensive and cost-efficient CareScout Quality Network. CareScout services' target market is the 70 million baby boomers, 95% of whom never bought LTC insurance. CareScout services will help these baby boomers determine the care they need and help them find care providers and the 20% discounts from providers in the CareScout Quality Network will make the LTC care more affordable. For CareScout insurance, the very large population segments of the children and grandchildren of the baby boomers are about to find out how difficult it is to navigate the LTC ecosystem for their parents and grandparents as they're looking for care for them. And I think they'll be shocked at the very high cost of LTC care at $76,000 a year for home care and $125,000 in some markets for nursing home care. And we think the target market for CareScout insurance, the children and grandchildren of the baby boomers will rely on CareScout services to help their parents, and we believe they'll be interested in buying CareScout insurance and funding products to be better prepared for their own LTC care needs and the high cost when they reach their peak claim years when they're in their 80s. Samir, anything you want to add to that? Samir Shah: Tom, thank you for that holistic contextual answer. I agree. Look, we're in the middle of an aging crisis, which many 70-year-old-plus population are feeling. And as we talk to the generation that follows after them, they are watching their long-term needs play out in front of them. Our ability to support consumers through both aspects of this through the history we've had over the last 40 years of supporting aging consumers and playing claims gives us a unique perspective to how consumers age and help them across their family needs, helping aging parents and in-laws with our services offering and then creating a lineup of insurance products that help folks with funding needs and services needs as they age through the process. Christine Jewell: Great. Thank you, Tom and Samir, for that additional context. So Lisa, I'll turn the call back over to you, please, to take any live questions. Operator: [Operator Instructions] It appears that there are no questions at this time. Ladies and gentlemen, I will turn the call back over to Mr. McInerney for closing comments. Thomas McInerney: Thank you very much, Lisa. And in closing, I want to say we're pleased with the strong progress we've made across Genworth's 3 strategic priorities in 2025, supported primarily by Enact's performance and we're excited to continue executing on those priorities in 2026. We're confident in our ability to maintain this momentum and deliver on our objectives going forward. And I want to thank all of you who joined the call today and your investment and interest in Genworth, and we look forward to talking to you again next quarter. Operator: And ladies and gentlemen, this concludes Genworth Financial's Fourth Quarter Conference Call. Thank you for your participation. At this time, the call will end.
Operator: Greetings, and welcome to Atlas Energy Solutions, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kyle Turlington, VP, Investor Relations. Thank you. You may begin. Kyle Turlington: Hello, and welcome to the Atlas Energy Solutions conference call and webcast for the Fourth Quarter of 2025. With us today are John Turner, President and CEO; Blake McCarthy, CFO; Tim Ondrak, President of Power; and Bud Brigham, Executive Chairman. John, Blake and Bud will be sharing their comments on the company's operational and financial performance for the fourth quarter of 2025, after which we will open the call for Q&A. Before we begin our prepared remarks, I would like to remind everyone that this call will include forward-looking statements as defined under the U.S. securities laws. Such statements are based on the current information and management's expectations as of this statement and are not guarantees of future performance. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict. As such, our actual outcomes and results could differ materially. You can learn more about these risks in the annual report on Form 10-K we will file with the SEC on February 24, 2026, our quarterly reports on Form 10-Q and current reports on Form 8-K, and our other SEC filings. You should not place undue reliance on forward-looking statements, and we undertake no obligation to update these forward-looking statements. We will also make reference to certain non-GAAP financial measures such as adjusted EBITDA, adjusted free cash flow, and other operating metrics and statistics. You will find the GAAP reconciliation comments and calculations in yesterday's press release. With that said, I will turn the call over to John Turner. John Turner: Thank you, Kyle. For the fourth quarter, Atlas generated $36.7 million of adjusted EBITDA on $249 million of revenue, representing a 15% adjusted EBITDA margin. For the full year 2025, we delivered $221.7 million of adjusted EBITDA on $1.1 billion of revenue, achieving a 20% adjusted EBITDA margin. Our Q4 results exceeded our initial expectations. Volumes came in at 5.3 million tons, flat sequentially with the third quarter. The typical end of year seasonality was notably muted as customers took minimal downtime around the holidays. This was particularly encouraging following the steep decline in West Texas completion activity we experienced over the summer. It now appears that most operators have adjusted their activity levels to align with the $50 to $60 WTI strip and are comfortable maintaining operations at these levels. The quarter also marked the highest utilization we've seen to date on the Dune Express as Delaware Basin customers increasingly recognize the efficiency and reliability benefits of this system brings to their logistics supply chains. We view this as a strong indicator of the system's performance heading into 2026. In November, we announced the order of 240 megawatts of power generation equipment, accelerating our strategic evolution into a leading provider of behind-the-meter long-term power solutions across a broad range of domestic industries. We see the evolving power market over the next decade as a truly generational opportunity, and we're moving aggressively to capitalize on it. After years of relatively flat U.S. electricity consumption, the grid is now confronting surging demand, which hit record levels in 2025 and is projected to grow by as much as 25% by 2030, driven by the explosive expansion of data centers and the resurgence in domestic manufacturing. Utilities are struggling to keep pace amid infrastructure constraints and reliability challenges where rising residential electricity prices up 7.4% in 2025 alone are creating political and economic pressure for more affordable, dependable alternatives. This dynamic is pushing developers to secure dedicated behind-the-meter power assets to derisk their projects and meet time lines. For many of these companies, grid constraints represent a new and urgent challenge, compressing decision-making windows dramatically. Since the summer of 2024, Atlas has been positioning itself as the go-to solution in this space. The Moser acquisition completed this time last year provided a cash flow platform and critical engineering expertise that complements our strength in large-scale project execution. Over the past 9 months, we've been actively transitioning the business from a traditional short-term generator rental model to a power-as-a-service approach, selling electrons under longer-term arrangements. This shift has involved upgrading communication systems, refining our sales process and focusing our commercial efforts towards customers seeking dense long-term deployments. We're encouraged by the progress. We reached a tipping point in this transformation. Earlier this year, we successfully deployed our first microgrid with the Permian E&P customer, which has since been upsized. In the first quarter of 2026 alone, we anticipate deploying at least 30 megawatts under long-term microgrid multi-basin contracts with E&P and midstream customers. Based on our current pipeline, we are targeting more than 50% of our existing fleet under long-term contracts by year-end. January also marked the initial deployment of our patented hybrid battery solution, which integrates with generators as a grid-forming system, delivering meaningful improvements in cost and maintenance efficiency. The commercial potential for this technology extends far beyond the oilfield. While these advancements in our existing power business are promising, the larger behind-the-meter projects represents a true step change opportunity for Atlas. We have active commercial negotiations underway and expect to provide greater visibility on equipment placement and the resulting economic impact to Atlas in the near term. Our pipeline features a broad range of behind-the-meter power projects across multiple industries, including energy, data centers, manufacturing and others, with contract terms typically spanning 5 to 15 years, creating durable long-term cash flows. We have particular strength and see especially compelling risk-adjusted returns in projects in the 50 to 500-megawatt range where our modular platform enables efficient execution and high-density deployments. At the same time, our differentiated track record with large CapEx infrastructure projects such as our high-capacity plants and the Dune Express conveyor system, combined with our scalable design and growing expertise advantage us for the execution of even larger scale opportunities as customer demand intensifies. The opportunity set continues to expand rapidly with several prospects advancing from initial discussions to formal proposals and active negotiations. We are targeting more than 500 megawatts deployed across our fleet in 2027 with the potential for substantial additional growth beyond that as we secure larger scale projects and build on our initial orders. The ordered equipment is slated for delivery starting in the second half of 2026 with energization targeted to begin in Q1 2027. Each of these projects has the potential to meaningfully enhance Atlas' cash flow profile, and I am very excited to share more details with you as we close transactions. So stay tuned for the updates. I will now turn the call over to our CFO, Blake McCarthy, through our financials in more detail. Blake McCarthy: