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Operator: Good morning, and welcome to the Diversified Healthcare Trust Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the call over to Matt Murphy, Manager of Investor Relations. Please go ahead. Matt Murphy: Good morning. Joining me on today's call are Chris Bilotto, President and Chief Executive Officer; Matt Brown, Chief Financial Officer and Treasurer; and Anthony Paula, Vice President. Today's call includes a presentation by management, followed by a question-and-answer session with sell-side analysts. Please note that the recording and retransmission of today's conference call is strictly prohibited without the prior written consent of the company. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon DHC's beliefs and expectations as of today, Tuesday, February 24, 2026. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission, or SEC. In addition, this call may contain non-GAAP numbers, including normalized funds from operations or normalized FFO, net operating income or NOI and cash basis net operating income or cash basis NOI. A reconciliation of these non-GAAP measures to net income is available in our financial results package which can be found on our website at www.dhcreit.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. And finally, we will be providing guidance on this call, including NOI. We are not providing a reconciliation of these non-GAAP measures as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all, such as gains and losses or impairment charges related to the disposition of real estate. With that, I would now like to turn the call over to Chris. Christopher Bilotto: Thank you, Matt, and thank you, everyone, for joining our call today. I want to start with a recap of a very busy and successful 2025 for DHC, in which we executed on the stated initiatives that we identified early in the year, and ended the year as the best-performing REIT in the U.S. as measured by both share price appreciation and total shareholder return. In 2025, we completed over $1.4 billion in capital markets activity, principally focused on financing, asset sales and the establishment of a $150 million undrawn credit facility. We also completed the wind down of AlerisLife, transitioning 116 communities, representing over 17,000 units to seven regionally focused operators and completed renovations at over 30 communities. These efforts, combined with the work of our dedicated asset management team, resulted in full year consolidated NOI growth of 31.3%, a reduction in our leverage of over three turns and no debt maturities until 2028. As one of the largest owners of senior housing properties in the country, we believe our recent accomplishments, combined with the investments we have made in the portfolio and the favorable industry outlook sets the stage for continued outsized growth in our SHOP portfolio as reflected in our 2026 guidance, which Matt will expand upon momentarily. Turning to the quarter. After the market closed yesterday, DHC reported strong fourth quarter results, particularly as it relates to our SHOP NOI, which improved 27.6% over last year to $38.3 million reflecting continued execution on our highlighted initiatives and further strengthening DHC's financial position. For the quarter, DHC delivered total revenue of $379.6 million adjusted EBITDAre of $72.4 million and normalized FFO of $21.8 million or $0.09 per share. Turning first to our senior housing portfolio. SHOP NOI for the full year came in at $139.3 million, which was towards the high end of our guidance. This was driven by same property occupancy that increased 90 basis points year-over-year to 82.4%, an average monthly rate that increased 5.8%. Same-property SHOP NOI margins continued to improve, up 230 basis points year-over-year. These results were achieved despite a somewhat noisy quarter reflecting the transition of 116 SHOP communities to 7 different operators that have proven track records and well-established regional footprints. With all the transitions completed during the quarter, we remain focused on executing property-specific business plans and targeted opportunities identified across the portfolio. We are intensely focused on executing and lockstep with our operators combining disciplined operational oversight with their deep regional expertise to deliver measurable gains in occupancy and portfolio NOI. We are focused on driving higher lead to move-in conversion through the rollout of advanced CRM platforms, tighter and more coordinated procurement programs, the introduction of differentiated care levels to capture unmet demand and dynamic pricing strategies that directly capitalize on market-specific conditions. Our early engagement with these operators, many of whom are industry leaders reinforces our confidence in achieving our 2026 outlook. In addition to the operational opportunities within SHOP, we also have a healthy pipeline of ROI projects that provide an additional driver of earnings upside over the next several years. This will come through the repositioning of underutilized areas within our communities, including former and now closed skilled nursing wings where we can deploy a modest amount of capital to renovate and reopen these areas with the appropriate acuity needs. This initiative has the potential to add approximately 500 SHOP units of the portfolio that could deliver an unlevered mid-teens ROI. We look forward to sharing more details on this opportunity in the coming quarters. Turning to our Medical Office and Life Science portfolio. During the fourth quarter, we completed approximately 81,000 square feet of leasing at weighted average rents that were 7.9% above prior rents for the same space with an average term of over 8 years. Consolidated occupancy increased 460 basis points sequentially to 91.2%, primarily driven by the sales of vacant or low occupancy properties and leasing completed during the quarter. Same-property cash basis NOI increased 3.8% year-over-year, with margins improving 100 basis points to 59.6%. Looking ahead, 10.1% of annualized revenue in our Medical Office and Life Science portfolio scheduled to expire through 2026, of which 241,000 square feet or approximately 3.9% of annualized revenue is expected to vacate. Our leasing pipeline remains active, totaling 1 million square feet and reflects average lease terms of 6.9 years and GAAP rent spreads averaging more than 10%. Turning to our capital markets and balance sheet initiatives. As it relates to our disposition and deleveraging initiatives, we sold 37 noncore properties in the fourth quarter for approximately $250 million bringing the full year disposition to 69 properties for approximately $605 million. These proceeds were used to fully repay our senior secured zero-coupon bonds due in 2026, and we now have no debt maturities until 2028. Our deleveraging efforts in 2025 reduced net debt to adjusted EBITDA from 11.2x at year-end 2024, to 8.1x at the end of 2025. As we have previously noted, our near-term goal is targeted leverage levels of 6.5x to 7.5x. As of February 20, we were under agreement to sell 13 properties for $23 million. Following the completion of the sale and excluding normalized course capital recycling opportunities that may arise, we are substantially done with our large-scale disposition program. With the asset sales that have been completed over the past 2 years, combined with the significant investments we have made upgrading our communities, we expect to see a continued decline in our CapEx spend, as Anthony will discuss in more detail. Moving forward, dispositions will be on a more opportunistic basis with proceeds used to either reduce leverage or to redeploy into accretive initiatives. To conclude, demand for our SHOP communities is robust, supported by a growing 80-plus population and the outlook of new supply expected to remain muted for several years. Despite the strong gains in our share price in 2025 and 2026 to date, we still see additional share price upside as we deliver materially improving SHOP NOI and benefit from lower interest costs and reduced CapEx spend. It is our focus to continue delivering on the momentum of the past 2 years and to further drive shareholder value for our investors. With that, I will now turn the call over to Anthony. Anthony Paula: Thank you, Chris, and good morning, everyone. During the fourth quarter, our same property cash basis NOI was $70.4 million, representing a 15.4% increase year-over-year and 12.4% increase sequentially. Our fourth quarter SHOP same-property results include continued positive momentum in pricing with average monthly rate increasing 580 basis points year-over-year and 120 basis points sequentially. Same-property occupancy increased 90 basis points year-over-year. These increases resulted in year-over-year same-property SHOP revenue growth of 5.6%. Year-over-year, our same-property SHOP NOI margin increased by 230 basis points to 13.3%, driven by our growth in revenue. As Matt will highlight shortly, we expect that continued increases in revenue and occupancy on the expense moderation result in strong NOI margin growth in 2026. Turning to G&A expense. The fourth quarter amount includes $5.7 million of business management incentive fee. For the full year, we recognized an incentive to RMR of $17.9 million. This incentive was driven apart by DHC's total shareholder return of nearly 113% during 2025. Excluding the impact of the incentive fee, G&A expense would have been $7.1 million for the quarter. During the quarter, we invested approximately $37 million of capital, including $20 million into our SHOP communities and $17 million into our Medical Office and Life Science portfolio. For the full year, our capital spend totaled $146 million, which is on the low end of our guidance. We continue to focus on disciplined capital spending as evidenced by a $45 million or 23% reduction when compared to 2024. For 2026, we expect our full year recurring capital expenditures to range from $100 million to $115 million, which represents an over 18% decrease at the midpoint when compared to recurring capital expenditures in 2025. Our 2026 CapEx guidance includes $80 million to $90 million in our SHOP segment, and $20 million to $25 million for our Medical Office and Life Science properties, it is important to note that our SHOP recurring capital guidance includes approximately $10 million of refresh ROI capital. Now I'll turn the call over to Matt. Matthew Brown: Thanks, Anthony, and good morning, everyone. We ended the quarter with approximately $255 million of liquidity, including $105 million of unrestricted cash and $150 million available under our undrawn revolving credit facility. Subsequent to quarter end, we received a $27.2 million cash distribution from AlerisLife in connection with the wind-down of its business. In December, we redeemed the remaining balance on our 2026 zero-coupon bonds, which resulted in 45 collateral properties being released that have a gross book value of approximately $850 million. Following this redemption, we have a well-laddered debt maturity schedule with no maturities until 2028, allowing us to focus on operations. Our weighted average cash interest rate as of December 31 was 5.7%. Our net debt to adjusted EBITDAre declined materially from 11.2x at the beginning of 2025 to 8.1x while adjusted EBITDAre to interest expense improved from 1.1x to 1.5x over the course of the year. And based on our guidance, we expect year-end 2026 to be at or above 2x. We remain focused on further reducing our leverage, primarily by growing SHOP NOI, as well as completing the sale of 13 SHOP communities expected to close in March for $23 million. These 13 SHOP communities lost $1.2 million in the fourth quarter and $3 million for the full year. Our full year adjusted EBITDAre of $284 million was on the high end of our guidance range. For 2025, SHOP NOI was $139.3 million, which was at the high end of our increased guidance provided on our Q2 earnings call. Medical Office and Life Science NOI was $108.1 million, just above the midpoint of our guidance, and our triple net lease senior living community and wellness center NOI was $31.1 million, which exceeded our guidance. Looking ahead to 2026, we are confident that strong improvements in our SHOP segment and reduced debt from the execution of our 2025 strategic initiatives will drive free cash flow growth at DHC. For the full year, we are expecting NOI as follows. $175 million to $185 million in our SHOP segment, $94 million to $98 million in our Medical Office and Life Science segment, and $28 million to $30 million from our triple net leased senior living communities and wellness centers. It is important to note that the decline in our Medical Office and Life Science segment NOI is largely driven by the sale of 31 properties that contributed $12.3 million of NOI in 2025. In addition, the site decline in our triple net lease portfolio NOI is largely driven by the February 2025 sale of 18 triple-net leased senior living communities that contributed $1.7 million of NOI in 2025. We expect our 2026 adjusted EBITDAre to be between $290 million and $305 million and normalized FFO of $0.52 to $0.58 per share. To support the guidance provided on this call, we have added a new guidance slide to our quarterly earnings presentation, which can be found on Page 6. That concludes our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] And the first question will come from Michael Carroll with RBC Capital Markets. Michael Carroll: Chris, how should we think about the go-forward strategy from here? Can you provide some color on the opportunities to reopen the wings that you talked about at existing communities? I mean, how many units could this add to the portfolio? And what could be the expected cost from that? And should we think about that as being the main strategy on the external investment side? Christopher Bilotto: Yes. I mean, look, the main strategy is the continued unlock value proposition which is growing performance through operations. I mean, despite what we believe to be a really strong outlook for 2026. I think, collectively speaking, we believe we're still trailing kind of the benchmark and occupancy even at kind of the guidance occupancy provided. We know just based on kind of margins and where the portfolio will end up for 2026 that there's outsized potential to grow margins. Again, these are all kind of more organically opportunities. And I just want to emphasize we're laser-focused on continuing to kind of push in that direction, which will provide a healthy runway for the next several years. Specific to your question, as we think about kind of those wings, there's probably, give or take, 15 locations that we've identified that we're bullish on. I think through those, we probably can get in the neighborhood of close to 500 units, and we talked about mid-teens ROI supporting those. And so that -- that is going to be a function of over a period of time. That's not going to all happen in 2026. And I think the last part to your question, more specifically, is -- the cost is going to vary, but I think if we use kind of $125 million to $175 million per unit, that's probably kind of a decent kind of runway to consider. Again, still premature, but just kind of a benchmark to consider. Michael Carroll: That's helpful. And will external investments still kind of be focused on these types of renovations? I mean, how are you thinking about the acquisition market? Is just the renovation still just have a better risk-adjusted return versus pursuing future acquisitions? Christopher Bilotto: Certainly, we'll have a better risk-adjusted return for a couple of reasons. As you think about these kind of closed wings, mostly it's going to be to support new acuity. So for example, if we have a community that offers IL and AL, this is an opportunity to introduce memory care. And that just kind of adds for kind of the continuation of care in the community. And again, that's going to also support other drivers through kind of shared cost benefits, pushing rates at IL and AL given that you kind of have kind of the full package to offer. So it's kind of a rising tide list all boat scenario when you're investing in these wings. Look, we don't want to rule out the idea of looking at the acquisitions market, but at the same time, just want to temper that's not where our focus is today. Certainly, downstream, if we continue to see progress with the growth that we've outlined in 2026, and we think about capital recycling, we're selling kind of the assets we've noted, that could be a way to kind of support dipping our toe into the acquisition market. But again, there's a lot of opportunity embedded in what we have. So that will be kind of a priority we'll continue to address in the next couple of quarters. Michael Carroll: Okay. And then on the operating side, I mean, is there anything that's specific that drove the 4Q margin improvement? I mean, how much of that was driven by the transition disruptions just kind of dissipating versus core operational gains? Matthew Brown: It was a combination. Obviously, we had some transition noise more material in the third quarter. But as these operators are now getting in and rightsizing their cost structures, we definitely saw a little bit of a benefit in Q4 and would expect to continue seeing that as we move into 2026. Michael Carroll: Was there any specific costs in 4Q related to transitions? Or are those -- like this right now is a pretty good run rate to think about? Matthew Brown: It was a pretty small impact in the fourth quarter, nothing really material. So it's a decent run rate. Michael Carroll: Okay. And then just last one for me. Can you talk a little bit about the January and February trends, I guess, specifically, was there any impact related to the flu season? And then, what was the average of rent escalators that you're able to pass through or your operators are able to pass through to specific customers? Can you provide any color on that? Christopher Bilotto: Sure. I think for the rate, again, these -- the rate growth is going to happen sporadically over the year. We do typically have an outsized push in the beginning of the year, and this is primarily on the legacy Aleris properties. And that kind of rate range is 4% to 6%, which is consistent kind of with how we're thinking about the guidance for the year. But regarding kind of any impact with the flu season, nothing outsized. I mean, certainly, it's something that we deal with and we manage through each year. But there's nothing outsized relative to the portfolio, specifically on any impact or negative impact, if you will, with an outsized flu season. And we don't have February results fully in tow, but January looked promising and again, is in line kind of what our expectations are for the year. The one thing I would really highlight, it's going to take a little bit of time for these operators to kind of continue working through the transition. I mean, we've just completed transition properties literally at year-end last year. And so while some were done, let's call it, in kind of October, September, October, a lot are more weighted towards the back end of the year. So we should continue to see incremental benefit as they kind of get in and continue to work through the transition and the integration of their business models. But again, for January specifically, it's in line with some of the kind of the opportunistic views that we saw at the beginning of this in our overall guidance. Operator: [Operator Instructions] The next question will come from John Massocca with B. Riley. John Massocca: Maybe given some of your comments on some of these new operators continuing to get up to speed. As we think about the cadence of some of the NOI growth implied in guidance over the coming quarter? Should it be kind of back half of the year weighted then? Or is that maybe overstating the impact of timing for some of those transitions? Christopher Bilotto: I mean, when you kind of bifurcate where the growth is coming, you've got kind of 1/3 of that through occupancy and that specifically will happen over the course of the year and through kind of the sales season, if you will, which is kind of backloaded Q2 and into Q3. So for that portion, yes, we would expect that to flow through as time progresses. When you think about kind of RevPOR and the growth there, that's going to be a function of the rate increase. Again, we'll get a big piece of that in the beginning of the year combined with levels of care, which will likely take a little bit more time as they get integrated. So from a top line, it's kind of the blend of those two. From an expense side, it's going to be a little bit of benefit out of the gate. One of the benefits of transitioning these communities as we're getting kind of the much more targeted local regional penetration of staffing and getting the benefit of that flow through. But there's still some work that the operators are going to do with respect to bringing in kind of the right team at the local level or continuing to work with them to execute on the state of business plan, and that piece can take a little bit of time. So I think that's a long-winded way of saying there is definitely opportunity on the front end. And again -- and then there's going to be continued, I would say, outsized incremental opportunity as we get into mid and late in the year. John Massocca: Okay. And then just to kind of confirm, the 300 basis points of kind of occupancy growth in the guidance, is that kind of compared to 4Q end occupancy? Or is that kind of on the average occupancy over the course of 2025? Christopher Bilotto: The latter. So it's comparing kind of full year average occupancy to, again, the guide of full year average occupancy. John Massocca: Okay. And then as I think about kind of 4Q results compared to 3Q, was there anything driving the kind of sequential decline in overall rental revenue, but specifically kind of the SHOP rental income and resident fees other than just the asset sales that occurred over the 2H '25? Matthew Brown: I would say a little bit on the asset sales, but I think if anything, it may have just been more tempered towards the actual operations being transferred and maybe a slight slowdown in pushing revenue and such is really the only real driver. But a lot of that noise is now behind us, and we start with a clean slate in 2026. John Massocca: Okay. And then probably do the math myself to a certain extent. But when you think about the rev -- revenue -- the rent per room, sorry, and the RevPOR growth implied in guidance, what are you looking at there in terms of margin expansion kind of being implied with that over the course of '26? Christopher Bilotto: Yes. I mean, ultimately, if you kind of do the math, the flow-through, we would expect close to a couple of hundred basis points of margin improvement on a same-store basis. John Massocca: Okay. And then maybe moving on from the SHOP side of the business. As I think about the MOB and Life Science assets that have leases expiring in 2026, how do those look today? What do you think the prospects of renewal or releasing are? And is there potential for kind of rent roll-ups? Or how are you viewing those assets? Christopher Bilotto: Yes. I mean for the known vacates in '26, there's two primary tenants, ones with -- and they're both full building users, one is with the building in Minnesota, which represents about 1.9% of annualized revenue and another building is in Fremont, California that represents about 1% of annualized revenue. I think the building in Minnesota, look, we've got some early indications of interest. That's going to go from a single-tenant building likely to a multi-tenant building. And so that will need to play out a little bit. We do have some runway before that tenant leaves midyear. So there's still time to evaluate kind of the ultimate strategy there. For the building in Fremont, that tenant doesn't expire until Q4 of 2026. And that's a really strong R&D market for life science. And so much more healthier outlook and interest on that building. So I would say, overall, I think there's some promising outlook to re-lease both buildings, but kind of more tilted towards Fremont kind of being kind of the better of the two opportunities. John Massocca: Okay. And then I know you said dispositions are likely to be kind of selective and opportunistic. Would that kind of imply that they might be weighted more towards the MOB Life Science side of the business, just given the management transitions going on in SHOP. And I guess, if so, what does that market kind of look like today? Christopher Bilotto: Yes. I mean, I think to be transparent, we don't have anything specifically teed up. But I think to the point that if we were to consider additional sales, there's slightly more opportunity on the MOB Life Science given that we've sold a lot of SHOP and kind of got rid of the low-hanging fruit, if you will, in 2025 on what we're closing in Q1. But look, I think, generally speaking, we've seen success in being able to sell assets. I mean, if we're selling assets, it's likely those that are occupancy challenge or in need of capital, which is consistent with what we've been selling. And so we've -- I guess, it's proven that there's a market for that, given all the transactions we did last year, which was a mix of both stabilized and nonstabilized assets. And it's just going to be -- that the value is going to be relative to the situation. So again, without having anything specifically identified, it's a little bit hard to kind of dial into a specific strategy outcome. But nonetheless, I think we feel good about being able to transact. Operator: Next question will come from Michael Diana with Maxim Group. Michael Diana: What implications, if any, does your significant momentum have on the dividend? Matthew Brown: So we are -- we just came off of a very active 2025 for 2026. Our major focus is going to be around operations with these transitions. Clearly, with our guidance, we're expecting growth in NOI, growth in normalized FFO and adjusted EBITDA. It's something that our Board will consider, but no immediate priorities on addressing the dividend right now. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks. Christopher Bilotto: Yes. Thank you for joining the call today. Please contact our Investor Relations team if you're interested in scheduling a call with DHC or meeting with management at the upcoming Citi conference. Operator, that concludes our call. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. 