Thanks, John. The underlying performance in our sand and logistics business improved in the fourth quarter despite a continued challenging pricing environment. Plant operating expense per ton declined sequentially to $12.28 despite elevated costs in October related to the operational challenges in Q3 and higher maintenance spending during December. Our cost of production, although improved, remain elevated at our flagship Kermit complex due to current limitations on our dredge feed. This is expected to be alleviated with the deployment of our 2 new Twinkle dredges, which are scheduled for commissioning in the second quarter. The market backdrop for West Texas sand and logistics remains challenging with current pricing at the industry's marginal cost of production. Permian completion activity is expected to be down year-over-year, although it appears to have stabilized at Q4 levels for now. Despite the challenging market environment, Atlas' commercial team has positioned us well to grow volumes in 2026. Leaning on our cost-advantaged mines and logistics network, we were able to increase our share of current customer sand procurement spend while also adding some key new customers, relationships we expect to grow and scale over the course of 2026 and beyond. The current oil macro environment remains quite opaque. So we don't have significant visibility into all of our customers' full year plans, but our Q1 schedule is very busy with sales volume expected to be up approximately 10% sequentially and further growth expected in the second quarter. The winter storm at the end of January impacted everyone's operations in the Permian, and we lost approximately 4 days of production and deliveries. This temporary shutdown is expected to negatively impact Q1 EBITDA by approximately $6 million. However, I'm proud to say Atlas was the last sand provider delivering in the Delaware before we had to shut down due to ice. The fact that was made possible by the Dune Express, removing so much road mileage and the related risks. Speaking of the Dune Express, it continues to run extremely well. January 12 marked the 1-year anniversary of its first commercial delivery. And thanks to our partners, I'm proud to announce that we have eliminated more than 21 million miles of truck traffic in the Delaware Basin. We are very proud of the fact that the Dune Express is materially improving quality of life and safety for families and the broader community in the region. The Dune Express achieved record shipments in the fourth quarter of approximately 2.1 million tons, including a monthly shipment record in November of 760,000 tons. For the first quarter, we expect new customer wins and continued spot volumes to drive improvements in Dune Express volumes and believe we are positioned to deliver north of 10 million tons via the Dune Express this year. We are grateful to our customers for partnering with us to make the Permian Basin a safer place to live and work. All that said, the obvious question is, if the Dune Express is working so well, why were Q4 service margins so weak? While Q4 numbers were burdened by large load bonuses to ensure driver availability through the holidays, the real answer to that question is simply pricing. Logistics pricing in the Permian has fallen to completely unsustainable levels, well below those seen during COVID. To compete with the Dune Express, we have seen increasingly irrational behavior from some of our logistics competitors, which we believe sets both them and their customers up for eventual problems and disruptions. We believe several companies are currently delivering standard prices where they're effectively subsidizing their customers. Thus, the margin differential provided by the Dune Express is there. It's just partially insulating us from historically bad pricing. Encouragingly, we are seeing signs of this market beginning to break the other way. Third-party trucking rates are beginning to see upward momentum, echoing what we're seeing in the broader over-the-road market. That is typically the first sign that trucking companies are tired of subsidizing their customers, and as a result, margins have to come up. In November, Atlas introduced our first last mile storage pile system to the market. While other pile systems in the market essentially use mining equipment that has been reapplied for the oilfield, our system is built for purpose. Today, we have 6 systems in place to support our wet sand operations with testing underway for deploying the system in dry sand operations. These systems are key to continuing our further enabling of our customers' continuous pumping initiatives, which are driving record sand consumption per completion crew. While the market for sand and logistics in 2026 looks like it will remain challenging, we are looking to take advantage of the weaker market conditions to cement Atlas's position as the provider of choice. The pricing pendulum in our industry has swung too far for too long, and the pricing over vantage is certainly tight. We're hearing more anecdotes of competitors struggling to fill customer obligations. And I'll echo the comments from the large-cap oilfield services calls when I say that it's only going to take a very small increase in completions activity for pricing to move. This RFP season, we saw market share shift to the higher-quality suppliers with fewer volumes being spread amongst the lower-quality mines. The supply/demand for sand in the Permian is much tighter than the market realizes, especially for dry sand. On our last conference call, we set a cost savings target of $20 million in annualized savings. As it stands today, we have executed upon that target through a combination of the elimination of third-party last mile equipment, reductions in rental equipment, headcount optimization and procurement savings. Despite the early success of these efforts, we will continue to push for further cost optimization as we look to lower the fixed cost structure of our business across the organization. Moving to our financials. As John touched on earlier, Atlas recorded full year 2025 revenue of $1.1 billion. Total company adjusted EBITDA was $221.7 million or 20% of revenue. Deconstructing full year revenues, proppant sales totaled $478 million on volumes of 21.6 million tons, while logistics and power contributed $558.8 million and $58.5 million, respectively. Fourth quarter 2025 revenue of $249.4 million broke down to the following: Proppant sales totaled $105.2 million, Logistics contributed $126.1 million and power rentals added $18.1 million. Total proppant sales volume was slightly up sequentially to 5.3 million tons, while the logistics business delivered approximately 4.9 million tons. Our average sales price for the fourth quarter was approximately $19.85 per ton. For the first quarter, we expect volumes to be up approximately 10% sequentially with the average sales price of sand to be approximately $18 per ton. Q4 cost of sales, excluding DD&A, were $187.3 million, consisting of $60.6 million in plant operating costs, $115.2 million of service costs, $7 million in rental costs and $4.5 million in royalties. For the fourth quarter, our per ton plant operating costs were approximately $12.28, including royalties, down sequentially from the third quarter, but still elevated versus our normalized levels. Higher volumes and a reduction in extraneous costs at the plants for Q3 levels drove the lower plant operating costs. For the first quarter, we expect our OpEx per ton to be approximately in line with the levels in the fourth quarter, reflecting the impact of the severe weather in January. Over the course of 2026, we expect to see improvements in our realized variable costs as the new dredges are commissioned at our Kermit facility. Cash SG&A for the quarter was $22.6 million. SG&A, excluding litigation expenses, is expected to decline in the first quarter due to our previously announced cost-cutting initiatives. Adjusted free cash flow, which we define as adjusted EBITDA less maintenance CapEx, was $22.9 million or 9% of revenue. Growth CapEx equated to $5.1 million, the majority of which was tied to our Power segment and maintenance CapEx during the quarter was $14.4 million. The elevated maintenance CapEx spend was primarily tied to preparations related to the dredging and wet plant operations at Kermit ahead of the Twinkle dredge deliveries. We expect cash capital spending in 2026 to be approximately $55 million, down significantly year-over-year and heavily weighted to the first half. Maintenance CapEx of approximately $45 million is planned with approximately $10 million dedicated to growth, evenly split between sand and logistics and power. Additionally, we expect to make progress payments on the 240 megawatts of power assets we have on order as they begin to be delivered over the course of the second half of the year. These payments will be financed from our recently announced lease facility with Eldridge and are expected to total approximately $190 million over the course of the second half of the year. Net interest expense is expected to be approximately $16.5 million per quarter in the first and second quarters, rising to approximately $20.5 million in the third quarter and $22 million in the fourth quarter. As John also touched on in his remarks, our plants have begun the year quite busy with WTI prices hovering around $60, oil prices will dictate if we continue to keep this pace up. We have a clear line of sight on strong volumes for the first half of this year, but many of our customers are taking a wait-and-see approach with respect to their second half completion schedules. Our recent market share gains are a testament to Atlas' efforts to position ourselves as the reliable partner of choice to the best operators in the Permian Basin. For the first quarter, while volumes are expected to be up sequentially, the expected decline in sales price per ton, combined with the lost days of revenue due to the winter storm will be a headwind to margins. Additionally, our logistics business was burdened by load bonuses to ensure driver availability around the turn of the calendar, which will mute logistics margins improvement until later in the quarter. However, we are seeing a return to more normal cost structure as the quarter progresses, which combined with a growing delivery schedule, will yield an improved margin structure through the quarter. Additionally, the power business is expected to generate a greater contribution sequentially. Thus, we expect EBITDA to be approximately flat with Q4 levels with the company exiting the quarter at a higher run rate in March versus January. I will now hand the call over to our Executive Chairman, Bud Brigham, for some closing remarks before we turn the call over for some Q&A. Bud Brigham: Thanks, Blake. While we're navigating another cyclical trough in oil prices, the future for Atlas has never been brighter. Just as we were ideally positioned for the post-COVID Permian recovery, which substantially expanded our cash flows, we're primed for the inevitable rebound in oil and gas activity today. But in addition, as I stated on our last call, we're going hybrid. Today, Atlas is laying the groundwork for transformative long-term growth through behind-the-meter power contracts. These 5- to 15-year agreements are expected to deliver robust revenue visibility paired with predictable costs, including fixed and stable expenses for SG&A, maintenance and interest, complementing our powerful but more volatile oil and gas revenue streams. Our proven expertise in large-scale infrastructure, amplified by the Moser acquisition, uniquely equips us to power the surge in AI, robotics and manufacturing. We see these initial permanent power projects as a strategic springboard, drawing in more customers and building a portfolio of assets that generate steady recurring cash flows. As discussed by John, demand for behind-the-meter power is accelerating rapidly, fueled by rising costs and potential grid shortfalls that are pushing commercial, industrial and data center users towards swift commitments for bridge and permanent solutions. We're witnessing a seismic shift in power sourcing. To borrow from our partners at Bloom Energy, on-site power has evolved from a last resort to a business necessity. U.S. power demand is growing at its fastest rate in decades. Let me emphasize, the Atlas investment story is more exciting than ever. Chronic underinvestment in exploration spending, coupled with shale's maturation and steep decline rates, sets the stage for what I believe will be a prolonged up cycle. While most U.S. shale basins struggle with inventory depletion, the Permian, where Atlas leads in proppant production and logistics will be key to meeting rising oil demand. Even at today's cyclical lows in sand and logistics pricing, our low-cost model shines through, thanks to the Dune Express and efficient mining operations. When activity rebounds, and it's a question of when, not if, we anticipate stronger utilization, pricing and margins, sparking a sharp profitability upturn. By investing ahead of this oil up cycle, while we are also launching our high-potential power business, Atlas offers investors dual catalysts for substantial growth. I'm deeply grateful to our exceptional team, the true innovators fueling our advancements. Their dedication has me more optimistic than ever about Atlas' future. Thank you for joining our fourth quarter and year-end conference call. I'll now hand it over to the operator for Q&A. Operator: [Operator Instructions] Our first question is coming from Jim Rollyson of Raymond James. James Rollyson: John, you talked a bit about the power side. Obviously, a quarter ago, you ordered the 240 megawatts. I'm pretty sure you mentioned then you had line of sight on customer opportunities there. You've since secured financing, which I presume doesn't happen without similar line of sight. So maybe just an update on kind of what's taken a little while on getting that contracted? And do you have good line of sight on where that equipment is actually going at this point since we're less than a year out from its deployment? John Turner: Yes. Great question, Jim. Thanks for asking. Yes, we do have strong visibility into the customers that are expected to take a substantial majority of this equipment package, which is on track for delivery. I think deliveries, they began at the end of late 2026 -- these are high-quality creditworthy counterparties that are across diversified markets and have indicated meaningful follow-on requirements beyond their initial commitment, providing for clear pathways for additional equipment orders and sustained growth into the future. Our strategy still remains solely focused on behind-the-meter power solutions. And we're not pursuing grid interconnected or utility scale opportunities. Instead, we are delivering reliable on-site power directly to customers facing grid constraints. In many cases, these engagements begin with bridge power to address immediate needs, which generate significant near-term cash flow and accelerates our path to full development. These bridge arrangements quickly transition into long-term behind-the-meter agreements that we primarily are working on as customers recognize the prolonged grid time lines and value of our integrated approach. So yes, the answer to that is yes, we do have clear line of sight on who those customers are and expect to be reporting on that here shortly. James Rollyson: Appreciate that. And maybe as a follow-up, just kind of related here is I've watched this market evolve and different players kind of approach this in different ways, it seems like there's 2 strategies I've seen, one being guys that are just providing power equipment basically on a rental basis and then the second being guys that are providing the entire solution, all the balance of plant, et cetera. I'm kind of curious if you could elaborate on kind of which strategy fits yours and how you see the return opportunity there. Blake McCarthy: Yes, go ahead. I'm going to let Blake wants to answer that. And then we have Tim Ondrak, our leader of the Power business, who can obviously talk more intelligently about it as well. But it's a really good question, Jim. Like there's obviously the equipment, and that's what I think most people in the market have a much clear line of sight of it costs X and therefore, you rent for Y and you have return. But when you get into these behind-the-meter solutions, right, depending on to the function, like the function of the facility, there's different requirements for the balance of plant, different [ future model ] equipment that you need. And so that can change that dollar per megawatt provided, both on the front end and then therefore, what you have to charge. Our strategy has been like let's get in really early with some of these customers that we know they're making big investments in facilities and they're facing -- they've been -- the grid has indicated them like, hey, you're not getting on for what you require really get to understand what they're trying to accomplish within their activities and do a lot of front-end engineering to really meet their needs. And that can have a pretty broad range in terms of what -- like, one, what our facility costs and two, what we have to charge them because we're always going to be targeting a strong unlevered return on our capital deployed. And obviously, when it comes to return on equity, with the leverage you use on these, it gets pretty attractive. So thinking about like these first ones, there's going to be a pretty broad range, and that's why we're excited to share the economics on things. And we'll be very transparent about that as we consummate deals. John Turner: And I also think that it is the reason why it's taken a little longer to sign. Another comment on why it's taken us so long to sign these agreements is that these just aren't generator rental agreements. These are actually -- you have to go in and do planning, engineering. You have to do -- you have to line up all the equipment. You have to do -- there's a lot of different things that you have to do on that front. So I think that's why it's taking longer than [indiscernible]. Blake McCarthy: It also makes those facilities much stickier because it's fit for purpose. Tim Ondrak: Yes. And I think just to kind of close out, I think our strategy is bridge to permanent. And when we look at the thesis that really drives that, we view power as a structural need. And so depending on the utility region and where folks are building out their facilities, those delays can be 2028 all the way up to, I think we've heard 2034 from some people. And so when a customer looks at what their power need is, as they start their facilities, it can be substantially less than their growth intentions. And so the model that we have to execute on that is to provide mobile power generation into a permanent facility that meets that long-term need and gets the customer to a place where they don't need to worry about a utility time line and they can worry about operating their business. Operator: The next question is coming from Derek Podhaizer of Piper Sandler. Derek Podhaizer: I want to keep going on the economics question. So obviously, there are some numbers out there. We talk about plus or minus $300,000 per megawatt per year of EBITDA, kind of compare that to your current financing costs. Maybe just help us understand when you talk about the recips building the facility, the balance of plant included in there, how should we think about the economics and the earnings of these potential projects that you're working on? Just maybe a little bit of help around that as far as some of the numbers that we're hearing out in the market. John Turner: Yes, I'll start off and Blake can chime -- he can follow up. I mean economics, obviously, like we said earlier, depend on a number of factors. If you talk about balance of plant facility development, those are common and our turnkey behind-the-meter solutions. And then obviously, balance that with the initial contract term will be focused on longer-term contract structure for stability. Our goal is attractive internal rates of return, well above our cost of capital on the initial term with upside from extensions and expansions. Do you want to add to that? Blake McCarthy: Yes. Derek, kudos to you, I'm really glad you asked this question. So I think it's a great question because I know people want to have some type of metric to plug in their estimates. John's comment on IRR is probably the best way to back to order to that. So for these projects, we're targeting unlevered IRR in the high teens, which we find very attractive considering the contracted nature of these