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: 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: Hello, and thank you for standing by. Welcome to the Portillo's Fourth Quarter 2025 Conference Call and Webcast. I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations at Portillo's to begin. Chris Brandon: Thanks, operator, and good morning, everyone. Welcome to the Portillo's Fourth Quarter and Full Year 2025 Earnings Call. With me today are Mike Miles, Chairman of the Board and Principal Executive Officer; and Michelle Hook, Chief Financial Officer. You can find our 10-K, earnings press release and supplemental presentation on investors.portillos.com. Any commentary made here about our future results and business conditions are forward-looking statements, which are based on management's current expectations and are not guarantees of future performance. We do not update these forward-looking statements unless required by law. Our 10-K identifies risk factors that may cause our actual results to vary materially from these forward-looking statements. Today's earnings call will make reference to non-GAAP financial measures, which are not an alternative to GAAP measures. Reconciliations of these non-GAAP measures to their most comparable GAAP counterparts are included in this morning's posted materials. Finally, after we deliver our prepared remarks, we will be happy to take questions from our covering sell-side analysts. And with that, I will turn the call over to Mike. Michael Miles: Thanks, Chris, and good morning. The fourth quarter reflected the strengths and challenges facing Portillo's in 2025. While our core markets continue to have outstanding AUVs and profitability, our Texas market expansion continued to be a headwind for our business. As we announced last fall, we have reset our development strategy, slowing new store openings and focusing on healthy unit economics. While it will take time for our new approach to bear fruit and a number of restaurants opening in 2026 reflect prior strategy, our entry into the Atlanta market in the fourth quarter confirms the potential in our future growth strategy. Our restaurant in Kennesaw opened in November and through its first 8 weeks, registered over $2 million in sales. Portillo's fans drove from all over Metro Atlanta, indeed from all over the Southeast to get a taste of their Portillo's favorites. In addition to the outstanding top line, Kennesaw is the latest example of our reduced cost restaurant of the Future 1.0 format, a 6,200 square foot building that is about 20% smaller than most of the restaurants opened over the prior 5 years. For our new philosophy of separating new unit openings with more time and distance, the next restaurant in Atlanta will not open until 2027 and will be about 50 miles from Kennesaw. We are gratified and frankly, not really surprised by the results at Kennesaw. Each time we have entered a new market over the last 10 years, we've seen a similar response with 7 of those restaurants also exceeding $2 million over their first 8 weeks. Our approach over the next several years will consist of more of these types of entries, tapping into the pent-up demand from Portillo's fans to support our first in-market openings, then letting awareness and demand build before opening subsequent restaurants. We will continue to iterate on our prototypes as we look to develop the best possible offering for customers and shareholders with 4-wall profit potential driving each decision. Our Perks program continues to show promise. We now have more than 2 million members enrolled and have seen strong results for promotions delivered through the program. We are just scratching the surface and have a lot of opportunity to more precisely target offers. I am confident that Perks will play a valuable role in driving traffic improvements in 2026. And while traffic and sales continue to be our primary focus, we also took steps to improve labor management and profitability of the lower-volume restaurants in Texas during the fourth quarter. I'm also pleased to report, as you likely saw in our announcement 2 weeks ago that Brett Patterson has joined Portillo's as our new Chief Executive Officer. Brett has had a stellar career in the restaurant industry, working his way up from the front lines. He has all the qualities that the Board was looking for to lead Portillo's next phase of growth, operations experience, a strategic mindset and a people-first leadership style. Most importantly, he's a great cultural fit with Portillo's. The Board and I look forward to working with Brett to provide our customers with the best restaurant experience, our people with a great place to work and our shareholders with a profitable growing business. Before I hand it to Michelle, I would like to take a moment here to personally thank the Board, our executive team and all of the people at Portillo's for their support and commitment over these last several months. My time as interim CEO has only strengthened my conviction that this brand has a very bright future. Michelle Hook: Thanks, Mike, and good morning, everyone. During the fourth quarter, revenues were $185.7 million, reflecting an increase of $1.1 million or 0.6% compared to last year. Our revenue growth in the quarter was driven by non-comp restaurants. Restaurants not in our comp base contributed $7.8 million of the total year-over-year increase in revenue during the quarter. Same-restaurant sales declined 3.3%, which decreased revenues approximately $5.4 million in the quarter. The same-restaurant sales decline was attributable to a 3.3% decrease in transactions. Average check in the quarter was flat due to an approximate 2.3% increase in net effective menu prices, offset by a 2.3% decrease in product mix. We did not take any additional pricing actions during the fourth quarter, and our net effective price increase was approximately 3.2% for the full year. We will continue to evaluate pricing options in 2026, but our focus will be on growth via transactions versus pricing. We do anticipate that perks and other offers will continue to pressure our pricing benefit. Moving on to our costs. Food, beverage and packaging costs as a percentage of revenues increased to 34.6% in the quarter from 34.1% in the prior year. This increase was primarily the result of a 4% increase in our commodity prices, partially offset by an increase in price. In the quarter, we experienced increases in several categories, including our primary proteins of beef and pork. As we stated in January, we are forecasting mid-single-digit commodity inflation with primary pressures coming from the beef category. Labor as a percentage of revenues increased to 26% in the quarter from 24.6% in the prior year. The increase was primarily due to lower transactions, incremental wage increases and deleverage from our newer restaurant openings, partially offset by labor efficiencies and an increase in price. Hourly labor rates were up 3% in 2025. In 2026, we are estimating labor inflation of 3% to 3.5%. Other operating expenses increased $0.4 million or 1.9% in the quarter compared to the prior year, which was primarily driven by the opening of new restaurants. As a percentage of revenues, other operating expenses increased to 12.2% from 12% in the prior year. Occupancy expenses increased $1.2 million or 13.6% in the quarter compared to the prior year, primarily driven by the opening of new restaurants. As a percentage of revenues, occupancy expenses increased 0.6% compared to the prior year. Restaurant level adjusted EBITDA decreased $4.7 million to $40.6 million in the quarter from $45.2 million in the prior year. Restaurant level adjusted EBITDA margins decreased approximately 270 basis points to 21.8% in the quarter versus 24.5% in the prior year. As Mike noted, our Texas market expansion created a headwind. We incurred losses during the year and the impact on consolidated restaurant level margins were 180 basis points in the fourth quarter and 170 basis points for the full fiscal year. We've taken targeted actions to improve performance in this market. And while we still have a long way to go, we delivered slightly positive results in the final period of the quarter. In 2026, we estimate our restaurant-level adjusted EBITDA margins to be in the range of 20.5% to 21%. This estimate is inclusive of continued headwinds in our Texas restaurants and $4.5 million of additional bonus expense, assuming targets are met. Our general and administrative expenses decreased by $0.9 million to $19.4 million or 10.5% of revenue in the quarter from $20.3 million or 11% of revenue in the prior year. This decrease was primarily driven by lower variable-based compensation, partially offset by dead site costs of $1.5 million related to our strategic development reset. These costs reflect our deliberate decision to move to a more measured pace of new restaurant growth, reemphasizing unit economics and return on investment. Dead site costs for the full year were $5.1 million. In 2026, we expect G&A expense to be $80 million to $82 million, which includes a $4.5 million headwind from bonus expense, assuming targets are met. Preopening expenses decreased by $0.6 million to $3.3 million in the fourth quarter of 2025 compared to $4 million, primarily reflecting a strategic reset of development activities and the deferral of planned openings into 2026. Adjusted EBITDA was $24.7 million in the quarter versus $25.2 million in the prior year, a decrease of 2.1%. For 2026, we anticipate adjusted EBITDA to be flat versus 2025. But I want to emphasize that our 2026 estimate includes an expected $9 million headwind from a fully earned bonus at both the restaurant level and support functions. Below the EBITDA line, interest expense was $5.7 million in the quarter, a decrease of $0.4 million from the prior year. This decrease was driven by a lower effective interest rate of 6.7% versus 7.5% for 2024. At the end of the quarter, we had $90 million drawn on our revolving credit facility. Our total net debt at the end of the quarter was $334 million. We have approximately $56 million of available capacity on the revolver. For 2026, we expect to open 8 new restaurants and anticipate total capital expenditures in the range of $55 million to $60 million, including investments in our existing restaurants, our commissaries and other corporate initiatives. Income tax benefit was $0.8 million in the quarter compared to expense of $1.9 million in the prior year. Our effective tax rate for the year was 12.4% versus 16.2% in 2024. This decrease was primarily driven by changes in Class A equity ownership, our valuation allowance and effective state tax rates. Cash from operations decreased by 26.7% year-over-year to $71.9 million year-to-date. We ended the quarter with $20 million in cash. In 2026, we expect to generate positive free cash flow and intend to use any excess cash to pay down our revolving credit facility. Also in 2026, we will focus on executing strategies that strengthen transaction growth across our restaurants while optimizing returns on our new restaurants. We will leverage our Perks platform along with other marketing efforts to drive trial and frequency. We will prioritize operational excellence and invest in our team members. These priorities support our commitment to positive free cash flow and delivering long-term value. Thanks for your time today. And operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Sara Senatore with Bank of America. Sara Senatore: Maybe I do have a question and a quick clarification. The question is on -- you mentioned the Kennesaw restaurant and opened impressive $2 million in sales, I think, through the first 8 weeks. That's, I think, kind of an annualized run rate of maybe close to $13 million, which isn't that different from, I think, some of what you've seen in some of your Texas stores, for example. So I guess, I know in one case, you have lowered the footprint, so it can accommodate lower AUVs. But as you think through the maturity curve next year, would you expect less of a falloff than perhaps you've seen just because to your point, you're not opening another Atlanta restaurant until 2027, it will be farther away? Or just that's been something that I think we've struggled to kind of forecast is year 2. So any thoughts you have on what that looks like? And then like I said, just a quick clarification, Michelle, one of your comments. Michael Miles: Sara, thanks for your question, and I think you answered it pretty well, too. Kennesaw yes, Kennesaw through its first 100 days did $3.8 million in sales. So we're pretty happy with it. But you're right, we don't expect it to be a $14 million restaurant. And it's kind of settling in around $200,000 a week right now. And over time, we'll probably level off somewhere below that. But that's -- I think the main difference is between that and what we saw in Dallas, for instance, is that we're not planning on opening a bunch of more restaurants in the immediate vicinity of Kennesaw. The Colony, which got a lot of attention on this call over the years, was surrounded by other restaurants within the first 3 years of it being open. We won't open our next restaurant in Atlanta until the spring of '27. And we have plans to separate the other restaurants that we open in Atlanta with a lot more time and distance than what you saw in Dallas. Sara Senatore: Okay. So kind of TBD on maybe what the curve looks like, but less cannibalization. And then just, Michelle, you mentioned that you had EBITDA, I guess, final period of the quarter, slightly positive results. I guess, was that margin expansion or EBITDA growth? Or maybe you could just clarify that comment that you made. Michelle Hook: Yes, Sara, no problem. So we saw both. We saw margin expansion when you compile all the Texas restaurants. And when you compile them all, we saw profitability amongst all the restaurants that we had. So it was both. And it primarily comes back to the work we're doing around labor and labor deployment within that market as we're adjusting to the lower volumes. Operator: Our next question comes from Gregory Francfort with Guggenheim Partners. Gregory Francfort: I have 2 questions. The first is just the new growth strategy. Can you just talk about what it means from a manager and employee hiring perspective? I guess, with things a little bit more spread out, do you pull from restaurants in other regions more? Does that have any impact on preopening or G&A? Just any thought on that would be great. Michael Miles: Yes, Greg, I think the price that we will pay for having more new markets with single stores in it for longer is around new openings, which will be a little less efficient. And it's also a little more difficult from a distribution and oversight standpoint. But those are probably tens of basis points in the scheme of things as opposed to having to deal with restaurants that are doing sub-$5 million AUVs for a period of time. So that's the trade-off that we're willing to make. We haven't fully quantified it yet, but it certainly is something that we'll have to work through. Gregory Francfort: Got it. And then just my second question is just maybe within the comps, anything stand out regionally or by income cohort as kind of places of strength or weakness? Michelle Hook: Yes, Greg, when you decompose the comp, it's pretty consistent when you look at Chicagoland versus the outer markets. I think I've mentioned we've seen a little bit more pressure recently in a market like Arizona, but we did open a restaurant there in 2025 that did have some cannibalization. So you do get some of that impact in that market in particular. But largely speaking, it's not something where we see a wide gap between Chicagoland versus our outer markets. Operator: Our next question comes from Brian Mullan with Piper Sandler. Brian Mullan: Just sticking with Chicagoland, can you give an assessment of the consumer value proposition or the value scores and what has happened with those versus maybe where those were historically and just talk about a path to recovery to where you want to be there for Portillo's. And I know some of it is dependent on the environment, which is tough, but I'm sure you don't want to wait around for the environment to get better. So just your perspective on that would be great. Michelle Hook: Yes, Brian, we've seen improvement in 2025 in our value perception scores. And when you look at some of the catalysts behind that, I think it goes back to when we launched our Perks program in March and the offers that we've run over the course of '25, one of the more aggressive ones being our May BOGO beef offer. We also ran a hotdog offer in July, and then we did a cheeseburger offer in September. So when you look at all of those combined and you look at the sort of peaks within the value scores, that's where you see that coming up as well. So we continue to see good movement on that. And that's based on and driven by things that we're being, in my opinion, front-footed on to make sure that we're giving that value to our guests, not just in the form of price points, but also operationally. And we've talked about Tony and the ops team's focus on hospitality and giving a good guest experience and focusing on accuracy, speed of service. We can bring them in with those offers, but I think the key is giving them a good experience to also their perception of value. So those are the things that we saw in '25, and we feel good about the upward movement in the perception scores. Michael Miles: And Greg, just to give you a little historical perspective on Chicago -- sorry, Brian, I went back at having been here 10 years ago and now coming back. I went back and looked at what the Chicago market looked like when Dick Portillo's sold the business back in 2014 and compared it to today. And back in 2014, there were 34 restaurants in the Chicago market for Portillo's. Since then and going into the end of '25, the number of restaurants have grown by 30% in Chicago. The revenue in Chicago has grown by 60% and the restaurant level margin in Chicago has grown by 80%. So it's a very healthy business here and continues to absolutely deliver for us. Brian Mullan: Okay. And then as a follow-up, I just want to come back to Texas. Maybe in the context of -- at ICR, you shared an Arizona example, it was very interesting. So you've acknowledged going too fast in Texas. You've got the stores open now. It sounds like you've just made some tweaks to labor. Maybe can you just talk about the order of priorities from here, how marketing can play a role and maybe what you can or can't take from Arizona just to make sure you grow Texas from here the way you want? Michael Miles: Yes, it's a great question. And for sure, building sales is the #1 job to getting the Texas market to where it ultimately needs to be. The labor efforts are the thing that we were able to execute on first. And we've got restaurants in Chicago that do $4 million and $5 million and have for a long time and make money. And I think we need to get that mentality into the market in Texas as well. But ultimately, it's about building sales. We're pulling a lot of short-term levers that are available, whether it's Perks offers or third-party affinity offers. We've had a bundled meal deal going there since the fourth quarter. And we've ultimately got to find a way to better explain Portillo's to consumers who aren't yet familiar with us. People who know Portillo's love it and people who don't know Portillo's have no idea what it is. And we're still trying to crack the code for how to market to the group of folks who haven't yet figured it out. And our new CMO, Denise Lauer, has got that on her priority list for 2026. Operator: Our next question comes from Andy Barish with Jefferies. Andrew Barish: I wanted to just double-click on kind of, I guess, Denise's priorities given there's different strategies in Chicagoland versus the outer markets. And then yes, on the perks as you approach the year, any kind of info you're willing to share on sort of frequency or usage patterns or anything like that. But yes, just some broader questions around kind of Denise's plans for '26. Michael Miles: Yes. Denise has got a lot on her plate, and she's about to have a new boss. So she's going to get some -- undoubtedly some additional direction there. I would say her priorities are to drive traffic, obviously, first and foremost, and the Perks program does feel like our near-in best weapon for doing that outside of, obviously, great operations, which has always been our #1 traffic driver. I don't -- we've shared some data on Perks in terms of the number of people in the program and the activation. We've got a couple of million people in the Perks program at this a little over that now at this point. And I think the engagement level has been terrific with the offers that we've made through Perks. But equally, I think Denise is focused on the Texas turnaround that we talked about just a moment ago and finding additional levers to pull to drive trial in Texas because we've seen in Phoenix for sure, and I think we're seeing in Texas that when we do get people in the door, our conversion to long-term customers is pretty high. Andrew Barish: Great. And do you expect at this point, kind of the marketing pulses in some of those outer markets that you've done over the past year or 2? Michelle Hook: So when we look at the marketing spend, Andy, I think that's one of the things that Denise has been determining. And there is a theory of pulsing and then versus always on-site marketing. And so I think in the newer markets, where we're at right now is we need to be always talking about the brand. And whether that's in the form of traditional advertising with, as Mike mentioned, we have a bundled meal right now, which is probably on more traditional advertising across all of our markets versus digital marketing and those things versus field marketing. And so regardless of what marketing tactic we use, we need to always be front and center and relevant, particularly in these newer markets. Dallas, Houston, where our awareness is fairly low. And so that's how we're thinking about it today versus, hey, we're going to pulse, come out, pulse back in a couple of quarters is we have to be front and center right now on a fairly regular basis. Operator: Our next question comes from Jim Salera with Stephens Inc. James Salera: Michelle, you had some commentary around favoring transaction growth versus leaning on price. Are you able to just give us some color on carryover pricing into '26, assuming no incremental price? Michelle Hook: Yes, absolutely, Jim. So the pricing actions that are going to start to roll off, we had 1.5 points roughly of pricing that rolled off in January of this year. We'll have another point that rolls off in April, so beginning of Q2. And then we'll have another, call it, 0.5 point or 70 basis points that rolls off in June. And so that's the pricing cadence that rolls off from 2025. But as I mentioned in the commentary, we are seeing impacts from Perks and other offers to that pricing through the discounts that we're offering through that platform. And so even when you look at the fourth quarter, Jim, you'll see that our pricing impact was 2.3%. It was 3.2% for the full year. So as we sit here in the first quarter, we're definitely sub-2% pricing. But depending on the offers that we run in Q1, that could go below even 1 point of pricing in the first quarter depending on those impacts. But that's the cadence that rolls off in 2025. James Salera: Great. And then as a follow-up, could you offer any thoughts on attachment and mix as it pertains particularly to some of the parts program? I know industry-wide, it sounds like kind of down low single-digit transactions. So maybe mix can be kind of a swing factor to the positive or the negative, depending on how things progress. Any commentary there would be helpful. Michelle Hook: Yes. And for the Perks offers that we've run, Jim, we're not seeing significant ticket degradation. When you look at our average ticket today, it's about $23.60 for the total company. And so as we run those offers, they haven't been again, significant degradation to the ticket. So we like what we're seeing with those that we're running, and we continue to measure those impacts, not just on that, but obviously, on the profitability in total for the offer. But that's generally what we've been seeing. Operator: Our next question comes from Sharon Zackfia with William Blair. Sharon Zackfia: Kind of going back to Perks and it being kind of more of a surprise and delight program, is there any thought of maybe needing to convert that to more of a typical points accrual program? Michael Miles: It's certainly a question that gets asked of us a lot and that we've asked ourselves. I think to this point, we're really pleased with the way the Perks program has performed so far. And so turning it into a punch card program with all of the attendant costs that go along with the rewards in that kind of a format is not something that we're planning on proceeding with right this instant. But obviously, it would always be an option. But I have to say that relative to -- you saw Subway the other day had to pull back on its 4 for 4 foot long thing. We're not looking to get into a situation where we're doing that kind of a punch card deal at this point. Michelle Hook: And Sharon, the one thing I'd add on that is -- the difference between -- and I know you understand this between us and others is we are an experiential brand. And part of this surprise and delight program is we can give experiences, whether it's tastings for new menu items, whether it's merchandise, we don't view it as, to Mike's point, a traditional punch card program where if you buy X, you're going to get X because the nature and the DNA of Portillo's is we are an experiential brand. So I think that goes with who we are and aligns with that thought process as well. Sharon Zackfia: Okay. And then on the restaurant level margin guidance, Michelle, does that actually assume you have no price in the back half of the year? And with that kind of mid-single-digit COGS inflation, is that more first half weighted because you'll lap from some of the beef inflation in the back half? Michelle Hook: No problem. So the margin does not assume 0 price. As we move towards the year, we do expect the mid-single-digit commodity inflation, but we don't expect that we're going to be able to pull the pricing lever, Sharon, to fully offset that. Having said that, though, we continue to do our pricing analytics to see where we have opportunities to take price. And we do expect that in the front half of the year, in particular, we are going to see heavier inflation. So the first 2 quarters of the year. Right now, we're projecting higher commodity inflation versus the back half of the year. But at the same time, we haven't made any decisions on pricing. And we need to be mindful of, again, growing the business through transactions versus price taking. But the guide assumes a little bit of price actions over the course of 2026. Operator: Our next question comes from Dennis Geiger with UBS. Dennis Geiger: First, I wanted to ask a little bit more on the operational side of things and maybe where you are with sort of drive-thru speed, overall ops and overall speed/customer experience, if there's any latest updates on that front? Michael Miles: Yes, sure. I think we're feeling good about where we are operationally. Staffing is terrific. Hourly turnover is down under 80% for the year. So a really great cultural story. GM turnover at sort of historic lows for us. And we want -- we had -- as a priority last year to get better in the drive-thru. And those of you who are old enough to remember Joe Pecsi's line about what happens to you at the drive-thru know it's hard to get both speed and accuracy better at the same time. We were able to do that last year with nearly 40-second improvement in our speed of service and a significant improvement in the accuracy measures as well. So I think that sets us up for a good year in '26. As I said earlier, marketing is important, but the most important driver for Portillo's of traffic and frequency is great operations and great experiences. Dennis Geiger: Terrific. And then sort of following up on that, just kind of looking at performance by channel or sort of anything to highlight around customer behavior changes, whether it's day part, day of the week, off-premise, on-premise delivery. Any call outs, observations on pattern behavior changes that you're seeing across channels and dayparts, et cetera? Michelle Hook: Yes, Dennis, I'll take that one. So we are seeing more of an uptick in our off-premise channels, particularly our pickup channel has been our fastest-growing channel in 2025, and our delivery channel did see some growth as well. And so that's where we've seen a little bit more of our growth coming from. And so we have to obviously make sure that those channels are equally as important to our guests and their satisfaction. And so that continues to remain a focus of ours because we know those channels are ones that continue to grow for us. Operator: Our next question comes from David Tarantino with Baird. David Tarantino: Michelle, I was hoping -- or I was going to ask a question about the guidance. And specifically, what type of comp framework are you assuming in the guidance outlook for EBITDA? And I guess the second part of the question is, how are you running in Q1 so far relative to that plan? Michelle Hook: Yes, David, we're not giving any top line guidance purposefully. And I think I mentioned this at ICR in terms of the visibility around that is not as clear to us in terms of not just where the macro is. Obviously, our new restaurants play a role in the non-comp performance. And so we're purposefully not guiding anything on the top line. We do feel we have more visibility to that middle of the P&L and feel comfortable with where we're sitting from an adjusted EBITDA guide standpoint and then all the categories that make that up in between. So that's why we're not guiding to the top line. In terms of Q1, we've had some puts and takes on weather that has been well documented and talked about, specifically in January. So those are known headwinds for everyone in the industry. But what I would say is weather aside, our sales fundamentals are solid and we feel good about them as we sit here today. David Tarantino: Great. And then I guess a follow-up to the guidance question. I guess, are there ways to deliver the EBITDA guidance with a wide range of revenue outcomes? I guess I'm not clear on that point, given the lack of guidance. There must be an underlying assumption on the revenue growth. I appreciate you not wanting to give it. But I guess the question is, do you have the ability to pull levers throughout the P&L to deliver it at a wide range of revenue outcomes? Michelle Hook: Yes. Absolutely, David. And so we talked about pricing. We don't want growth to come through pricing, but that is a lever. There's obviously cost headwinds that we're facing. So we have to think about that as a lever. We've talked about the Texas turnaround. We've talked about that we need to be able to grow the top line in those markets, in particular, that's a lever to continue to see growth in the top line. Now that's mostly going to come in the form of noncomp versus comp, but obviously still top line growth. And then continuing to talk to our guests in our core market as well is another opportunity. We've talked about the value perception scores going up, the use of perks as a lever. Other menu innovation items could be a lever. We've recently launched new sauces as part of our portfolio. So there are other things absolutely that we can do and levers we can pull to drive that top line up. Operator: Our next question comes from Brian Harbour with Morgan Stanley. Brian Harbour: Michelle, do you expect marketing spending up substantially this year within that guidance? Or is it largely similar? And I guess you kind of talk about more of an always-on approach. Is that -- how efficient is that right now? Or how do you think about the efficiency of that? Michelle Hook: Yes. Brian, we do expect to see a slight uptick in marketing spend this year, but nothing material. It's within the guide that you see specifically within the G&A guide is where you would see that incremental marketing spend. And so in terms of the approach of always on, as I mentioned, there's multiple approaches you can take whether it's traditional is going to be more expensive being on TV and doing commercials and things of that nature. And we frankly don't have a lot of scale in those markets to view that as an extremely efficient use of our advertising dollars. And so we have to make sure that we're investing in other areas, digital, social. I mentioned field marketing as well. So all those things are going to play a role in the "always-on approach" versus the prior approach of pulsing more involved traditional forms of marketing and advertising spend. Brian Harbour: Okay. Understood. And the mix component of same-store sales, can you -- I know that's been sort of a drag for a while, but how are you thinking about that as you go into this year? Michelle Hook: Yes. I think to your point, we've seen mix headwinds over the course of the past several years. Now we've seen that moderate. We even saw that for this year. Our mix was only down 1.2% for the full year, which I think was the lowest it's been in several years. And kiosks played a big role in that. And so it's helping to mitigate some of those natural headwinds that we see in mix, which is lower items per transaction and then trade downs. So those are the 2 things that are negatively impacting mix. And we are seeing that today. We see continued lower items per transaction, whether it's across all channels and then some trade downs going on. So we have to be able to mitigate against that. We continue to look at kiosks as how can we increase adoption there, how can we continue to lean into those digital channels, which we know comes with a higher ticket. So I continue to see that, Brian, to answer your question, as a headwind in 2026, but there are things that we need to do to continue to moderate those headwinds within mix, like I mentioned. Operator: We have reached the end of our question-and-answer session, which now concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Avanos Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on February 24, 2026. I would now like to turn the conference over to Jason Pickett, Vice President, Corporate Finance and Treasurer. Jason Pickett: Good morning, everyone, and thanks for joining us. It's my pleasure to welcome you to Avanos' 2025 Fourth Quarter and Full Year Earnings Conference Call. Presenting today will be Dave Pacitti, CEO; and Scott Galovan, Senior Vice President and CFO. Dave will review our fourth quarter and full year results and the current business environment. Scott will share additional details regarding these topics and provide our 2026 planning assumptions. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, avanos.com. As a reminder, our comments today contain forward-looking statements related to the company, our expected performance and current economic conditions, including risks relating to ongoing tariff negotiations and our industry. No assurance can be given as to future financial results. Actual results could differ materially from those in the forward-looking statements. For more information about forward-looking statements and the risk factors that could influence future results, please see today's press release and risk factors described in our filings with the SEC. Additionally, we will be referring to adjusted results and outlook. The press release has information on these adjustments and reconciliations to comparable GAAP financial measures. Now I'll turn the call over to Dave. David Pacitti: Thanks, Jason, and good morning, everyone. I'm pleased to report that we delivered solid fourth quarter and full year results driven by the excellent progress we made advancing our strategic priorities. Fueled by the strong execution of our commercial teams, we delivered full year net sales of $701 million, exceeding the range that we revised following Q3. Additionally, we finished at the high end of our earnings guidance range, which was also revised upwards following Q3 and generated $0.94 of adjusted diluted earnings per share during the year. While the impact of tariffs in 2025 obscured the profitability of the company, our team took steps to mitigate their impact, and we will see the benefits of those measures starting this year. Moreover, we are closely evaluating the potential impact of the recent Supreme Court rulings on tariffs and monitoring subsequent actions by the administration. Once there is more clarity on how that ruling may impact our financial outlook, we will pass that information along to the investment community in subsequent updates. In the meantime, and as you will hear on the call today, please note that our tariff mitigation initiatives are firmly on track. 2025 represents an important period in the continued evolution of Avanos. Over the past several years, we have taken deliberate steps to reshape the company into a more focused medical technology organization centered on categories where we have strong clinical value propositions and the ability to compete effectively. As you will hear today, those efforts combined with driving cost efficiencies have put Avanos in a better position to drive shareholder value going forward. Let's spend a few minutes reviewing key recent trends and developments in our business. Our Specialty Nutrition Systems portfolio delivered strong above-market full year results growing over 8% organically versus prior year, reaffirming our market-leading positions in long-term, short-term and neonatal enteral feeding. Demand for our long-term enteral feeding products remain strong, and our underlying growth continues to exceed market levels, both domestically as well as internationally, supported by our go-direct transition in the United Kingdom executed in the third quarter of 2025. Our short-term enteral feeding portfolio thrived this year, posting double-digit organic growth globally compared to full year 2024. These results were fueled by the continued expansion of our U.S. CORTRAK standard of care offering. Furthermore, adoption of CORGRIP 2 retention system launched in late 2024 and designed to reduce the risk of 2, migration and dislodgement has delivered higher-than-anticipated sales results and contributed to the momentum in short-term feeding. Finally, our neonatal solutions business delivered above-market full year performance. Now turning to our Pain Management and Recovery portfolio. Normalized organic sales for 2025 were up 2.3%. Excluding the impact of foreign exchange and our previously announced strategic decision to withdraw from certain low-growth, low-margin products. Our radiofrequency ablation or RFA business continues to deliver outstanding results, posting full year double-digit organic growth compared to 2024. We experienced sustained growth in our RFA generator capital sales this year, enabling us to capture higher procedural volumes and to expand the installed base of capital units that we expect will continue to contribute to above-market growth in this business. In particular, we are seeing strong growth within our ESENTEC and TRIDENT product lines. Additionally, we are encouraged by the progress of our COOLIEF offering internationally, leveraging reimbursement tailwinds in several geographies, including the United Kingdom and Japan. Our surgical pain business was down year-over-year. While the implementation of the reimbursement afforded by the NOPAIN Act is taking longer than anticipated, the value proposition of the NOPAIN Act is clear as it provides hospitals, ASCs and caregivers with improved options to administer non-opioid postsurgical pain relief. I would point out that we offer some of the few devices approved under this legislation. We're excited to support better patient care through our ON-Q and ambIT product line offerings and are encouraged by the growing number of claims submitted since the implementation of the NOPAIN Act. Finally, our GAME READY portfolio, while down year-over-year, posted similar revenue levels throughout 2025. We have enhanced our go-to-market model in GAME READY by transitioning the U.S. rental portion of the business to WRS Group and by realigning our selling efforts to focus more strategically on our core sports and rehab channels. Importantly, we expect this structure will enhance our profitability. Moving on, I would like to take a moment to remind you of our five strategic imperatives, which guide us in how we manage the business. They are as follows: to accelerate organic growth in our strategic business segments, manage and mitigate the impact of tariffs, realize operating efficiencies, improve or divest underperforming assets and acquire businesses that are synergistic with our portfolio with a particular emphasis on Specialty Nutrition Systems or SNS segment. Let's take a few minutes to address these imperatives in a bit more detail, starting with our financial performance. For the quarter, we achieved net sales of approximately $181 million. Adjusted for the effects of foreign exchange and the impact of our strategic decision to withdraw from revenue streams that did not meet our return criteria, organic sales for our strategic segments were up 3.4% compared to a year ago. Additionally, we generated $0.29 of adjusted diluted earnings per share and $28 million of adjusted EBITDA during the quarter, with adjusted gross margin of 53.4% and adjusted SG&A as a percentage of revenue of 39.1%. For the full year, adjusted organic sales for our strategic segments were up 6% compared to a year ago and provide good momentum heading into 2026. This growth reflects continued strength in Specialty Nutrition Systems and improving trend in Pain Management and Recovery. Adjusted EBITDA for the year was $87 million with adjusted gross margin of 54.6% and adjusted SG&A as a percentage of revenue of 42%. Moving to our second imperative. We are executing on a range of solutions to mitigate the impact of tariffs on our business and gross margin profile. These efforts include internal cost containment measures, pricing actions, extending previously issued temporary tariff exemptions for portions of our portfolio and lobbying efforts with AdvaMed and other third parties that have interactions with the administration. I am pleased to report that we are successfully executing on our China exit strategy, and we are very confident in our plan to have all syringe manufacturing operations and sourcing out of China by June of this year. Regarding our third imperative, the team is doing a great job driving operating efficiencies. We expect the initiatives put in place in late 2025 will drive ongoing cost improvements for the business in 2026 and beyond. Finally, with respect to our fourth and fifth imperatives during the year, we completed several important portfolio-shaping actions. We divested our hyaluronic acid business, exited the rental portion of our GAME READY business, acquired Nexus Medical into our neonatal portfolio and announced the exit of our IV therapy business, which is scheduled to be completed in the first quarter of 2026. The integration of Nexus is going very well. And our sales pipeline is robust, thanks to the effective execution of our commercial and supply chain teams. Our ability to leverage our sales teams in the NICU is working as planned, and we are continuing to look for growth-accretive transactions that can achieve similar results. With that, I'll turn the call over to Scott for a more detailed review of our financial results. Scott Galovan: Thanks, Dave. I'll spend the next few minutes discussing our full year's results at the segment level. In 2025, our Specialty Nutrition Systems segment grew over 8% organically, led by our short-term enteral feeding portfolio, which posted double-digit growth globally compared to full year 2024. Long-term feeding grew high single digits and was supported by continued strong execution and our U.K. Go-Direct. Finally, our Neonatal Solutions business delivered another above-market full-year performance, growing over 6% compared to the prior year. As we have previously signaled, we anticipated lower but still above-market growth for our NEOMED product line as we have entered the late stages of the ENFit adoption cycle in North America. Further, as Dave noted, the integration of Nexus has been very successful, and we are confident in the ability of our sales team to drive continued adoption and deliver double-digit organic growth in 2026. From a profitability standpoint, operating profit for our Specialty Nutrition Systems segment for the full year was 19%, down 100 basis points compared to a year ago as margin improvements from higher sales volume were offset by unfavorable tariff impacts. Now turning to our Pain Management and Recovery portfolio. Normalized organic sales for 2025 were up 2.3%, excluding the impact of foreign exchange and our previously announced strategic decision to withdraw from certain low-growth, low-margin products. Our radiofrequency ablation, or RFA, business continues to deliver outstanding results, posting full year double-digit organic growth compared to 2024. Our Surgical Pain business was down year-over-year as the potential impact from the NOPAIN Act is taking longer than anticipated. Finally, our GAME READY portfolio, while slightly down year-over-year, posted similar revenue levels throughout 2025. I'm pleased to report our operating profit for our Pain Management and Recovery segment was 4%, a 270-basis point improvement compared to a year ago, which demonstrates our recent top line and cost management execution that enabled us to expand segment profitability, notwithstanding unfavorable tariff costs. Finally, our hyaluronic acid injections and IV therapy product lines reported in Corporate and Other declined over 35% compared to prior year, primarily due to the divestiture of the HA business at the end of July. As previously shared, we will continue to manage the IV therapy product line for cash and anticipate fully exiting this product category in the first quarter of 2026. Moving to our financial position and liquidity. Our balance sheet remains strong and continues to provide us with strategic flexibility with $90 million of cash on hand and $100 million of debt outstanding as of December 31. We have maintained leverage levels meaningfully below 1 turn for several quarters and will continue to be good stewards of our balance sheet. As illustrated by our recent Nexus Medical acquisition, we can continue to maintain healthy liquidity levels and balance sheet strength while also deploying capital towards strategic acquisitions that can bring accretive revenue growth and operating margin accretion. Free cash flow for the quarter was $21 million. Cash generated from operations was partially offset by higher capital expenditures supporting our strategic supply chain initiatives, as highlighted earlier by Dave. For the full year, we generated $43 million of free cash flow, higher than anticipated, primarily due to timing of onetime cash charges related to our aforementioned cost transformation efforts and timing of tax payments. Now turning to our 2026 outlook. Our 2026 guidance reflects continued mid-single-digit organic sales growth in our strategic segments and operating margin improvement, notwithstanding the incremental unfavorable tariff expense we will incur during the year and its impact on gross margin. While we expect a pause in gross margin improvement this year due to tariffs, we expect favorable gross margin momentum beginning in the second half and continuing into 2027, given our progress on our tariff mitigation strategy. Accordingly, we expect net sales in the range of $700 million to $720 million, with our SNS segment growing mid- to high single digits organically and our PM&R segment growing low to mid-single digits organically. Additionally, revenue within Corporate and Other will be approximately $1 million as we fully exit the IV therapy business in Q1. Finally, we expect foreign exchange rates in 2026 to be near current levels. These top line results will support adjusted diluted earnings per share of $0.90 to $1.10. This guidance reflects full year tariff P&L costs of approximately $30 million, a $12 million increase from 2025, with the majority of this cost incurred by our neonatal products sourced from China. As a reminder, we remain very confident in our plan to be fully exited from China for our syringe portfolio by June. Additionally, we expect capital expenditures in the range of $25 million, approximately $7 million lower than 2025, but still slightly higher than our normalized CapEx needs to support our accelerated China exit plan that will result in neonatal syringe production in our manufacturing facility in Tijuana, Mexico and from our supply partners in Southeast Asia. Finally, we anticipate an annual effective tax rate of about 29%. In summary, we delivered results at the high end of our revised estimates in 2025. As we move into 2026, our resources and priorities remain focused on our strategic imperatives related to growth, cost discipline, portfolio management and capital deployment. I'll now turn the call back to Dave for his closing comments. David Pacitti: Thanks, Scott. Overall, I'm pleased with the team's performance in 2025 and sincerely thank everyone for their important contributions and dedication over the past year. We believe the best way to create value for Avanos, and its shareholders is the continued focus and execution on our strategic imperatives as that mindset led us to exit 2025 a more focused and cost-efficient organization. I am particularly pleased with our strong performance in SNS as we outpaced market growth, and we expect the trend to continue. We're also pleased with the early performance of our Nexus acquisition and continue to evaluate other attractive acquisition targets. Moreover, the team did a great job improving our long-term cost profile and executing on our tariff mitigation plan. As a result, we believe that we enter 2026 well positioned for continued growth and are confident about our future prospects. With that, I'll now ask the operator to open up the call to take your questions. Operator: [Operator Instructions] And your first question will be from Danny Stauder at Citizens JMP. Daniel Stauder: Yes. So first, just on tariffs. We appreciate all the commentary here, but I was hoping you can give us a little bit more color on what 2026 could look like. You mentioned the recent Supreme Court ruling, and it sounds like you are still on track with your previous plans. But are there any milestones that we should be looking for in terms of the transition of China, potential USMCA exemption or anything around the Nairobi protocol exemption? There's a lot in that, but I'm just really trying to frame what a best-case or less than best case scenario could look like for the year ahead. David Pacitti: Yes, thanks for the question. So in terms of impact for 2026, we're estimating that to be roughly $30 million of impact. Now remember, as we discussed in previous calls, that we've done this cost measures and take out cost. We've done several price increases as well. So actually, when you compare it year-over-year, we expect the impact to be very similar to what it was on the bottom line as it was to 2025. The big date is being out by June, which I think in the past, we've talked about, but we haven't had the high degree of confidence that we have now that we will -- that plan will be executed and will be out by June and deliver product from Mexico and our other site in Cambodia. Scott Galovan: Yes. Just to size it up a little bit more, Danny, on about 2/3 of that $30 million is China related. So there will be a good, nice impact when we fully exit China. That doesn't all go away because that does go to still some tariff countries. But that's a big piece of that $30 million is China. David Pacitti: And then, Danny, just on Nairobi, we did get Nairobi still in place for our long-term feeding tubes. So that's a tariff exemption. I'm not sure if that's a correct way to say it, but it is an exemption that we received for our long-term feeding tubes, which will be produced in Mexico. And then we have USMCA for about 60% to 70% of the products that we're making in Mexico. And as we move the syringes over, we'll have USMCA for them in Mexico as well, just to clarify your -- the other part of your question. Scott Galovan: I was going to say, as we shared in our prepared remarks, in terms of just as you think about phasing, we do expect in the second half, we'll see improved gross margin that will continue into '27 due to just the weight of the tariff impact in the first half. David Pacitti: And then I think lastly, the goalpost is moving a little bit with the latest news from the Supreme Court and the latest news from the administration. So we'll evaluate all that. But we feel good about the position we have in Mexico with USMCA for the majority of our products. Daniel Stauder: Great. I appreciate it. Then just next one on revenue guidance. Again, I appreciate all the color, especially on the segment's commentary. But just with some of the moving pieces such as the HA divestiture, the addition of Nexus and some of the other product rationalization, what's an organic normalized growth rate that we should be considering for the full year for the full company and then as well as on a segment basis, just to kind of get a high-level look at it. Scott Galovan: Yes. So it's around 5% for organic for -- at the consolidated level by segment, it's mid- to high single digits for SNS and a low to mid-single