cash flows. So when you layer on any type of leverage on top of those cash flows, the returns on equity, as I mentioned, get very attractive. Thus, like from a long-term perspective, I think that people talk about that like $300 per megawatt. That's probably a good proxy for just equipment alone, but it's a little too simple when it comes to like you're actually doing these bespoke power facilities. So I think that using that IRR and we disclosed kind of the -- obviously, the magnitude of our facility has been disclosed. I think that's a good way to kind of back door into getting there. You should be able to use that and the cost of equipment, you get a decent proxy for cash flows that we expect off these projects. Derek Podhaizer: Got it. Okay. Great. That's super helpful. And then just my follow-up as far as a question around lead times for your additional equipment. You talked about going 400 to 500 megawatts of deployed capacity. Is this going to be a continuation of the 240 megawatts, those larger 4-megawatt recips that you recently ordered? And if so, how should we think about when you'd be able to get those deliveries and the lead times around that? And then really beyond the potential 500 megawatts, maybe line of sight on the future orders beyond the 500. John Turner: Yes. I mean thanks, Derek. I'll take that question if anybody -- Tim, if you want to chime in on this. I mean our relationships with the key OEMs and our differentiated track record of execution on large-scale infrastructure projects continue -- those continue to be major advantages, which enabled us to initially secure the 240 megawatts of the 4-megawatt reciprocating units that are going to be delivered for later in 2026. And also gave us -- also enable us to maintain a solid line of sight to additional equipment for high-quality opportunities and more than 2 gigawatt pipeline that we're talking about. These relationships are built on trust, scale and early positioning have given us access to redirected capacity from delayed projects elsewhere in the industry. So lead times for additional 4-megawatt recips are now extending into late 2027, which reflects the strong industry-wide demand for behind-the-meter generation equipment. That said, our recent $375 million lease facility provides flexible nondilutive support tailored to our needs to allow milestone payments during the packaging conversion into term finance upon delivery. That is -- this has been instrumental in funding our initial 240-megawatt commitment and positions us well for near-term deployments as we move towards our target of 500 megawatts by 2027. So with the majority of that under long-term contract. As far as beyond 2027, particularly as we pursue larger, denser behind-the-meter opportunities across diversified end markets, we anticipate needing additional financing to support further equipment orders. We've actively evaluated options that align our disciplined capital approach, leveraging our proven track record with financing strong cash flow generation from bridge to permanent transitions. I think that as far as additional equipment packages, I mean, yes, right now, the package that we've acquired is these 4-megawatt recips. I mean, there could be other potential opportunities out there, and I'll let Tim comment more on that. Tim Ondrak: Yes. So Derek, I think there's equipment available I think if you look at global capacity, a lot of it has been backlogged. I think there's been a lot of announcements publicly to kind of back into what may be left. So we really see 2 pools of equipment that come available. The first pool is where you have to be in the market, you have to be talking to people and orders cancel or portions of orders cancel or get delayed. And so there's equipment that comes to market. And I think there's a second where OEMs are doing the same thing that we're doing where they're outbuilding relationships with the groups that are putting these in place. And I think as John alluded to, we're in a strong position to take advantage of those relationships. You look at the folks that are on this team and the relationships that they bring and then you look at the reputation of Atlas in being able to manage and develop these substantial projects. And I think that gives confidence to OEMs that when they place assets with Atlas, it's going to be a good long-term relationship, and it's going to give all of us a good name. So I think that's what we're leaning into, and we've got line of sight into the equipment that we would use to take us to that 500 megawatts. Operator: Our next question is coming from Stephen Gengaro of Stifel. Stephen Gengaro: I guess staying on the power theme. One of the things we've sort of learned over the last couple of years was there's a skill set required to sort of deploy these assets at the site and operate them effectively and efficiently. Can you talk about sort of your internal expertise to execute these behind-the-meter projects? Blake McCarthy: Yes. I'll lead off on that and then again, defer to Tim, who's again, much more well spoken on this subject. But when you think about the history of Atlas, right, I mean we've got a lot of experience in building big complicated facilities, right? So we constructed the Kermit and the Monahans facilities from where there's just a bunch of dirt out there in West Texas to some of the more sophisticated sand manufacturing facilities in the industry. And then you got to remember that we're the guys that thought it was a good idea to build a 42-mile conveyor belt in the middle of the desert, which I think a lot of people roll their eyes at that concept and then lo and behold, here we are a year later, and it's -- that's moving. So I think that when we have these initial conversations, people are like, wow, these guys are good at building big complicated infrastructure projects from the ground up. And then you combine that with the electrical expertise that we brought in-house with the Moser acquisition. And then we haven't been sitting on our hands since we did that deal. We've been bringing in quite a bit of talent, really, really strong people in terms of adding to that roster. And when you combine those 2 things, it becomes really powerful. And then you -- as people learn about Atlas, and this thing has been -- this is a different customer set than we've ever dealt with, right? This isn't just the 25 E&Ps that we all know and love. It is -- this is across the broader economy. And so there's a lot of education about who is Atlas that we have to do with them. And once they start to see like who we are and what we've done, they get a lot of comfort around that. And then we bring in some of our electrical experts and they start to wow them with their knowledge. Those those commercial discussions progressed pretty quickly. I'll turn it over to Tim for actual specifics, though. Tim Ondrak: Yes. So I think Blake touched on a couple of things there. I think, first and foremost, when we acquired Moser, we got a team with a 50-year operating history. And so that was a great place to start from, from a talent perspective. We added to that team with some outside talent that have helped us substantially in the C&I and the larger megawatt deployments. And then from a long-term perspective, we've built an operating team with 20-plus years of experience in operating large engine systems. And so we really think combining all of those things, we're able to deliver the same level of execution that we've delivered in the sand and logistics space and brought that over to the power space. Stephen Gengaro: Okay. No, that's helpful. That's good color. The other question I had is, and you mentioned, I think, in response to a prior question, the sort of the delays in grid interconnection. And you also, I think, made a comment about you sort of think about this as a bridge to permanent power. But it feels to us like that bridge to permanent power is pretty long. And I was just curious what you're hearing on the utility interconnection side and kind of the queues for larger loads to be delivered and how that kind of impacts your planning and thought process? Tim Ondrak: Yes. So I think that's a big question. And I think that's a big question because when you look at the utility network in the United States, it is incredibly complicated, right? The rules change sometimes as you cross the street. And so when we're talking to folks about their projects, every one of them has a different story with similar themes. And the similar theme is that utilities aren't going to get there. And so they need to look at what they call a bridge solution, but I think when you really understand the challenges that the utilities face and you see projects from the utilities push in different districts, you understand that that's going to affect really the entire industry. And so what we're hearing from utilities, and I think I mentioned this earlier, it's anywhere from 2028 to 2034 for a load to interconnect, and that's kind of across the U.S. And there are some places where you can pull data points that say it's longer, it's shorter. But if you take that perspective, what we're really talking about is infrastructure. And so you can bridge that, and I think we've got a good solution to bridge that. We've got 200 megawatts plus of bridge equipment in what we acquired from Moser. But our -- again, our thesis is this is a long-term infrastructure play. And so that bridge system has some disadvantages. And the way you solve some of those disadvantages, whether they're fuel efficiency, footprint, whatever is you install a long-term system that is designed to sit in place and operate. We talk about 5- to 10-year contracts, 15-year contracts, but really, these are 30-year facilities that they need to be. And so we think that structural shift in this market is going to benefit those that take ownership of that and install their own systems today. And we think the broader grid really benefits from private capital installing broad infrastructure really across the entire United States. Blake McCarthy: Yes. I mean, Stephen, it's such a fluid space, too. Like I feel like every morning, there's 4 or 5 headlines around that interconnect to getting longer and pushing to the right. And I think we're all pretty big believers in that there's going to be more and more pressure on the utilities to probably stiff arm some of