digits for PM&R on an organic basis. Daniel Stauder: Great. And I guess just shifting to operating leverage that had some great progress in the fourth quarter, and it seems like guidance implies that should continue. You've talked about some of the efforts in making the company more efficient, including the cost-saving initiatives that you announced last quarter. But could you give us just any more commentary on how confident you are in continuing to drive this in 2026, both on an R&D front as well as on the SG&A line? David Pacitti: Yes. Thanks, Danny. So we have a high degree of confidence with the new plans that we laid out from an R&D standpoint. Some of the -- as I mentioned, from an R&D standpoint, we'll do some projects internally, some that will be outsourced. And then, of course, we have the normal M&A activity that we've talked about in the past. So we have a high degree of confidence in that. We expect to launch a product here in the fourth quarter, a next-generation product of ours, and that plan looks good and in place. I think as it relates to -- we'll continue to run the business very efficiently, continue to manage costs. And of course, we're looking at everything. In terms of there's an underperforming business, we'll continue to evaluate that. And if it's underperforming, we'll either improve it or divest of it, as we've said in the past. Scott Galovan: Yes. And just from a cost perspective, even though we've changed our approach to R&D, you won't see a material difference in kind of percent of sales spend to R&D. We'll continue to spend. We'll just do more of that externally than we have historically. And on other spend, as you -- as our guidance implies, we'll show expansion -- earnings expansion greater than our rate of top line growth. And that's really -- we do have added the $12 million of additional tariff expense. We do have just other investments we'll make into the business, but those are largely offset or more than offset by sales volume as well as the benefits of some of the cost containment measures, we took in the fourth quarter. Daniel Stauder: Okay. Great. And I'll try to squeeze one more in here. But just on Specialty Nutrition, really nice quarter, especially considering the benefit you saw in 3Q from going direct in the U.K. And it looks like that segment was the majority of the beat to the top line versus what we had modeled. But could you talk just a little bit more about what's going well here? You pointed to a number of things, but is there anything more incremental on how Nexus is performing early days? Or what has surprised you thus far? And remind us what we should be looking for in 2026 in terms of product launches or any other drivers there? David Pacitti: Yes. First of all, demand remains very high for our SNS portfolio, and the team is doing a great job from an execution standpoint, which is great to see. We're very focused on penetrating the market further with CORTRAK and then if you look at our neonatal business, it continues to be very strong as well. Really across the board, it's been great performance, and the demand remains very strong. I think Nexus, I would say, is doing better than expected. We feel very good about the performance. It was a really nice tuck-in. It fits very well with our team is doing already with the existing sales channel we have. And we're really pleased with the results to date so far. I don't know, Scott, if you want to add. Scott Galovan: Yes, I would just say we shared last year that it would contribute $5 million of revenue, and we saw that, and we expect that business to be a double-digit grower in '26 and likely beyond that. So we're really pleased with the performance of Nexus. Operator: And at this time, gentlemen, we have no other questions registered. Please proceed. David Pacitti: Well, thank you for your continued interest in Avanos and the questions. As a reminder, we'll be participating in the Citizens Bank Investor Conference in March, and we'll also be hosting our Investor Day in New York on June 23. We look forward to seeing you there, and thanks again. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
Operator: Good morning, and welcome to the Douglas Dynamics Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nathan Elwell, Vice President, Investor Relations. Please go ahead. Nathan Elwell: Thank you, Gary. Welcome, everyone, and thank you for joining us on today's call. Before we begin, I would like to remind you that some of the comments that will be made during this conference call including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in yesterday's press release and in our filings with the SEC. We also published a 1-page fact sheet on our IR website that summarizes our results for the quarter. Joining me on the call today is Mark Van Genderen, President and CEO; and Sarah Lauber, Executive Vice President and CFO. Mark will provide an overview of our performance then Sarah will review our financial results and outlook for 2026. After that, we'll open the call for questions. With that, I'll hand the call over to Mark. Please go ahead. Mark Van Genderen: Thanks, Nathan. And welcome, everyone, to our fourth quarter call. Given our core business, we'd be remiss not to recognize the magnitude of Winter Storm Hernando's impact on the East Coast right now. Our dealers, contractors and teams are doing everything they can to keep people safe during this historic winter event. Stepping back, as a company, we've experienced dramatic changes in operating conditions over the past several years. We've successfully navigated COVID, supply chain disruptions, tariffs and the tough but necessary business decisions necessitated by several consecutive seasons of low snowfall. While the journey has been demanding, our teams have continually risen to the challenge, and we are emerging stronger, more resilient and better prepared for what lies ahead. In 2025, we saw a significant increase in business activity across the company, and once again, it was the determination, strength and ingenuity of our people that allowed us to fully capitalize on these opportunities. Across every aspect of our operations, our people stepped up to the plate in 2025 and their commitment is clearly reflected in our results. So thank you to everyone at Douglas Dynamics. There are three main areas of focus Sarah and I would like to cover in this morning's call. First, an excellent fourth quarter topped off a fantastic 2025 with operational strength and robust financial performance in both the Work Truck Attachments and Work Truck Solutions segments. Second, with an above-average snowfall so far this winter, we expect to build off of 2025s momentum in 2026 with continued growth in both segments. Sarah will cover that outlook later in our call. And finally, and arguably most importantly, the strategic framework we introduced in 2025 and the actions we've taken to support that strategy have positioned us extremely well, not only going into 2026 but beyond to drive sustainable long-term value creation. So let's start with 2025 performance. We delivered strong financial results throughout the year with each quarter and in particular, the fourth quarter growing from the prior year. These year-over-year fourth quarter improvements were primarily driven by two things: the excellent performance at Solutions and the early onset of winter boosting demand at attachments. During 2025, we increased our guidance ranges twice and still managed to come in at the high end of this range. When you look back over the past few years, our earnings have grown from roughly $1 of adjusted EPS in 2023 to $1.47 in 2024 to $2.24 in 2025. That's a fantastic return to form. Okay. Let's discuss our fourth quarter and full year results in more detail, starting with Work Truck Attachments. Demand for the product lines, work truck attachments designs, builds and sells is primarily driven by snowfall. And as a refresher, the average life cycle of the equipment we produce is between 5 and 10 years. We know that there are tens, if not hundreds of thousands of our FISHER, WESTERN and SnowEx products in use on the roads today. Just as below average snowfall winters lead to an elongated life expectancy above-average snowfall winter drive increased usage and ultimately, demand. Of note, we measure this phenomenon over multiyear periods and develop forecast models, create production schedules and make investment decisions based on snowfall over time, not any one given year. This is also the reason that one strong winter can help to provide a multiyear tailwind. This winter snowfall came early with major November and December storms in the Midwest and significant persistent lake effect snow in the great Lakes region. And so far in 2026, several large snow and ice storms made their way across much of the country, including the Plains, Mid-Atlantic states and the Northeast including the historical storm that many of you just experienced. In fact, after several years of low snowfall, we're confident that the current snow season will end above the 10-year average. We want to thank our many dealers and contractors in these core markets for their tireless work to keep people safe during these storms. Our regular channel checks at the end of January confirmed that with increased year-over-year retail sales file and hopper inventories are below the 10-year averages. These weather conditions in the fourth quarter helped increase net sales and adjusted EBITDA, including record sales of parts and accessories. Now unlike sales of plows and hoppers, which are generally aligned with snowfall trends over multiple years, we see a high correlation and immediate impact between parts and accessories sales and current snowfall. On a full year basis, net sales and adjusted EBITDA improved by double digits. With the end of the 2025, '26 snow season coming into view, our teams have been working nonstop to meet demand driven by the recent major storms. In addition, we have already started planning and preparing for what we believe will be a solid preseason. Okay. Turning to Work Truck Solutions, which exceeded our expectations once again. In fact, it was a record quarter to finish a record year, which is also the fourth consecutive year of improvement. On a full year basis, not only did we deliver double-digit net sales growth and adjusted EBITDA growth, we saw record annual margins. Demand and backlog from municipal customers remain robust and we continue to work through the large multiyear contracts that we discussed last year. After 4 consecutive years of growth, the bar is set high. Given our excellent lead times and customer support, we are in a formidable position in the marketplace today. We continue to see strong demand from municipal customers. We are executing effectively and we maintain a near record backlog. All in all, we expect our municipal business will continue to grow, although not quite at the same pace we have experienced in the last 4 years. Commercial demand dynamics remain somewhat opaque, while the fleet business remains generally solid, we are seeing some minor softening of demand in the dealer business, which is difficult to predict. Dealers have inventory on the ground and smaller customers remain hesitant and price conscious. Our commercial teams remain diligently focused on optimizing this business. Overall, really a fantastic performance for the Solutions segment in 2025. All right. Now that I've covered our results, let me just take a step back for a moment and discuss strategy. Building upon our strong financial performance in 2025, and with a seasoned management team now in place, we have crafted a more defined strategic vision for the future. This manifested itself through the three strategic pillars that we've been talking about for the past couple of quarters, optimize, expand and activate. The first priority is to optimize our current operations. Now continuous improvement through our DDMS system is part of our DNA, and our optimized pillar has helped refocus our efforts across the organization. The creation of centers of excellence within the Attachments segment was a great example where production has moved from brand focused to a specific product-focused manufacturing approach at each facility. This has enabled greater specialization and brings the full breadth of our engineering, supply chain and manufacturing expertise to bear across our WESTERN, FISHER and SnowEx product lines while leveraging the unique strength of each location and workforce. The second pillar is expand pursuing organic geographic growth and new product offerings. For example, with lead times across the municipal sector top of mind, we are excited about the opening of Henderson's new Missouri upfit facility this summer. This expansion will allow us to better serve customers in surrounding markets and continue to deliver trucks on time, both of which will strengthen our competitive advantage. In addition, the attachments team launched the auto speed controller for hopper spreaders last year. This controller is linked directly to the truck's CPU and as a result, can automatically adjust the flow of de-icing material as the vehicle speed changes, improving efficiency, reducing waste and allowing for better monitoring and it's retrofittable to all hoppers we produced back to 2016. This product its capabilities and the fact that it can be fitted to every hopper that we've built and our dealers have sold over the past 10 years have all been received extremely well by our end user professionals. And finally, activate, which refers to last year's restart of our M&A efforts, which led to our first acquisition in 9 years. We welcome Venco Venturo to the Douglas Dynamics family in November. Adding this well-established and highly respected provider of truck-mounted cranes and dump hoist was a meaningful first step as we look to diversify and balance our portfolio over the long term. Our integration team has been working diligently to start realizing the benefits of this partnership and drive profitable growth. Venco is a great example of the types of high-quality brands and businesses that align with our long-term vision. Given the financial strength of Douglas Dynamics, combined with this clarifying strategic vision for the company, we will continue to pursue the right acquisitions in the Vehicle Attachments space. I'm really pleased to say that our mission, vision and strategic direction have all been well received internally and externally with substantial initiatives now underway across all three pillars we entered 2026 with a clear focus on sustainable, profitable growth. So in summary, 2025 was an important year for our company. And frankly, we're just getting started. Divisional plans aligned with the optimized expand and activate strategies are rapidly gaining traction and delivering results. We are confident in the strategic path ahead and we are focused on sustaining and expanding our recent success in 2026 and beyond. Personally, I'm looking forward to attending the NTEA Work Truck Show in Indianapolis in 2 weeks which is always a great opportunity to reconnect with our teams and meet with partners and customers. It's an exciting time in our industry with considerable opportunities ahead, and our teams are continually striving to get better every day. With that, I'd like to pass the call to Sarah. Sarah Lauber: Thanks, Mark. Before I begin, unless stated otherwise, all the comparisons I'll make today are between the fourth quarter or full year of 2025 and versus the same time period in 2024. Also, please remember that 2024 results included a onetime gain of $42.3 million from the sale-leaseback transaction completed in September of 2024. Overall, our financial results were excellent. We closed out the year strong I want to commend everyone at the company on their hard work this year that really paid off. Let me walk through the numbers for you, and I'll start with the quarter and then discuss the full year. On a consolidated basis, fourth quarter net sales increased approximately 29% to $184.5 million with growth in both segments. Gross profit grew approximately 35% to $48.1 million, with gross margin increasing 120 basis points to 26.1%. SG&A expenses increased approximately 29% to $27.3 million, primarily due to higher variable compensation on increased sales. Net income and diluted earnings per share both increased over 60% to $12.8 million and $0.54, respectively. Adjusted EBITDA increased approximately 37% to $25.8 million and margins increased 90 basis points to 14%. And adjusted earnings per share increased approximately 58% to $0.62. These tremendous improvements to finish the year were driven by improved weather trends that helped boost demand, coupled with positive execution at both of our segments. Turning to the full year. 2025 net sales grew approximately 15% to a record $656.1 million. Gross profit grew approximately 19% and to $175 million, with gross margin increasing 80 basis points to 26.6%. SG&A expenses increased just 4% to $94.9 million. Net income and diluted earnings per share were $46.9 million and $1.96, respectively. Adjusted EBITDA increased approximately 23% to $97.9 million and margins increased 90 basis points to 14.9%. Adjusted earnings per share increased approximately 52% to $2.24. The effective tax rate for 2025 was 23.8% and in line with 24% for 2024. As you can see, 2025 was a relatively straightforward year with fewer headwinds than we've seen in recent years. The generally favorable market conditions for both segments, coupled with a strong performance operationally, delivered strong year-over-year improvements. Okay. Let's look at the results for the two segments, and I will start with Work Truck Attachments. As Mark already mentioned, we are pleased to buck the trend of recent years with winter arriving early across a good portion of the Midwest and Northeast in the fourth quarter. The subsequent increase in demand caused fourth quarter net sales and adjusted EBITDA to both increase by more than 50% to $83.1 million and $13.9 million, respectively. Looking at 2025 overall, the impact of increased snowfall in core markets in both the first and fourth quarters drove higher volumes. Full year net sales increased approximately 16% to $295.7 million, and adjusted EBITDA also improved by 16% to $56.2 million. We experienced very healthy aftermarket demand. In the quarter and for the full year, we achieved record sales of parks and accessories. We saw a dramatic spike in demand during December as end users went to dealers looking to keep their plows in tip top shape. Equipment was being used, and this should help to chip away at the elongated replacement cycle we are experiencing. The outlook at attachments is more positive today than it has been in recent years. Next, I'll cover Work Truck Solutions. Our teams produced record results for both the quarter and the year despite facing tough comparisons to 2024. The team really ended the year on a high note. Well done to everyone at Work Truck Solutions for delivering record results once again. Fourth quarter net sales increased approximately 13% to $101.5 million. Adjusted EBITDA grew approximately 22% to $11.9 million. And adjusted EBITDA margins increased 80 basis points to a record 11.7%. Results were driven by ongoing strength of municipal demand plus efficient operations that meant more trucks were delivered. The fourth quarter results were really a continuation of the trends that we saw all year. For 2025, Net sales grew approximately 15% and adjusted EBITDA increased 35%, adjusted EBITDA margins grew substantially to a record 11.6%, a 170 basis point increase. As we have previously noted, 2025 net sales included approximately $18 million of incremental chassis sales related to several large municipal contracts. So 2025 was the fourth consecutive year of significant financial improvement for Solutions. The goal now is to maintain this margin performance in the near to medium term and to continue to focus on meaningful projects to optimize and expand in the years ahead. Okay. Turning to the balance sheet. Total liquidity at quarter end was $127.8 million, comprised of $8.3 million in cash and $119.5 million of borrowing capacity on the revolver, which is more than enough for our needs in the foreseeable future. We are just avidly proud of our cash generation for the year. Free cash flow increased 91% to $63.6 million, which was primarily driven by the increase in net income, somewhat offset by higher inventory levels and solutions. We also had a onetime benefit of approximately $7 million in lower cash taxes in 2025 due to the One Big Beautiful Bill Act. Inventory increased approximately 9% to $150 million. The great reduction in finished goods inventory in our snow and ice control equipment within Attachments, was more than offset by a combination of two items. First, the addition of inventory from Venco Venturo. And second, the logical and necessary increase in champion components in the Solutions segment to support the sales growth that we have experienced. Next, I'd like to talk a little bit about how we are thinking about capital allocation. When we look at our capital allocation priorities for 2026, they are not fundamentally different than the past. First, we are continuing to focus on returning cash to shareholders, predominantly through maintaining our strong dividend. To a lesser extent, we also have the flexibility for share repurchases with $38 million remaining on our buyback authority. Second, we want to support projects by investing in the business as part of the optimized and expand strategic pillars. Beyond that, we expect to continue to pursue strategic M&A opportunities as they arise as part of our Activate strategic pillar. Let me add some details to these points. On the dividend, we're maintaining the current quarterly cash dividend of $0.295 per share. For share repurchases, we would expect 2026 to be similar to that of 2025 with the opportunity to reassess as we go through the year. As far as investing in the business, Capital expenditures for 2025 increased to $11.1 million after restricted spending in 2024. While not strictly classified as CapEx, we also invested approximately $5 million in facility improvement projects as part of the 2024 sale-leaseback agreement. For 2025, even with those two combined components combined to $15.1 million, we remained well within our traditional range of 2% to 3% of net sales. With our plans for 2026 in place, we expect spending to increase year-over-year as we invest to grow, but we still expect to stay within that same 2% to 3% of net sales. Lastly, at year-end, our leverage ratio was 1.8x, which is well within our goal range of 1.5 to 3x. We are well positioned to consider small- to medium-sized acquisitions of complex attachments in the years ahead. Okay. Let's review our outlook. Over the past 2 years, we have delivered meaningful improvements on both the top and bottom line. The trends we have been discussing allow us to issue a strong outlook for 2026. As you saw in the release, we expect 2026 net sales to be between $710 million and $760 million. Adjusted EBITDA predicted to range from $100 million to $120 million. Adjusted earnings per share is expected to be in the range of $2.25 to $2.85. The effective tax rate is expected to be approximately 24% to 25%. As always, this assumes relatively stable economic and supply chain conditions, and we are assuming above-average snowfall in the first quarter and average snowfall in the fourth quarter, which should help address the elongated replacement cycle that we talked to earlier. Based on these assumptions and with our current level of visibility, we believe the business is well positioned to drive improvements with the midpoint of our ranges, projecting higher volumes across both segments, which would lead to double-digit top line growth for the company. I think you'll agree this is a strong outlook overall. It's the first time our net sales outlook has been above $700 million. The first time our adjusted EBITDA guidance started at $100 million and the first time our adjusted earnings per share range exceeds prior year results. In summary, it was a great end to a great year. In 2025, we outlined our strategy, executed our plans effectively. We're in a strong position entering 2026 to deliver yet another very solid year. With that, we'd like to open the call for questions. Operator: [Operator Instructions] The first question comes from Mike Shlisky with D.A. Davidson. Michael Shlisky: Just following your last comment there, Sarah. I just missed this. You said that you'll see growth in both segments -- can you maybe pinpoint for us which segment might have the better growth outlook for '26? And then secondly, from a margin perspective, which ones got the better opportunities for some additional margin leverage in 2026. Sarah Lauber: Sure, absolutely. So yes, you heard me on the call, talk about double-digit sales growth for Douglas as expected. Right now, the expectation and solutions is that we are at our target growth of mid- to high single digits for the year. And then the remaining growth is in attachments and that's a combination of our Venco acquisition plus higher than average snowfall expected in Q1. So we expect higher volumes than we had last year. On the margin question, I would say on solutions, and you heard in my script, I talked about maintaining the margin, but continuing to grow through our optimize and expand. We will be working hard on both of those. We optimize will certainly help to increase our margins, whereas the focus on growth this year is going to be more evident because we have the mid- to high single-digit level growth on a record year. On the margin on Attachments, I would say, right now, assuming those to be relatively flat. And again, there's upside as cloud volumes return to average. For us, it's going to be just very critical for us to see what occurs in the preseason period. Michael Shlisky: Got it. Got it. So as usual, will be better feel for it. in the springtime, it sounds like. Can you comment also about how it's been going so far with owning Venco Venturo or anything surprised you or look different than you expected? Mark Van Genderen: Yes, Mike, this is Mark. I'd be happy to take that one. Thanks for the question. So far, it's been going very well. I mean against the backdrop of the size of our company, as we've indicated, it's a relatively small acquisition, but we think there's possibilities, huge opportunities there over the next not few months or years, but over a long period of time. I can tell you from an integration standpoint, it's been going we had high expectations, and it's going better than expected. It's a great team, really committed, I think, really now proud to be part of Douglas Dynamics have a great reputation in the industry of being a