these interconnects, too, just because we think that affordability is going to become a bigger, bigger buzzword in the political landscape. And it's just -- it's probably in everybody's best interest for the private sector to solve this problem as opposed to leaning on the public utilities to get it done. John Turner: Yes. Even if they can get power from the grid, they can't get all of their power from the grid. So I mean, like Tim said, we're not only talking to end users, we're talking to the providers. And these are the -- this is what we're getting from the providers is that we may be able to provide some of the power, but we're not going to be able to provide all the power. And they're also being told that in order for us to provide you power, you need to show us that you can provide yourself -- supply yourself with a certain amount of power to get that additional power from the grid. So obviously, a lot going on, a lot changing here, but that's kind of where it is now. Tim Ondrak: Yes. And I think the one last point I'll make on that is we're out and we're talking to people every day and they're looking at big projects. And the 2 things that are most consistent are: one, the utility has moved the goal line on when they're actually going to show up; and two, that they're not going to meet the full request for power. Operator: The next question is coming from Doug Becker of Capital One. Doug Becker: I think the questions are really appropriately focused on power up to this point, but I did want to touch base on the sand and logistics business. First half volumes look very good. I appreciate the lack of visibility around the second half of the year, but any type of range you could provide for production growth for the full year to kind of give us some goalposts to think about? Blake McCarthy: Yes. I mean it's a good question. And sorry for being opaque, but right now -- and I appreciate part of our customers, too, is that the outlook is a little opaque. I think that if you rewind 3 months ago, it seemed like every macro note you're reading was point of oil being $45 to $50 at this point in the year. And here we are sitting at $66 WTI. Granted, there's a lot of geopolitical risk premium built into that, but I don't think any of us think we live in a world where there's not going to be geopolitical risk. So our commercial team did a great job of going out there, and we told them, hey, go get the volumes. And they went out there and they did that, and it sets us up for a very strong first half. That being said, there's -- a lot of our customers were -- they're like, hey, like we've got our schedule for first 6 months of the year. And we'd like to leave a little bit of optionality on what our plans -- our schedule looks like in the second half of the year. So I think a lot of that's dependent on the commodity tape. Right now, from where we sit, our expectations are for our overall volumes to be up year-over-year. That would imply -- and that gives us -- I appreciate that, that's a pretty big window in terms of second half volumes because we do expect to have pretty significant volumes in the first half of the year. That being said, like the pricing environment remains pretty challenging. So that's obviously a headwind. But we're -- so that has us focused on things we can control, which is driving down the variable cost of our production at the plants. We're pretty excited about the dredge commissionings that we've got coming up later this quarter and into Q2. That's going to drive some significant improvements in our Kermit facility. I think that really our objective on the sand and logistics side is to just really cement ourselves as the leading sand logistics provider in the Permian and position ourselves so that when the cycle does turn, hey, we're that sticky supplier of quality that, hey, nobody wants us not to be delivering sand onto their well site because we make it where their operations doesn't have to think about it. Doug Becker: That's fair. On the logistics side, highlighted the trucking challenges, but pointed out some upward momentum in trucking rates. Just any color on the margin outlook in logistics for this year after a pretty slow start on the margin front with the Dune Express. Blake McCarthy: Yes, that's a good question. And I tried to give a little transparency on that because I think it's a question we get a lot. We're positioned to move to improve off a low base we ended 2025 and started 2026 with. So during both late Q4 and early Q1, our logistics business was burdened by pretty heavy load bonuses that we offered to third-party carriers to ensure that we have the drivers available to meet customer needs during the holiday season and to ensure delivery when, quite frankly, the weather's pretty miserable, which certainly was in January. Additionally, as we mentioned in the prepared remarks, like I said, our sales team was -- they were really feeling their oats during the contracting season. So they've done a great job securing pretty attractive work in what is a really tough market. And that includes a good amount of work that's going to drive incremental Dune Express volumes, which is the biggest driver of creating more margin differential in a weak pricing environment. So from a numbers perspective, Doug, I think logistics margins in Q1 probably going to look pretty similar to Q4 with December of last year and January of this year representing low points. And then Q2 is currently like loose projections right now, but I've taken a nice step up into the double digits, maybe not quite mid-teens, but a nice step up and a huge relative gap to where the rest of the market is. Operator: The next question is coming from John Daniel of Daniel Energy Partners. John Daniel: First question is, can you speak to the actual number or the volume of power increase coming from the E&P operators for microgrids? And then have you tried or will you try to tie sand volumes to contracts for that power? Tim Ondrak: John, yes, so the volume of increase on microgrids coming from E&P, I think what we're seeing is a little bit basin dependent. But in probably our 2 of our 3 most active basins, I would say about half of the new requests coming in for well site generators are in some type of microgrid system. And that's typically tying anywhere -- the production from anywhere from 2 to maybe 4 pads together. But we expect that as the year progresses, we will allocate more and more units to those types of systems. As far as tying the sand volumes to the power, that's obviously a good idea. We like to be -- we want to be a broad provider of solutions for our customers as of now. A lot of the teams that deal with those are separate. You got completion teams that are working versus the production teams that they're mostly different in a lot of these organizations. But from a sales standpoint, we're always working to be a better solutions provider for our customers. So that -- I'm not going to count that out of the question. Operator: Our next question is coming from Eddie Kim of Barclays. Edward Kim: Just wanted to circle back to the volumes theme. You mentioned that you're adding -- sorry, you're in discussions on adding new customers this year and you're taking greater share of the wallet with your existing customers and it seems like you've been successful with that. Just to be clear, are those wins fully reflected in your first quarter volumes guidance? Or do those volumes really start to kick in later in the year? John Turner: I would say those wins are not necessarily reflective in our first quarter volumes. I mean first quarter volume is going to be depressed some because of the weather. But I would expect to see some of those impacts kicking in as we move. You're going to see some of it in the first quarter and then it's going to kick in second and third. Blake McCarthy: Yes. I mean like there's always a ramp in customer activity. January always starts a bit slow, and we have a steady ramp through the course of the quarter. And then that winter storm in January, obviously, it knocked out about 4.5 days of operations out there for everybody. And so not fully reflected in those volumes. We -- our expectation is for Q2 volumes to be a step-up from Q1. Edward Kim: Got it. And then just sticking on that theme, I mean, you mentioned strong volumes in the first half, but customers taking sort of a wait-and-see approach in the second half. I guess just based on your conversations, it seems like E&Ps might not really be buying this $65 WTI oil price right now. And are they, do you think, still operating as if we're in kind of the mid-50s environment? And I'm just curious what oil price do you think we'd have to get down to for them to consider a volumes reduction in the second half of the year? Blake McCarthy: Yes. I think that their budgets for this year are based around like $50 to $55 oil. And I think today's activity in West Texas is reflective of that commodity strip. And they're not going to deviate from their -- they've just set those CapEx budgets, and they're not going to deviate from that just on gyrations of the commodity price. But the longer the commodity price stays up and people get more comfortable with it, but I'm sure they're not complaining about the incremental cash flows they've got -- they're ripping off right now. John Turner: I mean, the whilst, the investment cycle -- I mean, the decision time line is pretty short. So they can wait longer with these shale wells to go out and make a decision. So I think like Blake said, they're comfortable where they are now. And if that continues, you'll probably see steady activity through the end of the year, but it just depends on where prices go. Operator: The next question is coming from Michael Scialla of Stephens. Michael Scialla: You mentioned the last mile storage system. I just wanted to ask about that, allows continuous pumping of wet sand. You said you're testing the dry sand solution. What needs to happen there for that to be successful? And what could the opportunity be for that system if it works? John Turner: Yes. So earlier this year or late last year, we launched a system that was designed for really well site increasing the amount of sand that's delivered to the well site, timeliness of that, that's going to increase the efficiencies to enable operators to pump downhole more sand. We've been seeing -- and we kicked this off on the wet sand side. We have all of those systems deployed right now. And we do have a number of our customers that are using them that want more. As far as the dry sand goes, there's still going to be some work that we're going to have to do on that front. And as far as timing goes, it's way to be seen, but there's some testing that we're working on, and we'll be able to comment more about that here later. But we do -- what we are seeing the results of that are promising. And I think some of the things -- some of the themes you're going to see going forward is continuous pumping. A lot of our customers are asking it and requiring it because and you're starting to see some significant results from our delivery of sand to the well site that enables things to things like the Dune Express and our wet sand offerings. And then this is just another step in that direction of helping our customers with their needs and providing them with solutions that work that enable them to accomplish their goals. Blake McCarthy: Yes. And then the continuous pumping thing is such an important trend in our space. Those are -- the completion crews we're providing sand to that are on continuous pumping operations, the amount of sand they pump monthly is multiples of what you'd see from a traditional zipper crew. But the big constraint, right, is it becomes well site footprint, things like boxes and silos, they are constraints, right? And so the pile system, like going to piles, obviously allows you to put more sand in one spot. But what we think our system does is it enables do piles, but to do it very efficiently and with clean sand and you combine that with the PropFlow technology. It is a key enabler of very, very efficient continuous pumping operations. And it's something that just continues to push that tailwind of the sand intensity of each individual completion crew, which we think long term is a -- when people stop planning budgets around $50 oil and maybe get a little bit more comfortable around something like $65 plus, see a little bit more incremental activity, we think the market tightens up pretty darn quick. Michael Scialla: Appreciate that detail. Also wanted to ask about your -- you mentioned your hybrid power system. I guess, what differentiates that? And what's the opportunity for those assets look like? Tim Ondrak: Yes. So the hybrid power system is it's essentially combines battery technology that we've developed in-house on the patents on, and that was funded through a DoD grant that the legacy Moser business obtained in 2018. And what that system essentially does is hybridizes with our existing generators. And it controls the operation of those generators so that they run at essentially a peak load and the battery then distributes power into that system, shuts the generator off. And so what it does is it lowers the run time on those generators, which extends our maintenance cycles from essentially once a month service to once every 45 days as much as once every 60 days. It lowers the fuel cost for our operators and it decreases the risk of a shutdown event on the customer's location, which those are not good for downhole pumps, which is primarily what we do in that business. And so we're pretty excited about the potential to deploy that at scale in the legacy Moser business. We think it's differentiated. We've proven it on multiple well sites. But I think when you apply that to the broader industry outside of oil and gas, it's got uses really across every industry where folks want more clean, reliable power and that battery system provides clean, reliable power that can integrate with whatever systems they're using, whether they're prime power systems or backup systems. Operator: Our final question today is coming from Jeff LeBlanc of TPH. Jeffrey LeBlanc: I wanted to see if you could provide some color on the expected cost savings over the second half of the year once the Twinkle dredges come online... John Turner: He wants to get at the cost savings that we're going to expect in the second half of the year once the dredges come on? Yes. And I'll let Blake cover that. Blake McCarthy: We haven't had a steady dredge feed at our primary Kermit facility for going on over a year now. And that facility is really designed to have a clean, steady dredge feed. And so what that's created is just different bottlenecks in the process that has elevated the OpEx per ton coming out of that facility versus -- I mean, when that facility is cooked, it is our lowest -- it's the lowest cost facility in the entire Permian Basin. So as those 2 dredges come on and I just highlight that these are -- these Twinkle dredges we've had. We've had a Twinkle dredge in the fleet got one in the fleet now, and that is the most consistent producer we've got. So we're very confident and we think they're the F-150 dredges. Getting those online will significantly enhance the quality of our dredge feed, which has just really positive knock-on effects to the entire process. It improves wet shed operations. It reduces stress on the dryers. It just makes the whole facility run more efficiently. If you think about that, our overall variable costs probably have been elevated by about $1 across the complex because of those dredge feed issues. And so that's over the course of the first half of the year, that will flow on. And there -- so it's -- again, it's a pretty big circular reference, though, in terms of the overall OpEx per ton just because so much of that is based on volume throughput, and that's dependent on customer activity in the second half. But if you were to just extrapolate first half activity in the second half, you'd see a pretty significant improvement in OpEx per ton as we work through the year. Operator: At this time, I'd like to turn the floor back over to Mr. Turner for closing comments. John Turner: Thank you, operator, and thank you all for joining us today and for all the great questions. We truly appreciate the time you've taken with us to our exceptional team. Thank you for all the hard work. To our customers, thank you for your partnership and trust and our investors. Thank you for your committed and continued support, belief in Atlas. We look forward and are excited about reporting our results going for 2026 and our first quarter results here in 2 or 3 months. Thanks, everyone, for joining, and that ends the call. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Ladies and gentlemen, thank you for standing by. Hello, and welcome to Q4 2025 Albany International Corp. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our Director of Investor Relations, Karen Blomquist. Please go ahead. Karen Blomquist: Thank you, operator. Good morning, everyone. Welcome to Albany International's fourth quarter 2025 earnings conference call. As a reminder for those listening on the call, please refer to our press release issued this morning detailing our quarterly financial results. Contained in the text of the release is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliations to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Additionally, our remarks today may reference our earnings presentation, which is available on the Investor Relations section of our website, albint.com. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied. For a full discussion of these risks and uncertainties, please refer to our earnings release on February 24, 2026. Now, I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar Kleveland: Thank you, Karen. Good morning, and welcome, everyone. Thank you for joining our fourth quarter earnings call. Before turning to the business update, I want to thank the members of the Albany team who continue to inspire me with their energy and enthusiasm around innovation. This year, we introduced our internal innovation awards program, and in its inaugural year, we received 86 submissions from teams across the company. Awards span technical innovation, operational excellence, and customer service. The strong response reflects the innovative culture we have and continue to build at Albany. Innovation is central to our long-term growth strategy, and we're proud of this culture. I would like to congratulate all of our award winners and participants this year. That focus on innovation is directly connected to what makes Albany a differentiated company and underpins our long-term strategy. Albany is built around industrial weaving technology and material science that are deeply embedded in our customers' products. These capabilities have been developed over decades and are not easily replicated, forming the foundation of our two complementary businesses. Machine Clothing is the backbone of the company, providing stable global platform with strong margins and cash generation. Our products are mission-critical to customers' operations and enable improvements in productivity, efficiency, and sustainability. Engineered Composites built on the same core strengths and serves as our long-term growth engine. Through proprietary technologies and advanced materials, we support high-value applications across commercial, aerospace, defense, and emerging platforms, with meaningful opportunities for growth and margin expansion. These emerging markets focus on our 3D weaving, braiding, winding, and resin transfer molding in end markets that include engines, space, missiles, ceramic matrix composites, and titanium replacement. Together, these businesses create a balanced and resilient model that allows us to invest with discipline and adapt to changing market conditions. Over the past 12 months, we have sharpened our strategic focus on high-value applications where we hold clear competitive advantages while exiting non-core activities. As part of that effort, last quarter, we announced the initiation of a strategic review of our Amelia Earhart facility in Salt Lake City. Since then, we have made substantial progress evaluating a range of options for the site, and we have retained Guggenheim as an advisor to guide us through the process. Taken together, the impact of these actions became evident in the fourth quarter as we delivered our strongest financial performance of the year. We reported total consolidated sales of $321.2 million, up 12% year-over-year, driven by higher sales in our Engineered Composites business, partially offset by softer demand in Machine Clothing, particularly