company that takes care of employees and really puts people and culture first. So it's just been a really good dynamic so far. Now we're getting kind of past the initial what I'll call the honeymoon period and really focusing on, hey, what is the potential of this company now with strength and backing of Douglas Dynamics. Sarah Lauber: I would just add from a financial perspective, no surprises as we sit here today and the expectation that they would be earnings per share and free cash flow accretive, although smaller for us is still there for 2026. Michael Shlisky: Great. Maybe one last one for me, but all this recent snow, I got the window I can definitely see it's been a very heavy winter. In parts of the country, though, there were some large storms that don't always see a tonnage mill. I don't mean like a Houston and Dallas or even in the Southern Georgia area, but I mean like Virginia, are around the border or the edges of your typical most important core regions of the country. I'm curious whether those kind of borderline states and markets have any kind of unusual growth potential in 2026, if there's been some very elongated period of replacement in those areas. Mark Van Genderen: Yes, I would say if you look across pretty much all the areas where we sell cloud the major areas and kind of that Northeast corridor, Mid-Atlantic, Midwest, we've seen, as we mentioned, above average snowfalls. And in some cases, it's huge storms like what you're experiencing on the East Coast or just did. In other cases, even if it's 2 or 3 inches. We call those plowable events and 2 to 3 inches versus 8 or 9 basically going to have the same impact in terms of the plow needs to go out, folks need to go out. And then the other thing we've continued to see over the last several years is a lot more, I'd say, on average salt events. So events where trucks are going out and not just flowing but putting down salt and sand on the road using our hoppers. So overall, as I said, this is -- it's been a pretty good year so far. We still have I don't know, say, 6 to 8 weeks of winter left, knowing that sometimes storms in certain parts of the country can go into April. But so far, so good. And again, we feel like this will be an above-average winter compared to the last 10 for us. Operator: The next question is from Tim Wojs with Baird. Timothy Wojs: Nice to see the results here. So maybe could you put a little finer point on just kind of the parts and accessory performance in kind of the fourth quarter? And maybe how big P&A was for attachments for the year or maybe just the percentage of the business? Sarah Lauber: Yes. They operated for both the year and the quarter, call it, 14% to 15% of sales for Douglas. And the benefit for us in the fourth quarter is really driven by the high margins that parts and accessories bring along with it. Timothy Wojs: Okay. Is that why you're kind of assuming that margins and attachments would be kind of flattish next year, I guess, I would expect to see just given some of the cost takeout you guys have had and the volume growth you would expect that you would see margin leverage. Is there kind of a mix component with parts and accessories that kind of normalizes? Is that a headwind? Sarah Lauber: You answered your own question. Mark Van Genderen: Yes, you're spot on. When we looked at last year, and we always talk about things kind of assuming average snowfall, and then as a company, we've become, I think, really good at being able to adjust accordingly up or down. So last year in the fourth quarter with some of the early snowfalls in the Midwest, in particular, in some of the lake effect. That increase in P&A sales helped to drive that -- our overall EPS in the quarter and then for the year above what we expected, which is great. And as I mentioned in the call, there is a direct impact. If we see snow coming in and especially knowing the amount of product that we have out in the field, we're going to see an immediate impact, which we saw in the fourth quarter, which helped to drive that overall volume. It's hard to speculate how we seen more average snow volume in the fourth quarter, we most likely wouldn't have seen as high as P&A sales. results still would have been very good, but not as good as they are, which is also why when we look at the full year for 2026, with parts and accessories, we say, "Hey, you know what, we're going to take an average approach", which then leads and drives to where our guidance was. Sarah Lauber: And the cost takeout that you mentioned, those occurred in '24, and they were -- they're essentially already baked in through '25. So not a lot of incremental cost savings coming to us in '26. The real opportunity in attachments is as the equipment volumes return, which, again, is critical for us to see the preseason order patterns. Timothy Wojs: And is it too early to kind of understand what the preseason might look like? Is it just too early? Mark Van Genderen: Yes, it really is. I mean, anecdotally, we talked about the fact that we mentioned it here in the call that overall dealer inventories are lower than what we've seen in the last several years, which you might expect, just given the increased snowfall. Dealer sentiment right now is very positive, and we've seen an increase overall in retail sales, not just in parts and accessories, but for our major equipment, we'll know more in the next couple of months. Our sales teams are out talking with dealers on a regular basis, helping them get the flowers that they need right now in season. And then, yes, we'll really -- we'll have a lot more color as we always do in the second quarter conference call. Timothy Wojs: Okay. Great. And then just to put a finer point on Solutions. Are you basically saying that the margins here are kind of in that your kind of targeted range, call it, low teens, kind of low double-digits type range, and now you're really focused on driving EBIT growth as opposed to margin expansion? Just trying to kind of understand maybe what the long-term margin profile solutions really looks like. Sarah Lauber: Yes. The answer is yes. So our target was double digit to low teens. I'm not saying there's not opportunity to grow from the 11.6%. But our focus very much is on the top line growth which we do expect further top line growth after a year of having 15% top line growth. So that is more so our focus is the EBITDA dollar growth. Timothy Wojs: Okay. Got you. And then I'll sneak one last one in. Any comments you want to make on the first quarter? And the reason I ask is I know that's kind of been a wonky quarter historically. So just any sort of modeling items or anything like that you'd want to get out there. Sarah Lauber: No. I mean, in the first quarter, with attachments driving much of it is the lighter quarter. I mean, clearly, we haven't seen snow storms like this in a long time in the first quarter. So I don't expect really the quarterly cadence to change of the seasonality. The wildcard, I guess, will be what we see for parts and accessories. Operator: The next question is from Greg Burns with Sidoti & Company. Gregory Burns: When we look at the results for the Solutions segment, how it ended the year on such a strong note. I think earlier in the year, you were expecting maybe a little bit of moderation in the second half that didn't really seem to play out. It seems to almost like accelerate momentum into the end of the year. So can you just talk about why that was -- why the second half end up maybe stronger than you had thought earlier in the year? Sarah Lauber: Yes. I would put it entirely on the team's execution in completing trucks and getting them out the door. They have quite a backlog, and so they have the opportunity to certainly outperform. We didn't want to get ahead of ourselves. But I would say the team has really stepped up to the plate, and we were able to deliver on the backlog. And it has not really lowered the backlog dramatically because they're also winning new business. . Gregory Burns: Okay. And the Missouri facility wins that capacity coming online? Mark Van Genderen: We're targeting the second quarter. I think I said summer, early summer, I think, is what we're shooting for right now. And that is moving along nicely. Again, that's similar and consistent with what we've done with other properties. We won't own that, but it is a build-to-suit lease. So we're working with the company, and that's coming along very nicely, and we're excited about that. It will give us another maybe 8% to 10% volume increase for Henderson from an end truck from a completed truck standpoint in a targeted area for us that we've looked at and said, "Hey, we really want to make sure we're on the ground and providing great service to customers". Sarah Lauber: And that growth is an annual growth. Gregory Burns: Yes, great point. Yes. Okay. And then for the fourth quarter in the Attachments segment, margin was, I guess, flat year-over-year, but you mentioned obviously the strength in the parts and services and the beneficial margin impact of that. So why was the -- given the strong mix of parts and services, why was the margin flat this quarter? Sarah Lauber: That's a great question. I think some of it is the first part of Venco coming in. Some of it is variable compensation. I can't think of anything other top of mind. I think it's just the growth last year in the fourth quarter was a much lighter year, but fourth quarter typically is parts and accessories, not whole units. So I think when you look at the size that's different, but the mix is probably not dramatically different. Gregory Burns: Got it. Okay. And then when we're looking at the, I guess, the guide -- the initial guide for like flattish margin for next year, I know you mentioned mix of parts and services. But is there any of that like a cost avoidance that may be coming back online now that market demand is picking up. Like is there any element of that like you're kind of resetting the cost structure and then maybe you start to see improved leverage into '27. Sarah Lauber: Absolutely. So when I think about our businesses, I don't think the incremental volume or incremental margins, the opportunity has changed our solutions tend to be 15% to 20%, and our attachments is 25% to 30%. However, there's two caveats. One, we are layering in some investments for growth this year in our plan. So we have that in 2026. And then the other area is the fact that our volumes still are not at average volumes. And so that's probably the largest piece out there that changes the margin profile for attachments and for the company. Mark Van Genderen: I would add to that. You look back a couple of years ago and I think $10 million to $12 million that we took out of the business at that time. That's not something that we did it was necessary, but it wasn't something that we did lightly. That's not our MO as a company. And we're all very focused, I'd say, as a management team and as a leadership team, both at corporate and at the divisional levels. of making sure that as much of that as we can continue to keep flows through. We're not opening up the checkbook significantly even against the backdrop of a better than average snowfall year because we just want to make sure that we're being very prudent. Gregory Burns: Okay. I guess with that said, where what are normalized margins like normal volumes get back to kind of average historical levels. Where do you see the -- what is the margin profile of the Attachments segment? Sarah Lauber: Yes. So we ended the year for attachments at 19%. We get to the mid-20s with average volumes. Operator: [Operator Instructions] Showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Mark Van Genderen for any closing remarks. Thank you. Mark Van Genderen: We really appreciate your continued interest in Douglas Dynamics. And certainly, please reach out to Nathan, if you would like to talk to us in the coming weeks. Thanks, everyone. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Galapagos Year-End 2025 Financial Results 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, Glenn Schulman, Head of Investor Relations. Please go ahead. Glenn Schulman: Good day, everyone. This is Glenn Schulman, Head of Investor Relations, and I'd like to thank you all for joining us today as we report Galapagos' full year 2025 financial results and fourth quarter business update. Last evening, we issued a press release outlining these results. This release, along with today's presentation, can be found on the Galapagos Investor website at www.glpg.com. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, February 24, 2026. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; Aaron Cox, Chief Financial Officer; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer of the company, all of whom will be available during the Q&A session. With all that, let me now turn the call over to Henry Gosebruch, CEO of Galapagos. Henry? Henry Gosebruch: Thank you, Glenn, and thank you all for joining us today. Galapagos had a transformative 2025, focused on turning the page from cell therapy, implementing a new strategic direction and laying a strong foundation for long-term value creation. We are entering this new chapter with approximately EUR 3 billion in cash at year-end 2025 in a strong position to pursue transformative business development opportunities with significant strategic flexibility. The new team is in place to execute on the strategic vision. We have been very deliberate in assembling the right leadership team to execute the strategy, and I could not be more pleased with the level of talent we've been able to attract to Galapagos. We've assembled a management team with world-class business development expertise and a shared mission of leveraging our unique position to create significant shareholder value. Collectively, our team has executed hundreds of transactions in the life sciences sector and is working well together with the goal of creating value for our shareholders. We have also evolved our Board composition, welcoming 5 new directors who bring the deep transaction, capital allocation and operating experiences needed for this next phase of growth. Our objective is not incremental rebuilding, but a fundamental reshaping of the company around programs we believe are capable of delivering meaningful patient impact and sustainable shareholder returns. We are aggressively evaluating opportunities across our focus areas and maintaining a broad dialogue with companies and innovators globally. We are encouraged by the level of potential transactions we have in our deal pipeline and our opportunity to become a unique player in the biotech deal ecosystem and carve out niches where we can be competitively differentiated. At the same time, we are disciplined and selective. We will allocate our capital carefully and thoughtfully with clear financial metrics in mind. Our focus remains on clinically derisked opportunities in areas where we are able to bring unique insights that represent competitive advantage. Lastly, our collaboration with Gilead remains a key strategic advantage and potential competitive differentiation. We are working very closely with Gilead and continue to have active and constructive dialogue as we evaluate opportunities. Their global development and commercialization expertise, combined with our capital base, agility and deal-making skills creates a powerful platform as we shape this next phase of growth for Galapagos. Let me briefly provide an update on our legacy R&D asset, TYK2 or GLPG3667. In December, we announced top line Phase II results for GLPG3667 in patients with dermatomyositis and systemic lupus erythematosus or SLE. GLPG3667 met the primary endpoint in the dermatomyositis study, demonstrating a statistically significant clinical benefit and meaningful improvement on secondary measures of disease activity compared to placebo. We are currently evaluating all strategic options for this program, including pursuing potential partnerships with other i&i players to accelerate the development of GLPG3667. In conclusion, Galapagos is well positioned for the future. Our year-end cash position of approximately EUR 3 billion, our strong business development and capital allocation experience provides the strategic flexibility to pursue business development opportunities while maintaining a disciplined focus on value creation. With that overview, I would like to now turn the call over to Aaron Cox, our CFO, to review our full year 2025 financial results and 2026 guidance. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. In the press release issued last night, we detailed our full year 2025 results, provided an update on fourth quarter performance and shared our 2026 guidance. Total operating profit from continuing operations amounted to EUR 295.1 million in 2025 compared to an operating loss of EUR 188.3 million in 2024. This operating profit was primarily due to the release in revenue of the remaining deferred income balance of EUR 1,069 million associated with the exclusive access rights granted to Gilead under the OLCA. As a reminder, in conjunction with this transaction in 2019, Galapagos recognized a contract liability of approximately EUR 2.3 billion, which was to be recognized as revenue on a straight-line basis over the 10-year term of the agreement. Following the 2025 OLCA amendments, the intention to wind down and related events in 2025, as of December 31, it was assessed that there were no remaining obligations that would justify this specific contract liability to be maintained in our IFRS financial statements. We do not expect any cash tax impact in 2025 related to this recognition of revenue. Importantly, while the OLCA still remains in force, we expect that any future business development transaction will be completed under terms that would be different than the existing terms of the OLCA. Now turning to expenses. Operating expenses were negatively impacted for a total of EUR 399.8 million by the decision to wind down the cell therapy activities with an impact of EUR 275 million, consisting of an impairment of the cell therapy activities of EUR 228.1 million, severance costs of EUR 33.3 million, costs for early termination of collaborations of EUR 16.3 million, deal cost of EUR 10.1 million, EUR 1.5 million for additional accelerated noncash cost recognition for subscription right plans, and EUR 7.5 million of other costs, partly offset by a positive fair value adjustment of the contingent consideration payable of EUR 21.8 million. Additionally, the executed strategic reorganization related to the small molecules business announced in 2025 for EUR 124.8 million. Financial investments and cash and cash equivalents totaled EUR 2,998 million on December 31, 2025, as compared to EUR 3,317.8 million on December 31, 2024. Our cash and cash equivalents and current financial investments included EUR 2,159 million held in U.S. dollars versus EUR 726.9 million on December 31, 2024. These U.S. dollars were translated to euros at an exchange rate of 1.175. Since year-end, we have converted more euros to U.S. dollars and now hold approximately 72% of our cash in U.S. dollars and 28% in euros. We expect to continue increasing the portion of cash in U.S. dollars as the year progresses. Turning now to our guidance for 2026. As part of the transformation to the new Galapagos, we announced our intention to wind down our cell therapy activities last fall, and we are now executing on this process following the works council processes that were completed last month. Given the progress we've made on this execution, I can now share that we expect the cell therapy wind down to be substantially completed by the end of the third quarter of 2026. In connection with the wind down of the cell therapy activities, we expect an operating cash outflow of up to EUR 50 million in Q1 2026 as well as one-time restructuring cash impact of EUR 125 million to EUR 175 million in 2026. This reflects a EUR 25 million reduction compared to the prior guidance range of EUR 150 million to EUR 200 million. In addition, we anticipate cash costs of approximately EUR 35 million to EUR 40 million for the final implementation of the restructuring announced in January 2025. Costs related to the ongoing TYK2 program, including completion of the Phase II clinical trials in DM and SLE, as well as ongoing support to advance the program towards Phase III development are expected to be up to EUR 40 million in 2026. Away from the spend items, we continue to expect meaningful cash flow to come from interest income, royalties and tax credits. As a result, we expect to be cash flow neutral to positive by the end of 2026. We also anticipate we will have approximately EUR 2.775 billion to EUR [ 2.850 ] billion in cash, cash equivalents and financial investments at December 31, 2026, excluding any business development activities or currency fluctuations. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thanks, Aaron. In closing, 2026 will be a pivotal year for Galapagos as we focus on building long-term value through transformative business development, leveraging our strong balance sheet, our deal-making expertise and our unique collaboration with Gilead. Our shares remain at a significant discount to the cash figures, Aaron just reviewed. We will be focused on closing the gap through execution on our business development plan, thoughtful capital allocation and engagement with shareholders to rebuild trust and confidence. We are encouraged by the momentum we've built so far as we reshape Galapagos with a clear strategy in place. With a disciplined approach to capital allocation, we remain focused on pursuing the right opportunities to build a pipeline of novel therapeutics designed to deliver meaningful benefits for patients and a sustainable value for shareholders. We are still early in this new chapter of our company, but we are off to a strong start, and we are excited about the future ahead. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: Just as you continue to progress on business development, just kind of curious if anything has evolved in terms of what you might be looking for? And then is there any deadline or any sort of change that we might expect based on the Gilead agreement if you're not able to identify assets to bring in by a certain time point? Henry Gosebruch: Yes. Brian, it's Henry. I'll take those questions. So no, our strategy is really consistent with what we've been talking about since last fall in terms of focusing on derisked late-stage clinical assets, not exclusively, but primarily in the i&i and oncology space. And I'd say we continue to see a lot of good opportunity there. And as we said in the prepared remarks, we're focusing on opportunities where we think we can bring unique insight, unique competitive advantage. But I think there's, again, a lot of opportunity, and we're working through our deal funnel and remain confident that there's a lot of attractive opportunity for us. With respect to your second question, as we said previously, we're not going to set a deadline for a specific deal. Again, we'll remain patient, disciplined. Again, we do have some good activity going on, but it's more important to do the right deal than to do a deal by a certain period of time. The OLCA does expire. Now it doesn't expire for about 3 years and change. So ultimately, that is a deadline. But certainly, we're focused on getting an important transaction, transformative transaction done ahead of that ultimate expiration of OLCA. Brian Abrahams: Got it. And if something does not happen before then? Henry Gosebruch: Well, if something does not happen by then, despite working really hard on, trying to make it happen, then OLCA would expire, and we would go on without the OLCA in place. Operator: Our next question comes from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Our question is on GLPG3667. In the past, you've suggested that the bar to moving that forward internally and investing in it further would be rather high. We're curious to get an update on your thoughts there. I know you said you're pursuing all possible avenues of moving that forward. But how does management weigh developing that internally and investing in it versus out-licensing? Henry Gosebruch: Yes, Phil, I would say those comments also stands. We have a high bar. Frankly, we have a high bar, not just for 3667, but for any asset, be it internal or external, we really look at it with the same unbiased lens. Now with respect to where we are, again, it's still early. We, as you know, get the topline data just before the holiday. Data is still coming in. So we don't have the full package in place. We are in the process of talking to partners. Again, given that we don't have the full infrastructure required to really take this into Phase III, it makes sense to see where some of the players are that, that have that. And maybe in working with a partner, we can do more, do it faster, do it more capital efficient and ultimately create more value. So we're focused on looking at that. We're focused on getting our arms around the data that's still trickling in. But again, the bar is exactly the same bar that we've always set for ourselves. Operator: [Operator Instructions] Our next question comes from the line of Sean McCutcheon from Raymond James. Sean McCutcheon: Can you speak to your current view on capital allocation, specifically as it relates to the pool of capital you aim to put forth for acquisitions for BD? And how much you need to reserve for operating expenses going forward and how the Gilead partnership informs deal sizing and optionality on that front? Henry Gosebruch: Yes, it's Henry. Thanks for the question. So look, at a high level, I mean, some of what I'm going to say is it's pretty obvious, but we have EUR 3 billion in capital. And as you point out, that capital needs to account both for any consideration to a partner or acquisition target and of course, our development expenses we would have in any transaction. Now when you say sort of how does the relationship with Gilead inform our capital allocation, as we said on calls previously, the dialogue with Gilead is quite strong. It's very, very constructive. They continue to indicate openness to contribute in both deal terms, meaning paying some of the upfront consideration as well as taking on some of the development spend operation. So ultimately, in working with Gilead, we can go beyond the EUR 3 billion we have. And I think that's one of the features we think is very attractive in working with Gilead. So as we think through it, we don't just think about our pool of capital. We also think about what in working with Gilead can we add to the pie and therefore, kind of go beyond what we could do on our own. I don't know if that's where you were going with your question or if you want to clarify maybe what I didn't answer. Sean McCutcheon: No, I think that covers it. Operator: There are no further questions at this time. So I'll hand the call back to Glenn for closing remarks. Glenn Schulman: Thanks, [ Mel ]. I think in the Q&A queue, we do have one more or a couple more coming in, if possible, it would be great to take. I think there's a question from KBC. Operator: Please go ahead Mathijs Geerts Danau from KBCS. Mathijs Geerts Danau: Mathijs coming for Jacob. I had a question on the lower cell therapy wind-down costs. Do you maybe expect that to lower further in the future? Or do you see any possibility in that? Henry Gosebruch: Yes, Mathijs, thanks. It's Henry. Thanks for getting the question, and I'll let Aaron answer that. Aaron Cox: Yes, thanks. We're not providing future guidance here, but we'll obviously update folks on how that cost envelope is progressing on future calls. But yes, we did lower the range from a previous range of EUR 150 million to EUR 200 million in terms of one-time restructuring costs. We lowered that range by EUR 25 million with this release. And as we continue to progress through the wind down, we'll provide updated costs on future calls. Operator: [Operator Instructions] Our next question comes from the line of Delphine Le Louet from Bernstein. Delphine Le Louet: I was wondering and coming back to the capital allocation and the decision you've been taking especially regarding the cash and the cash allocation, the move from euro to dollar, considering the fact that you didn't gain as much as financial income as last year. And so I was questioning about what was the rationale on the back of that? What was the exact timing for us to be clear? And shall we consider the breakup of, let's say, 2/3 U.S., 1/3 euro as being a picture for your next investment portfolio or for the picture we should have from your investment income in the near future? Aaron Cox: Yes. Thanks, Delphine. So mid last year, we started transitioning more euros to dollars, and that was primarily based on where we expected our BD activity to be driven and also where our cost base is starting to move towards, which is more U.S.-based. We provided a range on this call of EUR 2.775 billion to EUR [ 2.850 ] billion for the year. And as I mentioned before, we'll update that as we go through the year. In terms of continued transition to U.S. dollars, we did -- as you heard from my remarks, we do expect to transition more to U.S. dollars as the year progresses, but still keeping a portion in euros as we still have meaningful operating expenses in euro denomination over the year as we move through this wind down. We do see higher earnings rates in terms of what we're receiving on our U.S. dollars. As you look at rates across the environment, you could estimate euros earning around 2% and U.S. dollars earning around 4%. So while the exchange rate does move, we are seeing significant uptake in terms of the interest earned on the U.S. dollars versus euros. Delphine Le Louet: Can I ask another one? Or do you have to go back in the queue? Henry Gosebruch: Go ahead, Delphine. Go ahead. Delphine Le Louet: I was wondering if you have or if you can communicate any expectation regarding your -- the breakeven in terms of operating income. Henry Gosebruch: You cut out a little bit. You're asking about what regarding operating income? Delphine Le Louet: Yes. When do you expect to breakeven for the operating income? Aaron Cox: Yes. We've indicated we expect to be cash flow neutral to positive by year-end. Obviously, as we work through the wind down and associated costs, those costs are going to be chunky kind of throughout the year. So it's hard to predict exactly which quarter some of those costs are going to fall in, but we do expect to be cash flow neutral and positive by year-end. Operator: [Operator Instructions] Our next question comes from the line of Nora Lazar from [indiscernible]. There are no further questions at this time. So please go ahead, Glenn, for closing remarks. Glenn Schulman: Thanks, [ Mel ] and thanks, everyone, for taking the time to join us this morning on the call. Just a couple of upcoming activities on the Investor Relations front, the Galapagos team is going to be at the TD Cowen Conference next week up in Boston, attending the Jefferies by the Beach Conference in a couple of weeks, Kempen Conference coming up in April 15 and the Bank of America Conference in May. Those interested in meeting with the team, please feel free to reach out to your sales contact at those respective institutions to schedule a meeting. Lastly, I just want to mention that our annual report will be filed near the end of March, March 26. So there'll be additional information coming out then. And if you need anything in the meantime, don't hesitate to reach out to me. Thank you all for your attention today, and have a great week. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, good morning, and welcome to the Octave Specialty Group Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karen Beyer, Head of Investor Relations. Please go ahead. Karen Beyer: Thank you. Good morning, and welcome to Octave Specialty Group's Fourth Quarter 2025 Call to discuss financial results. Speaking today will be Claude LeBlanc, President and CEO; and David Trick, Chief Financial Officer. They will discuss the financial results of our business and the current market environment. After prepared remarks, we will take your questions. For those of you following along on the webcast, during the prepared remarks, we will be highlighting some slides from the investor presentation, which can be located on our website. On our call today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described under forward-looking statements in our earnings press release and in our most recent 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also in our prepared remarks and responses to questions, we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures are included in our recent earnings press release, operating supplement and other materials available in the Investors section on our website, octavegroup.com. Now I'd like to turn the call over to Mr. Claude LeBlanc. Claude LeBlanc: Thank you, Karen, and good morning, everyone. As we close out 2025, the fourth quarter marks the first full period in which Octave Specialty Group operated as a stand-alone specialty insurance platform, a milestone that reflects the culmination of a multiyear strategic transformation. Our insurance distribution platform, inclusive of Octave Partners and Octave Ventures is well established and uniquely positioned in the specialty program sector with aligned underwriting capacity, a scalable data and technology infrastructure and a clear path for sustained organic growth and meaningful margin expansion. Our model has allowed us to attract and partner with top underwriting talent, distribution partners and leading capital and capacity providers. The culture we have built is one of entrepreneurship, collaboration, specialization and partnership, supported by a centralized and scalable operating model. As we move forward in 2026 and beyond, we are starting from a position of strength. Despite an increasingly challenging market in 2025, Octave was able to grow its insurance distribution business revenue by 65% over 2024, fueled by 14% organic growth. This number excludes 8 months of Octave Ventures, formerly known as Beat, and does not include our recent acquisition, ArmadaCare. David will walk through the detailed financial results for the fourth quarter shortly. As we look ahead, our well-diversified, high-growth and rapidly scaling platform is supported by strong tailwinds, including the following: one, embedded growth. 9 of our total 22 MGAs were launched in 2024 and 2025. With over 40% of our total MGA portfolio in early growth stages and some already delivering strong top line and early bottom line growth, we believe this stable of MGAs will represent a significant portion of our future organic growth and earnings as they continue to scale over the next 2 to 4 years. Looking at Octave Ventures on a stand-alone basis, we saw organic revenue growth of approximately 18% in 2024, increasing to approximately 47% in 2025. The Ventures incubator platform has a strong pipeline of future MGA opportunities it's evaluating with particular focus on the U.S. E&S and SME segments. Two, geographic and product diversification. Our MGAs are geographically spread with 9 of our total MGAs based in London and Bermuda with the remaining 13 in the United States. This provides us with a competitive advantage, supporting growth and managing through market cycles. Our Lloyd's market MGAs tend to move to profitability faster than U.S. MGAs and also move faster through pricing cycles, which creates more frequent opportunities to deploy capital opportunistically. Our U.S. market MGAs by contrast offer greater rate stability and more predictable underwriting conditions, which supports consistent margin management. Our MGA portfolio is also diversified by line of business with approximately 28% in specialty A&H and the remaining 72% in several specialty P&C lines, split 30% casualty and 42% non-cat-exposed property. Outside of A&H, we cover approximately 9 segments of the P&C market. We believe the diversity of our platform is one of our core strengths and differentiators. Three, aligned and curated third-party capacity. In 2025, we continue to expand our aligned capacity through our Lloyd's syndicates as well as our rapidly broadening curated capital and capacity partners, which together with Everspan stands at over $2 billion entering 2026. And lastly, our minority interest buy-in. For certain MGAs, Octave has the ability to acquire material portions of minority interest over a predetermined schedule, which allows us to systematically expand earnings attributable to our shareholders aligned with the ongoing performance of the MGAs. This also represents a built-in source of earnings growth, which when combined with other growth drivers will enable us to rapidly scale both top and bottom line growth in the near to medium term. In total, when considering Octave's embedded growth, diversified product and geographic mix, access to align capacity and contractual rights to buy in minority interest, we believe we are well positioned for strong growth for years to come. I will now turn to our ArmadaCare acquisition. The acquisition of ArmadaCare in the fourth quarter fits our goal of increasing shareholder value and mark a defining step in our transformation. ArmadaCare enhances our product diversification, deepens our position in the specialty A&H market, adds meaningful scale and generates recurring revenue streams with attractive EBITDA margins of over 40% that are less correlated to the general P&C commercial cycle. It is precisely the kind of complementary durable business we want in our portfolio as we enter a softening P&C market cycle. While our fourth quarter results reflect only a 2-month contribution, the integration of ArmadaCare has progressed ahead of schedule, and the platform's early performance is exceeding our expectations. With the addition of ArmadaCare, we are actively progressing revenue synergies across broader accident and health MGAs. We expect A&H to account for roughly 1/4 of our distribution business in 2026 across 3 platforms and 7 lines of business. I'm also pleased with our fourth quarter launch of 1889 Specialty, a management liability and professional lines MGA focused on the SME financial institutions market, led by Blair Bartlett and backed by A+ rated capacity. This launch reflects our continued ability to identify top talent within the specialty market who have track records of delivering strong underwriting results and Octave Ventures ability to stand up businesses quickly. Over the past several years, we have purposely constructed a specialty platform designed to deliver innovative, differentiated solutions to brokers, agents and carriers across multiple specialty verticals. As our platform has grown, so has our operational sophistication. We are executing a focused initiative to unify our operating infrastructure onto a single integrated data and technology architecture, one that will further enhance scalability, improve data analytics and risk selection and accelerate our operational velocity, driving scale and revenue growth. Central to this effort is the integration of AI-driven tools across our MGA platform. These tools are designed to improve risk selection, elevate pricing sophistication and drive meaningful operational efficiency gains, ultimately translating into expanded margins. This is not future state thinking. It is already underway, and I will discuss one specific example in a moment. Turning to Everspan. We were happy with the steps we took to reposition the book in 2024. And after some reserve strengthening in the first 9 months of the year, we produced a loss ratio, including the impact of sliding scale of 62.9% in the fourth quarter 2025. We now believe Everspan is positioned for reasonable and controlled growth in 2026. Everspan's focus remains on the casualty markets, where we are continuing to see more pricing discipline than in the property markets. As for our 2026 outlook, we expect our EBITDA profile to follow a natural maturation curve. As our MGA scale and season, we expect contribution margins to improve and operating leverage to emerge with increasing clarity beginning in 2026 and accelerated beyond. We are already seeing signs of this in the first quarter. And while not yet complete, early Q1 results across most of our businesses are very encouraging and supportive of our guidance, which I will cover shortly. One notable example is our exchange platform, which is on track for record results in our ESL business following a couple of years of challenging results. One catalyst for this performance is the official launch of Hammurabi, our proprietary AI platform built specifically around the medical stop-loss business. Hammurabi replaces traditional labor-intensive processes with near-instant risk prediction and pricing accuracy, enabling our underwriters to move faster, price more precisely and scale more efficiently than ever before. We believe Hammurabi is a genuine competitive differentiator that has the potential to expand to other business lines over time, and we are just beginning to unlock this potential. We are also actively utilizing and developing data and AI tools across our platform, which we believe will help us to rapidly scale and differentiate our business model into the future. I will now turn the call over to David to review our fourth quarter results. David? David Trick: Thank you, Claude, and good morning, everyone. For the fourth quarter of 2025, Octave reported a net loss to shareholders of $30 million or $0.84 per share compared to a net loss from continuing operations to shareholders of $22 million or $0.56 per share in the fourth quarter of 2024. The higher loss in the fourth quarter of 2025 was driven by costs associated with the ArmadaCare acquisition, exit from the financial guarantee business and associated expense reduction initiatives and an impairment of a legacy strategy minority investment. Significantly lower interest expense and to a lesser degree, the benefit of 2 months of ArmadaCare results helped to partially offset these transitional and transactional expenses. Adjusted EBITDA from continuing operations to stockholders, which excludes these transactional and transitional expenses, increased to $1.4 million compared to $0.5 million in the fourth quarter of 2024. Adjusted EBITDA improved as a result of growth in the Insurance Distribution segment and lower adjusted corporate expenses, partially offset by lower results at Everspan in connection with the strategic repositioning of that business. Everspan is now positioned for controlled and profitable growth into 2026. Despite some of the market dynamics that Claude mentioned, Octave's Insurance Distribution segment grew premium production 9%, commission revenue 13% and generated organic revenue growth of just over 8%. These results are a testament to the platform we continue to build and set a foundation for our 2026 expectations, which Claude will review momentarily. Total revenues were up 5% to just under $47 million in fourth quarter 2025 versus fourth quarter 2024 and were impacted by lower profit commissions and FX gains, which collectively declined by about $4 million. The reduction in profit commissions was not a result of any systemic shift, and we believe our underwriting results remain in line with expectations. The Insurance Distribution segment net loss to shareholders improved to $1.4 million in the quarter compared to a net loss of $6 million in the prior year quarter, benefiting mostly from a significant reduction in interest expense and growth in the business, including 2 months contribution from ArmadaCare. Adjusted EBITDA to shareholders grew to just over $7 million compared to just over $5 million in the fourth quarter of 2024, a 33% increase. During the fourth quarter, our investment in start-up MGAs created a drag on total adjusted EBITDA of just under $3 million or approximately $1.5 million to shareholders. This investment is about 3/4 of the impact of last year's fourth quarter. Notably, we had 6 entities that produced a negative EBITDA in the fourth quarter of 2025. All but 2 of these are anticipated to be breakeven or be profitable by the fourth quarter of 2026. This dynamic is characteristic of a component of our underlying growth engine and our ability to expand EBITDA margins over time. Insurance Distribution adjusted EBITDA margin in the fourth quarter of '25 was 15%, up from 12% last year at this time, trending favorably towards our longer-term goal of mid-20s plus margins. On an operating basis, that is before the impact of NCI, Insurance Distribution reported over $10 million of adjusted EBITDA at a 22.6% margin compared to just under $10 million and a 22.3% margin in the fourth quarter of 2024. As noted previously, our margins can be expected to flex a bit period-to-period depending on the relative performance of each MGA compared to our ownership level, but will converge over time with margins on an operating basis as we buy in certain NCI. Everspan's gross premium written and net premium written and earned in the quarter were $80 million, $23 million and $18 million, respectively. Gross premiums written were up 34%, while net premiums written were up from last year's negative $3 million and net earned premium was basically flat year-over-year. Production and total revenues were heavily influenced by the repositioning of our portfolio, which began in late 2024. We now believe Everspan is positioned for controlled and profitable growth. Our net loss and LAE ratio was 61.8% in the fourth quarter of '25, up from 51.9% in the fourth quarter of 2024. However, losses were meaningfully impacted by sliding scale commissions, which we have used as an effective tool to help moderate loss results. Including the impact of sliding scale commissions, our effective loss and LAE ratio was 62.9% in the fourth quarter of '25 compared to 66.8% in the fourth quarter of '24, a decrease of nearly 4 full percentage points. Moreover, our active programs as opposed to those in runoff, were operating a combined loss ratio in the low 60s as of year-end. At 99.4%, our combined ratio fell to below 100% for the first time this year, and our expectations are that this will remain the case in 2026. Our G&A ratio was 11.7% in the fourth quarter of '25, higher than we want. But as noted before, our expectations are that our G&A ratio will recede as we approach scale, which we generally consider at about $500 million of gross written premiums, which we believe can be achieved in 2028. For the fourth quarter of 2025, Everspan's pretax income was $1.3 million and adjusted EBITDA was $1.5 million, down from $2.6 million and $2.7 million, respectively, in the fourth quarter of 2024. The decline was mostly related to the $1.8 million reduction in revenue related to the factors I noted earlier as well as an increase in G&A. Corporate G&A expenses were $25 million in the quarter compared to $14.6 million in the fourth quarter of 2024. On an adjusted basis, G&A expenses were $7.5 million compared to $8.8 million in the fourth quarter of 2024. The difference between reported expenses and adjusted expenses in the current quarter was attributable to acquisition and integration costs of about $7.8 million, impairment of a legacy minority investment of $3.1 million and restructuring and expense reduction initiatives of $7.6 million. We previously outlined certain select corporate expense reduction initiatives. These select initiatives are estimated to generate approximately $17 million of reported expense savings compared to where we were presale of our legacy financial guarantee business and have over a $10 million impact on adjusted corporate EBITDA when fully complete. I will now turn the call back to Claude. Claude LeBlanc: Thank you, David. As we look ahead, I believe we are uniquely positioned to grow both revenue and EBITDA as our newest MGAs build momentum and scale, our more established MGAs expand product lines, we continue to grow our distribution channels and all of our platforms work together to deliver synergies. The sum of these parts is expected to deliver improving margins and increasing operating leverage in 2026 and beyond. With that in mind, we are providing guidance regarding our expectations for 2026. For our Insurance Distribution segment, we are expecting organic revenue growth of at least 20% and adjusted EBITDA of approximately $40 million for the full year 2026. For our Specialty Insurance segment, which includes Everspan, we expect gross written premiums of around $410 million and adjusted EBITDA of approximately $7.5 million for the full year 2026. Corporate adjusted expenses are expected to be below $30 million for the year. And on a consolidated basis, we expect to generate adjusted net income of around $0.50 per share for 2026. We are proud of what we have built and excited about the opportunities that lie ahead of us to deliver meaningful value to our shareholders. We look forward to providing you updates on our progress in the coming quarters. Operator, please open the call for questions. Operator: [Operator Instructions] The first question is from Mark Hughes from Truist Securities. Mark Hughes: Claude, how do you see the -- you talked about a strong pipeline of de novo start-ups. What are you seeing for 2026? Claude LeBlanc: Thanks, Mark. Yes, we're seeing a number of opportunities that are both in the Lloyd's market, but I'd say primarily in the U.S. market where we're focused principally for our growth initiatives. And we're currently looking to continue to diversify and broaden our writings in other lines and other areas, and we're seeing lots of opportunity for that and we still have a lot of white space. So I think we can certainly fit in a number of other businesses. But I would say that we're probably targeting a lesser number certainly than the last 2 years, maybe 2 or 3, just given the significant number that we were able to launch in '24 and '25 and really focusing on their growth over the next 2 to 3 years. But we're looking for, I'll say, 2 to 4 per year, I think, is what we indicated previously, and that's probably our continued cadence that we're targeting. Mark Hughes: Very good. David, how do we think about the cash flow in 2026? And I'm thinking one thing in particular, the buy-in of noncontrolling interest, but how do you see cash from operations? And then any outlays, again, like the noncontrolling kind of netting out through the course of the year? David Trick: Sure. So overall, cash flow is continuing to improve in terms of distributions, if you will, up to the holding company and at the operating level as well. Our expectations based on our current view is, and I think we gave a similar amount in last quarter is that NCI buy-in this year will be less than $50 million. And so funding for that will come from cash and our expectations at this point is some marginal additional borrowing as well. Mark Hughes: Appreciate that. And then maybe a couple of specific items, equity-based comp and net investment income, again, for 2026, any early thoughts? David Trick: Net investment income, I would say, be relatively flat to marginally higher in 2026 and equity comp will be relative to 2025 would be down a few million dollars from the prior year. Mark Hughes: Very good. And then when you think about the earnings throughout the year, kind of seasonally, the $0.50, I think you've talked about the profitability of the new de novo start-up should be improving, hit breakeven or better by the fourth quarter. But when you take into account seasonality, any rough guidance on how the quarterly earnings spread should look? David Trick: Yes. I mean while it's continuing to shift based on, as you know, some of the new MGAs that come into play, which we would expect to improve throughout the year for those start-ups that are currently losing money. And like I mentioned in my comments, most of which will be profitable by the end of the year. So that's a favorable dynamic through the course of the year in terms of weighting earnings towards the back end. But nonetheless, our A&H businesses, in particular, as well as a number of other businesses are very heavily weighted towards the first quarter. So overall, our seasonality continues as it has in the past, while it's mutating a little bit, continues to be heavily weighted towards the first quarter and the fourth quarter. And in particular, for example, some of our A&H businesses, including ArmadaCare, they're weighted about 60% of their earnings and EBITDA is weighted towards the first quarter. So overall, we continue with our seasonality profile that's both first quarter and fourth quarter, but certainly starting to moderate modestly as the new businesses start to reach breakeven and move towards profitability. Mark Hughes: Then maybe one final question. How do you see the pricing environment in the kind of 3 main buckets: the accident and health, the casualty and non-cat property? Claude LeBlanc: Yes. So on the non-cat property side, I think fairly consistent with some of the market commentary. I think we're seeing probably 5% to 10% rate reductions on some of the programs. Others have been more stable in non-cat property. On the casualty side, we've seen some rate increases and some programs that have been more on the stable side. So really a blend, but the more challenging areas, certainly the excess casualty lines that really have seen double-digit rate increases. And as far as A&H goes, very strong organic growth. And I'd say that's probably on average when we look at the balance of our portfolio, probably