in China. Improved volume translated into stronger profitability with Adjusted EBITDA of $57.3 million, representing 17.8% of sales, compared to $50 million or 17.4% of sales in the year-ago period. Turning to our segments and beginning with Machine Clothing. Sales were down mid-single digits year-over-year, driven by lower volumes in China and were generally in line with our expectations. Demand conditions remain mixed across regions, with largely stable fourth quarter volume in North America, but some pressure to order rates following consolidation and mill closures. In Europe, overall volume was stable. In Asia, paper overcapacity continued to pressure our segment-level results, as we saw in the third quarter, primarily in China. While we did not see a further deceleration in the fourth quarter. By grade, tissue remains a bright spot globally. This is a market where we are an industry leader and will continue to invest. We also saw pockets of strength in packaging, particularly in Europe. Publication grades continued a secular decline as anticipated, while pulp and engineered fabrics were broadly stable. Operationally, in January, we experienced an equipment failure on one of our critical machines in North America facility, which will unfavorably impact our first quarter results that we'll detail in our guidance. Our team was able to bring the machine back online in February, and we expect to recover the lost production through higher output from the site as well as product manufactured at other North American sites. We already had plans to add equipment to permanently de-risk the facility, which is expected to be installed in late 2026. In Engineered Composites, we delivered a strong performance with sales of $143.7 million, compared to $98.8 million in the year ago period. Higher sales were driven by broad-based volume increases across multiple programs. In particular, the LEAP program, which is the backbone of commercial single-aisle fleets, continues to be a solid program for us, with projected double-digit growth over the next couple of years, based on OEM target production. We expect volume to continue to build as OEMs increase production rate. We also expect incremental contributions from Beta as they progress through the certification process. In defense markets, F-35 remained a strong and stable contributor, while missile programs continued to build volumes. Turning to capital allocation. We generated approximately $81 million of free cash flow in 2025, providing the flexibility to invest in the business, return capital to shareholders, and maintain a strong financial position. We continue to invest with discipline in areas that strengthen our long-term competitive position. During the year, we invested approximately $72 million in capital expenditures and $48 million in R&D, focused on innovation, advanced manufacturing capabilities, and operational efficiency across both segments. We also remain focused on returning capital to shareholders. Over the course of the year, we returned approximately $218 million through a combination of share repurchases and dividends, including the repurchase of roughly 10% of shares outstanding. This balanced approach allows us to invest for growth, maintain financial flexibility, and consistently create long-term value for shareholders. In 2025, we undertook a deliberate transition of the business with a clear focus on profitability, innovation, and long-term value creation. This marks an important transition for Albany. And as we enter 2026, we are focused on disciplined execution, continued innovation, and delivering sustainable value for our customers and shareholders. We also completed our corporate relocation to Portsmouth, New Hampshire, which positions us well to attract and retain talent across a broad and highly skilled corridor stretching from Boston to Portland. We're pleased with the team we have assembled and confident in their ability to lead the company into the next phase of growth. I would like to thank our employees for their dedication and commitment throughout the year, as well as our customers, partners, and shareholders for their continued support. With that, I'll turn the call over to Will to review the financial results in more detail. Willard Station: Thank you, Gunnar. Good morning, everyone. Before providing a financial review of the fourth quarter, I'd like to begin with a brief perspective on my first 6 months in the role. The strength of our culture and the depth of the team across the organization have been particularly evident. Further, we operate with world-class manufacturing capabilities, a strong track record of execution in highly demanding industries. These strengths form the foundation of our long-term success and value creation. Over the past six months, we have sharpened our strategy to focus more clearly on our core competitive advantages. That focus is guiding how we operate the business and how we allocate capital with a clear objective of investing where we can generate attractive returns and maximize long-term value for our shareholders. Operationally, the business performed well across both segments in the fourth quarter, and we followed through on the actions we outlined last quarter. As these actions take hold, we believe Albany will emerge as a stronger company with a more attractive operating profile and a clear platform to drive long-term growth, particularly in high-value and emerging applications. Before turning to the financials for the quarter, I want to note that all the results I will be discussing are non-GAAP, unless otherwise noted, and a full GAAP to non-GAAP reconciliation can be found in our press release issued this morning. Overall, we delivered our strongest financial performance of 2025 in the fourth quarter. Our reported fourth quarter revenue was $321.2 million, up 12% year-over-year, compared to $286.9 million in the same period last year. The increase was driven primarily by higher volumes in our Engineered Composites business as multiple programs continued to ramp. These increases were partially offset by lower volumes in Machine Clothing, primarily in China. Adjusted EBITDA for the fourth quarter was $57.3 million, compared to $50 million in the year ago period, reflecting an Adjusted EBITDA margin of 17.8%, up from 17.4% last year. The improvement was driven by higher sales and improved margin performance, primarily in Engineered Composites. Moving to our segments and starting with Machine Clothing. Segment revenue was $177.5 million, compared to $188.1 million in the prior year period. The year-over-year decline was driven by continued weakness in Asian markets, particularly China, as well as certain strategic business exits in Europe. Importantly, revenue was stable sequentially, reflecting quarter-over-quarter stability even in China. All other regions remained largely stable during the quarter. Adjusted EBITDA for Machine Clothing was $48.6 million, compared to $53.7 million in the prior year period, reflecting an Adjusted EBITDA margin of 27.4% compared to 28.5% last year. The decline was driven primarily by lower volumes in Asia and was partially offset by the benefit from efficiencies and integration initiatives. Turning to Engineered Composites segment, revenue was $143.7 million, compared to $98.8 million in the prior year period. The increase was driven by higher volumes across multiple ramping programs, as well as the absence of program adjustments that impacted the prior year. In the fourth quarter, we also benefited from higher-than-expected material receipts and factory outputs ahead of our plan, which we do not expect to recur in the first quarter. Adjusted EBITDA for the segment was $18.5 million, compared to $6 million last year. The year-over-year improvement reflects the higher revenue base and improved margin performance, primarily driven by program ramps and the absence of program-related impacts in the period. Moving down the income statement, gross profit for the quarter was $99.9 million, compared to $90.3 million in the same period last year, reflecting a gross margin of 31.1% compared to 31.5% in the prior year period. Gross margins declined modestly year-over-year, reflecting lower margins in Machine Clothing due to volume pressure, partially offset by higher margins in Engineered Composites, driven by improved mix and program execution. Operating income for the quarter was $29.9 million, compared to $24.3 million in the prior year period, representing an operating margin of 9.3% compared to 8.5% last year. The improvement was driven by higher gross profit and leverage on sales volume. Interest expense for the quarter was $5.9 million, compared to $3.9 million in the prior year period, reflecting higher borrowing costs. Other income and expense was a net expense of $900,000, compared to a net benefit of $4.2 million in the year-ago period as a result of foreign currency revaluation impact. In the fourth quarter, our effective tax rate was 39.3%, compared to 28% in the year-ago period. The increase in tax rate was due to expiration of a Foreign Tax Credit and a less favorable discrete tax adjustment compared to the fourth quarter of 2024. Turning to the cash flow and the balance sheet. We generated free cash flow of $51 million in the quarter, compared to $59.3 million in the same period last year. The year-over-year change mainly reflects higher capital spending this quarter, as well as working capital investments to support several ramping programs. We also continued to return capital to shareholders through both dividends and share repurchases. During the quarter, we repurchased $16.8 million of our common stock and declared a regular quarterly dividend of $0.28 per share. Capital expenditures totaled $22.7 million, up from $19.1 million in the fourth quarter of 2024, with a spending focus primarily on facility optimization and investments tied to key customer programs. R&D expense came in at $12.1 million, underscoring our ongoing commitment to innovation and to advancing proprietary technologies across both Machine Clothing and Engineered Composites. We ended the quarter with $112.4 million of cash and $456 million of total debt, resulting in net debt of roughly $343 million. Including availability under our revolver, we have over $456.4 million of available capital, which, combined with the strong cash generation of the