double-digit organic growth in our 3 businesses. Mark Hughes: And is that double-digit pricing for... Claude LeBlanc: It's a combination. The pricing is probably close to double digit, a little higher, 10% to 12%. And the volume is -- revenue growth is also very significant because of new products and just other growth initiatives that are being put in place. Operator: This concludes the question-and-answer session as well as today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, ladies and gentlemen, and welcome to Grupo Cibest Bancolombia's Fourth Quarter 2025 Earnings Conference Call. My name is Carrie, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. Please note that this conference call will include forward-looking statements, including statements related to our future performance, capital position, credit-related expenses and credit losses. All forward-looking statements, whether made in this conference call and future filings, in press releases or verbally, address matters that involve risks and uncertainty. Consequently, there are factors that could cause actual results to differ materially from those indicated in such statements, including changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products by other companies, lack of acceptance of new products or services by our targeted clients, changes in business strategy and various other factors that we describe in our reports filed with the SEC. With us today is Mr. Juan Carlos Mora, Chief Executive Officer; Mr. Mauricio Botero Wolff, Chief Strategy and Financial Officer; Mr. Rodrigo Prieto, Chief Risk Officer; Mrs. Catalina Tobon, Investor Relations and Capital Markets Director; and Ms. Laura Clavijo, Chief Economist. I will now turn the call over to Mr. Juan Carlos Mora, Chief Executive Officer. Please go ahead. Juan Uribe: Good morning, and welcome to Grupo Cibest Q4 conference call. Please turn to Slide 2. Even with fiscal difficulties and volatile markets caused by trade tariffs and geopolitical issues, Colombia experienced steady economic growth in 2025 largely driven by consumer spending and government expenditures. Raising public debt, uncertainty about minimum wage changes, potential new taxes and possible mandatory investments for financial institutions have recently worsened the macroeconomic outlook for 2026, leading to inflationary pressures, higher interest rates and expected weaker overall economic performance. Last year, Grupo Cibest's new holding structure improved our capital allocation enabling higher dividends, share buybacks and greater flexibility, as shown by Banistmo recent divestment. Furthermore, the agreement to sell Banistmo resulted in a noncash impairment charge and asset held for sale accounting during the quarter, which affected both quarterly and annual financial results, as will be detailed further. Thus, annual net income totaled COP 3.8 trillion and ROE reached 9.1%, reflecting the impact of the impairment. However, excluding this one-off accounting effect, Grupo Cibest will have delivered COP 7.3 trillion in net income, significantly exceeding its guidance, equivalent to an ROE of 17.2%. This performance was driven by strong operational results, resilient margins and improved asset quality. Moreover, given the significant progress achieved in our digital businesses, both Nequi and Wompi reached breakeven in the fourth quarter, another key milestone as these businesses complete our value proposal and are key drivers of Cibest's long-term returns. Also, yesterday, we announced to the market our proposed dividend to be submitted for shareholders' approval amounting to COP 4.3 trillion, equivalent to COP 4,512 per share to be paid on 4 installments starting April 1. Despite one-off effects from Banistmo divestment, the group achieved a 14.6% annual dividend growth exceeding inflation by over 950 basis points and boosting shareholder returns through its new corporate structure. Please proceed to Slide 3. The market has acknowledged the value generated by our transformation into Grupo Cibest as evidenced by the strong performance of our shares. This success further strengthens the credibility of our strategic road map. From the time the transaction was announced until the end of 2025, the common shares, preferred shares and ADRs have each shown impressive double-digit gains, 87%, 75% and 104%, respectively. These increases were mainly driven by major milestones: shareholders' approval of the holding company's, creation, the introduction of the share buyback program and subsequently Banistmo divestiture. When it comes to valuations, our price-to-book ratios have improved and our PE multiples now indicate increased market confidence and more optimistic outlook on our long-term profitability. Moreover, we are very pleased with the recent announcement of the inclusion of our common shares in the FTSE Large Cap Index, supported by the continued increase in the trading volumes. Please proceed to Slide 4. Regarding the share buyback program, as of December 31, approximately 32% of the total authorized amount has been executed, representing around 8.6 million shares or nearly 1% of our total shares outstanding. Of the repurchased shares, 53% were preferred shares, 40% were ADRs and 7% were common shares. Since the program began, we have observed an average appreciation of 37% across all 3 share types. I would like to emphasize that the program remains active, and its ongoing execution continues to be fully aligned with our strategic capital allocation plan, market conditions and each share class liquidity and capacity to absorb volume. I would now like to invite Laura Clavijo, Chief Economist to provide an overview of the macroeconomic landscape. Laura? Laura Clavijo: Thank you, Juan Carlos. If you could please turn to Slide 6. In 2025, the Colombian economy demonstrated moderate resilience with overall growth of 2.6% amid a complex macro environment marked by global uncertainty, domestic policy shifts and structural challenges. During the fourth quarter, real GDP growth of 2.3% underperformed against expectations, reflecting short-term strength in domestic demand, but structural weakness in investment and the external balance. Private consumption remains the primary driver of growth, supported by robust household spending, remittance flows and a surprisingly strong labor market. Demand in sectors such as retail, entertainment and financial services continue to thrive even as primary activities such as mining, agriculture and construction underperformed relative to broader economic activity. Public expenditure also favored economic momentum, increasing at an annual pace of almost 5% during the fourth quarter for an overall expansion of 4.5% during 2025. Public sector spending has come at the expense of a widening fiscal deficit of close to 6.3% of GDP and a primary deficit of 3.4%. The government has adamantly responded with emergency fiscal measures, including tax reforms, debt management operations, and regulatory efforts to support spending in the final leg of the administration and the ongoing electoral campaign. Inflationary pressures persisted throughout 2025, with the consumer price index missing the Central Bank's 3% target for fifth consecutive year. Inflation closed at 5.1% and expectations rose sharply at the end of the year, proving that a stable monetary policy rate was ineffective. Furthermore, expectations increased even further on the onset of the announcement of a historically high minimum wage of 23.7% for 2026. In response, Banco de la República initiated a hiking cycle by raising its policy rate in 100 basis points during its January meeting. Our updated view incorporates year-end inflation of 6.4% and a monetary policy rate that should rise at least 200 basis points and may undermine growth dynamics. In summary, Colombia's economy is poised for moderate growth in 2026, supported by resilient domestic demand, but remains exposed to inflationary pressure, rising interest rates and deteriorating fiscal and external balance. Boosting investment, both foreign and local, will be the key to unlocking better economic dynamics and stronger macro fundamentals that may prove challenging amidst political uncertainty. If you could please turn to Slide 7. In 2025, the Central American region delivered a moderate but solid economic performance with Guatemala and Panama among the fastest-growing economies in the subregion. According to World Bank estimates both Guatemala and Panama expanded GDP by approximately 3.8% and 4.1% in 2025, outpacing regional peers. El Salvador's growth was slightly more modest, around 2.8%, reflecting ongoing structural constraints and external vulnerability. Guatemala's diversified economic base supported resilient domestic demand, while Panama's performance was underpinned by services, logistics and trade sectors. El Salvador state was constrained by lower productivity and fiscal adjustments, though tourism and remittances provided important buffers. Overall, the outlook for 2026 remains constructive for investors with growth prospects supported by stable consumption, remittance flows and integration into regional value chains though careful monitoring of fiscal dynamics and external risks is warranted. Now please let me turn the presentation to Mauricio Botero, who will present Cibest 2025 performance. Mauricio Botero Wolff: Thank you, Laura. Please go to Slide #9. Before we discuss our results, I would like to briefly explain the accounting impacts recorded in the fourth quarter given the recently announced agreement to sell 100% of Banistmo's shares to Inversiones Cuscatlán Centroamérica S.A. The transaction consists of an all-cash consideration of $1.4 billion, equivalent to a multiple of 17.1x earnings and 1.2x book value, triggering a onetime noncash net impairment charge of COP 3.4 trillion related to goodwill. Banistmo's operation had to be recognized as assets held for sale, meaning all assets and liabilities were reclassified, creating significant variations on the balance sheet compared to the previous quarter and previous year. Consistently, Banistmo's contribution was deducted from the P&L and net impact adjusted through net income from discontinued operations from fiscal year 2024 and 2025. However, to facilitate understanding, the year-over-year variations of the P&L items presented here are calculated based on the actual 2024 results, excluding the reclassification. Also, we provide a pro forma year-over-year variation assuming no reclassification on 2025 figures either. A set of balance sheet and P&L statements for both the fourth quarter and full year reflecting the required reclassifications as well as pro forma versions, excluding these effects, are available in the press release published yesterday and included in the appendix of this presentation. I just want to emphasize that the accounting impact did not affect the bank's capital ratios or the dividend flows to and from Cibest. Now please proceed to Slide #10. Our loan portfolio declined 8.3% over the year, mainly explained by the accounting impact, absent of which the growth would have been 2.1%. In addition, the 15% appreciation of the Colombian peso in the period reduced the value of our foreign currency portfolios when translated into local currency. Excluding both impacts, the loan book would have grown 7.2% year-over-year. When broken down by loan category, mortgages continued to lead growth. Consumer lending also regained momentum after 2 years of contraction, driven by a renewed risk appetite and by Nequi's continued expansion in low-value loans. Meanwhile, commercial lending grew at a more moderate pace, though it showed a slight pickup in the second half of the year in Colombia despite ongoing political uncertainty. Now please proceed to Slide 11. When analyzing performance by operations, Bancolombia in El Salvador led loan growth. Banco Agrícola delivered the strongest expansion with commercial lending accelerating sharply, particularly in the construction sector, supported by renewed demand for housing projects. Consumer activity was also positive, driven by personal loans in credit cards. Bam in Guatemala and Banistmo in Panama applied tighter credit standards, resulting in a more restrained lending dynamic during the year. Now please proceed to Slide #12. Our deposits reported a 5.2% contraction in the year, but expanded 4.5% absent of accounting impacts. If FX impact is removed, deposits growth would have been 10.2%. I would like to highlight the solid performance of savings accounts, which grew 16.1% net of accounting and foreign exchange effects. Deposit growth was very positive across all operations, with particularly strong contributions from Banco Agrícola and Bancolombia, which explains the group's robust liquidity position throughout the year. Now please proceed to Slide #13. In terms of our funding mix, we highlight the larger share of [ SA ] deposits relative to time deposits and other funding sources, which reduces funding costs and enhances structural liquidity. To a certain extent, this shift is the result of the reclassification of Banistmo that held a higher share of time deposits and other liabilities relative to other banks of the group, but also given the strong growth on savings accounts across Colombia, El Salvador and Guatemala such that this now represents 47% of total deposits on a consolidated basis compared with 40% a year earlier. This outcome clearly underscores our ability to attract and retain stable low-cost funding, reducing the overall cost of liabilities to 3.8%, a decline of 114 basis points compared to the previous year. Now please proceed to Slide 14. Net interest income decreased by 5.3% on an annual basis, but recorded a 1% expansion excluding accounting impacts. Such increase is the result of a larger contraction in interest expense relative to interest income during the year, supported by a series of hedging strategies that allowed us to reprice funding more quickly as rates came down. The annual NIM decreased, as expected, from 6.8% to 6.5%, excluding accounting impacts, given the lower prevailing interest rates compared to the previous year. When broken down by entity, it is worth noting Banco Agrícola's consistent NIM expansion due to its well-balanced growth, both in high-yielding loans and low-cost deposits. Please proceed to Slide 15. Net fee income increased by 4.3% year-over-year or 10.4% excluding accounting impacts. This strong performance was fueled by higher transactional activity in credit and debit cards, mainly supported by a new bancassurance alliance in Colombia. In addition, brokerage, payments and collections and trust services continued to perform well, reflecting a well-diversified noninterest revenue mix. While fee-related expenses increased in line with higher activity levels, particularly in card-related services, we continue to capture operational efficiencies, especially through adjustments in the corresponding banking model. Overall, fee income continues to be key for our earnings diversification, and it represented 18.4% of our total net operating income in 2025. Please proceed to Slide 16. Moreover, I would like to highlight the solid progress we are making in scaling our complementary businesses, which play a key role in strengthening our group's competitive advantage by combining the best of traditional banking with the innovation of our digital solutions. Wompi achieved a major milestone by reaching breakeven in 2025, supported by strong growth in clients, transaction volumes and fee income. This expansion in revenues outpaced operating expenses, enabling the company to reach profitability. On the other hand, Wenia continued advancing steadily supported by growth in onboarded clients, assets under custody as well as a sharp increase in transactions that reinforces its compelling value proposition. Finally, regarding Nequi, I'm pleased to share that it reached breakeven in the fourth quarter earlier than expected, driven by strong growth and deeper monetization across its ecosystem, which I briefly discuss next. Please proceed to Slide 17. Nequi's loan portfolio scaled significantly, increasing 174% over the period to reach a balance of COP 1.6 trillion, surpassing the goal of doubling the loan portfolio by 2025. As of year-end, 700,000 clients held active loans, reflecting an average ticket size of COP 2.3 million in an average term of 32 months. The 90-day past-due loan for 2025 stands at 3.5% and the cost of risk remains contained at 13.1%, aligned with a scalable digital origination model. Deposits show similar momentum, up 58% year-over-year to COP 7 trillion in the fourth quarter of 2025, reinforcing Nequi's role as a leading digital savings and transactional platform, still with room in its loan-to-deposit ratio to further expand the loan portfolio. On the revenue side, financial income increased 75%, supported by strong portfolio growth and a more balanced mix between low income and investment income, positioning Nequi for continued improvement in structural profitability. Please proceed to Slide 18. Moreover, it closed 2025 with 27.4 million users in an activity ratio close to 80%, demonstrating a strong client engagement. Also monetized users rose 43% to 16.5 million, driven by deeper product adoption across the ecosystem. Regarding fee income, Nequi delivered a 53% increase versus the prior year, reaching COP 175 billion in the fourth quarter of 2025. We diversified growth across cards, withdrawals and FX, reducing concentration risk and enhancing resilience. Consistently, ARPAC and CTS metrics remain with positive trends, supporting a disciplined path toward profitability as monetization expands in line with customer engagement. Finally, looking ahead to 2025, guidance remains strong with total users expected to grow 5%, loans expanding 50%, deposits increasing 10% and total income rising 40%, reinforcing each strategic relevance and long-term value creation potential within the group. Please proceed to Slide 19. Net provisions for the year amounted to COP 4.4 trillion, an almost 19% reduction over the year, 16% excluding accounting impacts on the back of lower expected losses related to consumer and SMEs that offset the growth on corporates given the deterioration recorded of a few nonsector related groups. The group performance on almost all segments more than compensated for the increase in provisions recorded at the end of the year, given the sudden change in macro variables discussed earlier, which exerts pressure on households and enterprises disposable income. Thus, the annual cost of risk was 1.8%, which, absent of the deduction of Banistmo's assets, would have been 1.6%, in line with our updated guidance. Please proceed to Slide 20. Consistent with the lower expected losses that drove net provision charges down, asset quality strengthened steadily throughout the year across all major indicators. From a past-due loan formation standpoint, the volume of loans becoming delinquent during the period declined significantly versus historical averages, led primarily by improvements in the consumer portfolio. In line with this trend, both the stage distribution and the nonperforming loan ratio improved, reinforcing provision coverage levels. Please proceed to Slide 21. The operating expenses increased by 1.6% year-over-year or 8.3% excluding the accounting impacts. General expenses increased primarily due to licensing and technology-related costs associated with the group's ongoing business transformation, followed by an uptick in other taxes stemming from the incorporation of Grupo Cibest. Personnel expenses increased 2.3% year-over-year or 10%, excluding accounting impacts, primarily driven by the annual adjustment in higher bonus provisions aligned with the full year financial results forecast. The cost-to-income ratio reached 49.8%, in line with our updated guidance, reflecting a slower pace of income growth relative to expenses explained by the NIM reduction as expected. Please turn to Slide 22. Net income for the year was COP 3.8 trillion, which, absent of the one-off accounting impact, would have reached COP 7.3 trillion, reflecting the strength of our operation even outperforming our updated guidance. As a result, consolidated ROE was 9.1% or 17.2% absent of impacts, primarily pushed by Bancolombia's stand-alone pro forma return of 24%. Please turn to Slide 23. Shareholders' equity fell 8.7% year-over-year, 1% absent of impact, explained by a reduction of retained earnings driven by the net impact of the impairment charge discussed above. On the other hand, Bancolombia's stand-alone core equity Tier 1 ratio closed at 12.2%, an increase of 27 basis points over the 2024 year-end pro forma figure, assuming the corporate evolution into Grupo Cibest has already taken place. I would also like to highlight the significantly lower CET1 deductions recorded during the year, only 7 bps compared to nearly 70 bps in 2024 as the goodwill from the Central American bank was no longer required to be deducted. All in all, Bancolombia's stand-alone total solvency reached 14.4% and Banco Agrícola and BAM above 13.5%, all of them available well above minimum requirements. These sound capital ratios, coupled with a low double leverage of 101% in Grupo Cibest allowed us to propose the 60% dividend payout ratio discussed earlier. With this, I will now hand the presentation back to Juan Carlos. Juan? Juan Uribe: Thank you, Mauricio. Please proceed to Slide 24. By 2025, Grupo Cibest had originated COP 370 trillion in loans through its business with purpose strategy, progressing towards the COP 716 trillion target for 2030. In the latest, Dow Jones Sustainability Index evaluation, Grupo Cibest achieved a score of 88 points, which is higher than the last year's result. Banco Agrícola has been recognized as the organization with a high reputation in El Salvador, while Bancolombia has received equivalent recognition in Colombia for the 11th consecutive year. Please proceed to Slide 26. Our 2026 forecast now incorporates major shifts in our macroeconomic expectations, especially regarding inflation and interest rates. It also accounts for the impact of the Banistmo deconsolidation and increased uncertainty largely due to higher taxes compared to our earlier assumptions. In this context, we anticipate loan growth in the range of 7% to 8%, with a net interest margin expected between 6.8% and 7%, reflecting the current higher interest rate environment. The cost of risk is projected to be between 1.6% and 1.8%, while operational efficiency is targeted at approximately 49%. As a result, ROE is expected to be between 18% and 18.5%. Now please proceed to Slide 27 for some final remarks. In conclusion, I wish to emphasize that 2025 represent a pivotal year for the group, characterized by an effective implementation of our corporate transformation, the initiation of our share repurchase program and the agreement regarding the Banistmo divestment. Collectively, these actions demonstrate our continued dedication to generating sustained value for our shareholders. Looking ahead, although fiscal deficit challenges persist, the prevailing high interest rate environment offers potential for marginal improvement, which could offset weaker loan demand and emerging credit risks. We are confident that the electoral process will be conducted smoothly strengthening our positive environment for operations. This concludes our presentation for today. We welcome any questions you may have at this point. Operator: [Operator Instructions] And our first question will come from Tito Labarta with Goldman Sachs. Daer Labarta: My question I guess, is on the outlook for asset quality and the cost of risk guidance, right? I mean I think short term, things are going well, but inflation remains high, interest rates are high. Juan Carlos, you mentioned the potential asset quality risk. How are you seeing asset quality? And what do you think the risks are given this continued high inflation, high level of rates? And could that put maybe some pressure on cost of risk or asset quality throughout the year or into next year? Juan Uribe: Thank you, Tito. Definitely, the cost of risk is something that we will need to manage during this year. It's a year in which we will have some challenges -- sorry. Sorry for that. And you mentioned some of them. Inflation is one of them and also, as a consequence, interest rates. But we believe that we are well prepared to manage that uncertainty that is coming in the economy. So our guidance regarding cost of risk includes those challenges that we have in front of us. So we are very well aware that there will be macroeconomic challenges. But again, we think that in the guidance that we are providing, we are incorporating our capacity to manage those risks. In the upper level, which is 1.8% of cost of risk, we are incorporated some of those risks that we see. But even though those risks, we believe that there are opportunities the Colombian economy has shown so far that could manage some of those risks, particularly coming from consumption that it's fueling that development. So Tito, definitely is something that we are going to watch very closely and we will continue updating how are we seeing the forecast of the cost of risk, but we are confident that with the tools that we have, the understanding that we have of the economy, we can react fast to any upcoming risk and adapt our models and our behavior to those risks, Tito. Daer Labarta: Second question, if I may, just in terms of capital allocation, right? I mean ROE has been doing better than expected. All the underlying banks are fairly well capitalized. You have been executing on your buyback, but I think there could potentially be room for more. How do you think, one, either about additional buybacks once this program is completed? And two, just I think the market, as you highlight, the sale of Banistmo has been well received. You still have Banco Agromercantil, which is just relatively underperforming from an ROE perspective. I liked that charts that you showed, lower NIM, higher NPLs. How do you think about just the capital allocation into Banco Agromercantil, which has been underperforming a bit? Could there be more sales here? Or do you see room to improve that? And how much could you improve that? Juan Uribe: Tito, what we achieved with the creation of Grupo Cibest was a lot of the ability to manage our capital in a much better way. So now we have much more flexibility. And we are aware of the possibilities that we have. So we will continue managing capital to be very efficient in the sense that we will utilize that capital for growth, but also to return to shareholders, depending on the situation. Regarding to your specific comment about BAM, I want to emphasize that we are committed to continue supporting the opposition in Guatemala. We see very good potential in that