business, provide ample flexibility and liquidity to support our ongoing investments while continuing to return cash to shareholders. Turning to our outlook, as we continue to progress through our strategic review, we will be providing guidance on a quarterly basis, along with qualitative commentary on the full year. Importantly, our quarterly guidance includes the revenues and associated margins of the Amelia Earhart facility, consistent with how we are currently operating the business. For the first quarter, we expect consolidated revenue to be in the range of $275 million to $285 million, with Adjusted EPS in the range of $0.50 to $0.60. We also expect our effective tax rate for the quarter to be approximately 27% and for the full year to be approximately 24.3%. We expect our first quarter results to be the lowest of the year as we absorb the costs associated with the downtime in our Machine Clothing facility that Gunnar detailed. The downtime will have a $0.10 to $0.15 impact on EPS in the first quarter. We expect to make up the lost volume over the balance of the year. In Engineered Composites, we anticipate a year-over-year growth on higher overall volume in the first quarter, but at a moderate pace compared to the fourth quarter, as the growth rate in the fourth quarter benefited from several discrete items that are not expected to recur. Looking to the full year, current visibility supports the following by segment. In Machine Clothing, we are seeing stable demand conditions in Europe and North America, with continued weakness in China. Volumes in China stabilized in the fourth quarter at a lower overall level. We currently expect this run rate to persist through 2026. Consistent with this demand profile, we expect margin levels to remain generally in line with what we saw in the second half of 2025, recognizing that visibility remains limited and market conditions in China continue to evolve. In Engineered Composites, we expect continued growth across key platforms, including LEAP, engine program, and missile applications. Based on the current program ramps, we anticipate strong segment-level growth in 2026, with normalized margin level compared to the prior year. Now, I would like to open the call up for questions. Operator? Operator: [Operator Instructions] And we will take our first question from Michael Ciarmoli from Truist Securities. Michael Ciarmoli: Maybe, Will, just on those last comments, you gave some sort of, I guess, directional color on 2026. It sounds like maybe this Machine Clothing, you've got the weakness that persists in Asia. Just to calibrate us, I mean, should we think about this run rate sort of holding through the year? I guess with AEC, the strong growth, you still have the Salt Lake City in there. Can you give us a sense of what the underlying for AEC revenues and margins look like? Willard Station: Sure. For Machine Clothing, we fully expect that we're going to recover from the equipment failure. The equipment has been restored. It's up and it's operating, and the team is closely monitoring it to make sure that we don't have any additional impacts. For Q1, there is the risk of the $0.10 to $0.15, which I outlined in the earnings report, but we're expecting to recover all of that by the end of the year. Things are starting to look stable, but we are cautious about how much of that we can recover in Q1. As we think about the AEC business, we had a strong quarter, which we're proud of. We expect that, you know, from an AEV standpoint, we've completely resolved the issues around CH-53K. We think we've covered that in the [indiscernible] loss that we took in Q3. And the team is continuing to operate at about a 10% overall margin, which we think we're going to continue to see for the remainder of 2026. The recovery is looking good within AEC, and we're expecting to continue those strong margins as we look forward for 2026. Gunnar Kleveland: I think, Michael, you know, yes. That site continues to grow because of the CH-53K and the Boeing program there. The growth that you're seeing in the rest of the business is primarily on our missile programs as well as the LEAP. And LEAP is growing significantly both this year and next year. Michael Ciarmoli: Okay. Yes, I wanted to come to LEAP. Can you give us any sense? I mean, we've got, I think, GE calling for 15% increase in deliveries. Are you aligned with production? Is there still some level of destock going on there or any color you could shed on LEAP? Willard Station: Yes. We're definitely aligned with production. If you look at, you know, year-over-year, I think our volume is up about 27% on that program, and our factory is fully operating and supporting the ramps that we're seeing with the OEM. We're completely aligned there. Michael Ciarmoli: Okay. Okay. Last one, just housekeeping, Will. The European exits, in Machine Clothing, how much of a drag was that on revenue or will it be on revenue? Willard Station: I think we spelled some of that out in Q3. I think some of it, as we mentioned in Q3, was intentional. We had some low-margin businesses that we exited out. Some of it was we were optimizing the network, so we're closing some of the facilities. All of that was part of the synergies with Heimbach, and so it was part of our synergies there, and we've executed very well to that plan so far. Operator: Our next question comes from the line of Ron Epstein from Bank of America. Ronald Epstein: Gunnar, you mentioned CMCs. What are you guys doing in CMCs? That's the first time at least I've heard you talk about it. What are you doing there? And where do you think that can go? Gunnar Kleveland: We have been investing in high-temperature composites using our proprietary 3D weaving and then carbonizing those near-net shape parts. We've been working with several OEMs. We are going to be announcing more about this, here in Rochester, we have now the full capability to make carbon-carbon and various ceramic matrix composites. I expect that to be a strong growth engine for us on R&D in the short term and as part of our production in the short to medium term, definitely in the longer term. Lots of investment there, anywhere from large acreage hypersonic missiles to nozzles and exhausts on traditional missiles. Lots of opportunity happening. Ronald Epstein: When you do like carbon-carbon near-net shape parts, does that mean that they just have to be machined less than like otherwise, it to just get a block of carbon-carbon? Gunnar Kleveland: That is exactly it. Because of our ability to weave a near-net shape, we can also carbonize and finalize a part that is near-net shape, which prevents the machining, to your point. And that is exactly it. We've worked with this. We have to set up a very large looms in our facility, and we're creating parts and working with customers on this. The benefit, of course, with our parts is that you do not have to machine away very expensive carbon. Ronald Epstein: Yes. Interesting. Yes, then if I can, maybe just one more. Is there anything else you can say or give us detail on the reorg and, or what's going on in Salt Lake, with that facility? Gunnar Kleveland: Yes. So first of all, we are operating the facility at the level that is expected from all of our customers. The site is performing well. We're tightly aligned with especially with Sikorsky, to make sure that we're delivering to them. We've started the process. As we have mentioned before, there's been a lot of interest in the site. Now I can share that it's both from private equity as well as strategics. It is clear that our capacity in autoclave at that site is very attractive. It is not where we want to grow, but it is attractive and we think we will be able to go through this process, you know. Well, the process will take what it takes. We're well on our way. We'll be announcing more throughout the spring. Operator: Our next question comes from the line of Steve Tusa from JPMorgan. Chigusa Katoku: This is Chigusa on for Steve. It's really nice to see a quarter with no charges, and it's good to hear that you think you completely resolved the CH-53K issues with the $147 recorded last quarter. I just wanted to better understand. How comfortable are you that going forward, we'll continue to see quarters like this, where you won't see any negative EAC charges? Gunnar Kleveland: It's a good point. We took a large charge, and we did that to de-risk the program. We're seeing the performance at the expectations that we set. We, as we talked about last quarterly call, we also removed one of the programs with Gulfstream from our portfolio. The remaining programs are performing very well. There are give-and-takes in EACs, as you know, we do not expect to have any large charges as we continue through the year. Chigusa Katoku: I think, so free of charges, your underlying margins for AEC is at 13% this quarter, is this a reasonable margin run rate for this business when thinking about 2026? Willard Station: I think so. I think that's right in the range, we have seen these last couple of quarters. We expect to be there until we complete the strategic review of Salt Lake. I think that's in line with what we're expecting to see. Chigusa Katoku: Okay, great. Just a quick follow-up on that. You mentioned that the Amelia Earhart Facility is about 10% margins, but is the CH-53K in particular, call it, about 20% of your AEC business, making losses in the rest of the AEC business in the mid-to-high teens range? Is that kind of the right way to think about it? Willard Station: Yes. Well, one thing I will correct, with the charge we took in Q3, we won't see CH-53K having losses going forward. We, we've covered that in Q3. As you think about the remaining parts of the business, you know, our goal is to get it to the mid to low teens. That's what we are aiming for, clearly, we have to resolve the strategic review and divest of the site before we can, we can get there. We have some work to do before we can make that happen, but you're thinking about it the right way. Operator: There are no more further questions. I will now turn the call back over to our President and CEO, Gunnar Kleveland, for closing remarks. Gunnar Kleveland: Thank you, Dustin, and thank you, everyone, for joining us on the call today. We appreciate your continued interest in Albany International. Thank you. Have a good day. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.