operation. It's a country with the good macroeconomic stability with potential for commercial businesses. And so we will -- we are confident that our model will create a positive impact on our operation in Guatemala. So we will continue supporting the operation. And we are confident that the numbers that you mentioned will continue improving. We are targeting double-digit ROE. It will take some time. We are aware of that, that the year for -- the performance of BAM will show its results or full year results in 2027. We are on a transition to have those numbers that we are looking for. But again, we are very confident about how we can develop that franchise in Guatemala. I don't know, Mauricio, if you have any additional comments to Tito's question. Mauricio Botero Wolff: Tito, I would just add that due to the flexibility we have now with the new corporate structure, and with the level of capital and liquidity we're going to have in -- at the holding level, we're going to be optimizing the capital of the different operations. So we expect to do some -- to issue some instruments inside the perimeter of the holding in order to have some flow of capital going from the holding to the operating entities and the operating entities flowing dividends to the holding company. So that's going to be one way to capitalize -- to optimize capital allocation along with investments we plan to do. We want to capitalize Nequi. We're going to capitalize Wompi and Wenia, which are having very good dynamics. And we're also going to be investing in IT projects that you know are making a big difference in our value proposal. So we plan to do all of that. And only to wrap up, the buyback program will be there, is here to stay. We're going to present a 3-year buyback program, but we are only going to execute according to market conditions. Operator: Our next question comes from Yuri Fernandes with JPMorgan. Yuri Fernandes: Congrats on the year. I have a -- I will ask just 2 questions here regarding the guidance and the outlook for 2026. The first one is regarding taxes. We saw some, I'm not sure if I can call that one-off, but COP 150 billion tax headwind in the fourth quarter. So just asking your view, like should we continue to see this emergency tax into 2026? And what was the tax rate that the guidance was built with? Like are you assuming like a higher tax rate? And if yes, what? I'm just trying to understand the taxes moving pieces. And then I have a question regarding the ROE for the year, 18% to 18.5%. I know the guidance is fully done without Banistmo. So I would assume that you are also using the lower equity, right, the equity with lower impairment and ex-minority. So just checking what was the equity that you are implying so we can kind of estimate the net income because basically, the average equity for 2025 was higher, right, than the end of period. So just checking here for us to try to estimate the net income growth. Juan Uribe: Thank you, Yuri. Let me give you some general comments about your 2 questions and then pass Mauricio for comments -- for additional comments. Taxes -- reading taxes at this point in Colombia is very difficult. I mean, you know that at the end of the year, there was -- there were some regulations regarding taxes that in February were suspended by the constitutional court. So those taxes that incorporated additional income tax for financial institutions is now suspended. And it is awaiting for the final decision from the constitutional court. So what we did at the end of 2025 was incorporating the information that we had at that moment. So in the fourth quarter, we have around COP 150 trillion -- billion, I'm sorry, in which we are -- with the information that we had at that moment, we were in fourth quarter, there is a provision about additional taxes. So now there is another regulation that is in progress. We don't have the information yet. It has been informal or some messages from the government that will incorporate some equity taxes. And they are saying that probably we'll have tariff for financial institutions, but we don't have that information yet. It's supposed to come out this week. So it's difficult to wait at this moment how are we going, or what are going to be the effective taxes for 2025 in Colombia? With that scenario, what we have for our guidance is an effective tax rate of 28% that we believe reflects the current information that we have. Once we have more information, we will incorporate additional information -- I'm sorry, about how are going to be the effective taxes for '25. Regarding your question about ROE, I will pass it to Mauricio. Mauricio Botero Wolff: Thank you, just to be very clear with the message that Juan Carlos just passed, the tax rate with which we projected our guidance in regular operations is the one that he just mentioned is 29%, it moves from 28% to 30%. Now we included extra taxes because of the extra tax rate because of the decrease that was on the table that, as you know, has not been confirmed, but I guess my message here is our guidance of 18% to 18.5% does include extra taxes because of the extra tax rate, which was the information we have at the moment, we built the guidance. The new decree, the one on the equity has not been included. So the message here is very unlikely that both of the decrees are accepted regardless of which one is accepted or confirmed. It's important to note that the guidance does include extra provisions for taxes. Now to your second point, around the equity used for the guidance, it is the equity after the impairment. So to do your math, the 18% ROE corresponds to a net income of COP 7.3 trillion. So it's flat in terms of net income as compared to 2025, but without Banistmo, without Banistmo's equity and without Banistmo's net income. Yuri Fernandes: Super clear, Mauricio and Juan Carlos. So basically, the guidance, I would say, is in between on tax rate? It's very hard, as Juan Carlos mentioned, to have a view, a lot of uncertainty. So you have some of the decrees, not the true decrees. So let's say, above case none of those decrees will prevail, there is an upside risk to the guidance on taxes. If the second decree prevails and the first decree also prevails, then there could be a downside risk to the guidance on higher taxes. That's basically the message, right? Mauricio Botero Wolff: That is correct, Yuri. Juan Uribe: That's correct. Operator: We'll go next to Andres Soto with Santander Mexico. Andres Soto: My question is again regarding guidance. I would like to understand if you are assuming 11% policy rate and actually expectations are quickly moving higher than that, will that imply that you will need to do another model update down the road and build additional provisions? And if so, is that a downside risk to your guidance and also considering the uncertainties on taxes, it looks like that could be another potential headwind to your ROE in 2026. So I would like to understand what will be the factors that could balance out in order for you guys to reach this 18% to 18.5% ROE? Juan Uribe: Thank you, Andres. The guidance that we've given to the market, it incorporates the information that we have at this point. And you mentioned that, of course, interest rates are going up. That's a fact already the Central Bank increased the reference rate 100 basis points. And our view is that, that is going to continue. So that implies that interest rates will be higher in the economy, much higher. That -- as you know, we are asset sensitive and that is going to have a positive effect on our NIM. So that is the positive effect. The other side of the coin on that comment is that, that it's increasing the risk. So we will there have to balance that higher margin with a higher cost of risk. But we think in that equation, we are able to deliver the guidance that we are providing. So even with those risks and anticipating that behavior, we think that we are able to deliver the guidance that we are providing. So it's a year in which we will need very -- need to be following the development of the macro variables and also risk very, very closely, but we are confident that we have the tools to react fast enough to deliver the guidance that we are providing. Mauricio, do you have any additional comments? Mauricio Botero Wolff: Yes, Andres. Taking into account that we have like a natural hedge on volumes and prices, volumes -- as prices go up because interest rates go up, volumes may go down, and that may be offset. So just to take into account that we have -- we simulated some scenarios of interest rates going up to 12%. So that's why we use ranges in our guidance, not only in ROE, but also in cost of risk to consider both scenarios. Now in order to anticipate what could happen with an interest rate of -- with a high interest rate scenario, just wanted to let you know that we have already closed some risk brackets in consumer lending. So we already closed some of the origination risk profiles. And it's also good to take into account that we -- at the end of 2025, we anticipated 300,000 provisions considering the increase in the legal minimum wage because we knew -- when we included that into the models, we knew that, that could cause inflation pressures and interest rate increases. So we already have 300,000 of potential deterioration in our consumer portfolio. And also, we have, as you know, extra provisions for a specific corporate clients at the end of 2025. So if you put those things together, we feel very comfortable we can meet the target of cost of risk for 2026. Andres Soto: Perfect. My second question is regarding capital deployment. Your double leverage stands at 101%. What is the level you guys feel comfortable with? And regarding the capital allocation priorities that you previously mentioned, including providing capital for your new ventures, can you please quantify how much capital are you planning to put into those subsidiaries? Mauricio Botero Wolff: Yes, Andres, we plan to put around COP 600 billion in Nequi, around... Juan Uribe: That's pesos, right? Mauricio Botero Wolff: Yes, pesos. COP 50 billion to both Wenia and Wompi. We are investing a lot in IT organic projects. And according to the instruments I mentioned before, we plan to do at least COP trillion of AT1s from Bancolombia to Cibest and around $250 million from the Central American operations to Cibest. So that's the overall picture in terms of capital deployment. And I'm sorry, around the question of double levers. Yes, it's 101. Our limit according to conversation risk rating agencies is at 120. So we're using the capital, as I just mentioned, but it's important to know that we have approximately 20 percentage points of extra leverage if we would like. Andres Soto: Thank you very much and congratulations on the results. Operator: We'll go next to Ernesto Gabilondo with Bank of America. Ernesto María Gabilondo Márquez: My first question will be on the political and economic outlook. So given the recent salary increase, how do you see the Congress election on March 8. And can you elaborate on the proposals of the 3 leading candidates for the next presidential election in May? And my second question is on operating expenses. I believe last time you mentioned OpEx growth should be around inflation, plus 200 basis points. So just wanted to know if that will be the case for this year? And if you are seeing any impact related to the recent salary increase in personnel costs? And also, if you can elaborate on how much of the OpEx growth will be on a recurring basis? And how much will be related to the technology cost, advertising all of what you are doing in Nequi, Wenia and Wompi? Juan Uribe: Thank you, Ernesto. Let me elaborate a little bit on the political scenario. As you all maybe know, we are 2 weeks away of Congressional elections. And also, there are going to be 3 primaries in the same date, that's the 8th of March. It is difficult to try to predict how the Congress is going to evolve in this composition, but there are some facts that is important to take into account. There are going -- the 5 seats that were given on the peace process of 2016, now expire. So those 5 seats that were in the government coalition are not going to be there anymore, so there are 5 seats less and those seats were supporting the government. On the other hand, the composition of the several leading parties, at this point, there are some forecasts that, in the case of the parties that have had a coalition in this case opposing to this government will probably continue having a strong position. But again, at this point, it's very difficult to know. What we know is that probably the Senate will be -- will have a composition that is going to be very much balanced and probably with majority of coalition that is not supporting this government. That we have now. Regarding the propositions of the several candidates, there are -- I will just say that there are clear candidate from the left. And there is going to be a primary to elect another candidate from the left also. So we will have probably 2 candidates running on the first round representing the left. There is a coalition in the center, 9 candidates -- center right, 9 candidates, and we will have another strong candidate there. And there is a more far right candidate that is also strong. And the proposals are more are reflecting in what they are -- the way of thinking. The candidate from the left will continue on the peace process and will continue with a view of much strong government intervention. And the other candidates are more true, more rule of law and are strong position against violence and peace processes and much more friendly to private initiatives. So that's a summary. But we after March 8, we will have a much clear picture of who are the candidates with more possibilities on the first round. And also, we will have the information of what is the composition of the Congress. Regarding your second question, I will pass on to Mauricio to answer that question. Mauricio Botero Wolff: Yes, Ernesto, the way to think about the OpEx growth is what we consider run the business would grow in line with inflation and what we consider change in the business, that's what is going to lead us to grow above inflation, 2 or 3 percentage points above inflation. So thinking about a growth of inflation plus 2 or 3 would be right. And in terms of the salary increase, we don't have any employees earning minimum wage. But we do have some vendors offering services that are tied to that salary. So we may have an increase in expenses from that side, and that is already included in our guidance. Ernesto María Gabilondo Márquez: And any comments on how much of the OpEx will be related to technology costs, advertising and your 3 initiatives, Nequi, Wompi, Wenia? Mauricio Botero Wolff: Well, the most significant figures would be the figures from capital that I just mentioned for the digital companies. But the breakdown of the general expenses, I would say the main lines are, of course, IT investments, also things related with fixed assets and everything that involves the physical distribution network, but also for correspondent banking, the mobile digital channels, but we can offer you a more explicit breakdown after the call. Operator: Our next question comes from Brian Flores with Citibank. Brian Flores: My first one is a follow-up on Yuri's question on taxes. I just wanted to confirm the number you said for the effective tax rate is the same as last year. What I mean by this is close to 30%. I understood that it was a bit higher. I think it was around 35%, 36% for -- in your guidance, right? And then if I can, my second question, just wanted to understand on Nequi because in your consolidated fee income growth of 10% year-over-year, how much of this could you attribute to Nequi? I just wanted to know if, obviously, you're providing more details on the stand-alone operation, you provide guidance now. So I just wanted to understand if at some point, we should see a stand-alone efficiency ratio too for Nequi? Juan Uribe: Thank you, Brian. Let me give you some comments about Nequi and then I will pass Mauricio for the taxes question. As you know, Nequi, now it's operating under the umbrella of Bancolombia. And the figures of Nequi are improving. We mentioned that it already passed the breakeven point last quarter and the numbers are very good. I mean in terms of loans, it's COP 1.7 trillion in outstanding loans and that's around 700,000 clients. The interest rate in the case of Nequi is very close to the maximum rate that we can charge. So it's close to 25%. And the cost of funds in the case of Nequi is very low. It's very low. So you know that we fund Nequi mainly with savings accounts that with our cost of funds very close to 0. So the margin -- the financial margin of Nequi is very high. So also, it's going to know that we announced that we are in the process of separating Nequi, and we are expecting to have that operation conclude in the third quarter of this year. So you will see Nequi as a separate entity in Grupo Cibest, we expect by the third quarter or maximum for the fourth quarter. So you will have the whole information of Nequi as a separate entity. But what we can say is, on the numbers that we have under the umbrella of Bancolombia, Nequi is performing very well. It's -- the loan book is growing and now we reach profitability. Mauricio? Mauricio Botero Wolff: Yes. Brian, in terms of taxes, is as you just mentioned. So the tax rate for 2026 is in line with the one from 2025, plus COP 650 billion from the extra tax rate decree, which is under the analysis of the courts. So if you combine those, that's when you get to the 35% rate approximately that you just mentioned. Operator: And our next question will come from Carlos Gomez with HSBC. Carlos Gomez-Lopez: I wanted to ask you -- first congratulations on the results and on the conclusion of the progress in the disposal of Panama. So I wanted to ask you, looking forward, not 1, 2, but more like 5, 10 years from now, how do you see the group evolving? Do you think you will concentrate more in Colombia? Do you think you will expand more in Central America, perhaps go back to retail in Canada through electronic means or Nequi or something? Do you see yourself more in Venezuela or the Dominican Republic? How do you think the group is going to evolve over the next 5 or 10 years? And again, does that mean that we should expect to continue to invest? Or we should see more that the focus is on shareholder return and therefore to return capital as fast as possible to shareholders? Juan Uribe: Thank you, Carlos. We created Grupo Cibest in order to, I remind you, with 3 main goals. One is to have a more efficient way of managing capital. The other is that we could have more flexibility on our corporate evolution and also that we can complement our financial services. So to answer directly your question, we see ourselves developing as a Latin American financial group with presence in several countries, not necessarily with operations, a full banking operations, but leveraging our digital capabilities. So definitely, we see ourselves growing, growing in Latin America, and that's why we are investing at this point developing those digital capabilities and Mauricio mentioned that we are having our plans fund those operations in order to continue developing those capabilities that allow us to move in the spectrum of payments, also on digital banking again, we are also developing capabilities as a corporate investment bank possibility. So we will continue growing, but we need to balance that growth with returning -- we're giving the returns our shareholders are expecting. And we have declared that we will target an ROE around 17%, 18%. So with that target, so we will continue returning to shareholders what they are expecting in terms of ROE, but we will continue expanding our footprint. We -- as you know, in Colombia, we have a market presence that is important. So in Colombia, we will complement our services with other digital operations. And in other countries, we will look for opportunities even organic or inorganic possibilities in the mid- and long-term, Carlos. Operator: And we'll go next to Alonso Aramburú with BTG. Alonso Aramburú: I wanted to ask about, there's a recent announcement from the government regarding a proposal to, I guess, force lending from banks to fund emergency spending. I don't know if this is something already approved. Can you give us some color on this? And what would be the impact for Bancolombia? Juan Uribe: Thank you, Alonso. That is not something that is approval now. There was -- there are some comments coming from the government that they are considering the possibility of mandatory investments for the financial services, but there is not yet an official document or an official issue about that particular tax. So as you know, there are discussions about equity tax for legal entities in Colombia. And also, they mentioned the possibility of those mandatory investment, but there is not an official document yet about that. So we will expect that to happen this week to have the official document decree from government announcing what they are going to do regarding the taxes that they are planning under these new economic emergency that they declared 3 weeks ago. Alonso Aramburú: Okay. And any estimate on what could be the impact? Did they declare -- I don't know if they mentioned some parameters about this forced investment. So any potential estimate you can have on the potential impact of this? Juan Uribe: It's difficult to know because as -- just to elaborate a little bit on those mandatory investments, the instrument is that they ask the financial institutions to invest in government papers. And then they direct those proceeds to specific sectors. But it's very difficult to have an opinion if we don't have what is the amount that they are planning and what is the interest rate that those papers are going to earn, and we don't have that information. So I'm not, at this point, with -- I don't have at this point enough information to have a position, Alonso. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Juan Carlos Mora for closing comments. Juan Uribe: Before closing, I want to highlight the strong results achieved in 2025, which underscores our strategic progress. With this, we invite you to join us for the upcoming first quarter results conference call. We look forward to your participation. We wish you a very good day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Mar Martinez: Hello. Good morning, and welcome, everyone, to this event where, as you can see from the agenda now on the screen, our CEO, Jose Bogas; and our CFO, Marco Palermo, will first comment on the results achieved in 2025, and then we will present the updated strategic plan for the next 3 years. After some closing remarks, we will open the Q&A session. Thank you. And now I would now -- sorry, like to turn to Mr. Bogas. Thank you. José Gálvez: Thank you, Mar. Good morning, and welcome to everybody, everyone. Let me start with the results achieved this year, which I'm sure speak for themselves. EBITDA reached EUR 5.8 billion, comfortably above the upper end of our guidance, while net ordinary income reached EUR 2.3 billion, exceeding target and representing an 18% increase year-on-year. Economic and financial performance was particularly strong underpinned by robust cash generation and disciplined execution. We remain fully engaged to our capital allocation strategy, successfully delivering on the main strategic priorities set last year as we will discuss later. This solid performance reflects our ability to deliver on our commitments and our continued focus on value creation for shareholders. Accordingly, we will propose a dividend of EUR 1.58 per share at the next Annual General Meeting, well above our target set and 20% higher year-on-year. On Slide #5, we would like to highlight the steady progress made in executing our capital allocation road map throughout 2025. Several transactions were successfully completed during the year, strengthening both our asset base and our commercial capabilities. In February 2025, we closed the acquisition of 600 megawatts of hydro assets, while in July, we completed the acquisition of the remaining stake in CETASA, fully consolidating its wind asset portfolio. Together with the entry of a partner into our solar asset portfolio, this transaction illustrates how we are reducing the risk profile of our generation asset. And finally, the alliance with MasOrange fully consolidated since February 9, 2026, enhanced our commercial offering through telecommunication solution, reinforcing our commercial strategy and strengthening customer loyalty. Slide #6 provides an overview of the progress made on capital allocation and the execution of our key industrial KPIs. Over the period, we invested EUR 3.2 billion, more than 50% above versus previous year's figure, 77% being allocated to grid and renewable assets. This strong effort led to an improvement in the interruption time index, while total losses remained broadly stable, largely impacted by non-manageable losses. In renewable, the integration of approximately 1.2 gigawatt of new capacity enabled us to reach 80% emission-free installed capacity. Finally, in the customer segment, we progressed on a strategic shift towards higher-value customers, reshaping our customer mix with a clear focus on long-term loyalty and value creation. This strong operating performance turns into outstanding value creation for our shareholders, and I am now on Slide #7. Nothing better illustrate the success of our long-term vision and the resilience of our business model and the consistent returns delivered to our shareholders. Over the 2014 to 2025 period, Endesa has clearly outperformed the main benchmark indexes, underscoring the strength and credibility of our value proposition. As mentioned earlier, we will propose a dividend of EUR 1.58 per share, excluding treasury stock outstanding as of 31st of December 2025, would imply a dividend yield of more than 5%. Finally, our EUR 2 billion share buyback program is currently around 30% executed as we remain fully committed to completing this within the planned time frame. In fact, a new tranche of EUR 0.5 billion has been approved and will be completed up to July 2026. And now I will hand over to Marco, who will go into the financial results in more detail. Marco Palermo: Thank you, Pepe, and good morning, everybody. This year's strong results were achieved in a market context characterized by demand growing for the second consecutive year, increasing 2.9% year-on-year and 2.0% on an adjusted basis. In Endesa distribution area, where adjusted demand is growing by 2.8%, consumption increased across all customer segments. This reflects not only Spain's economic recovery during the year, but also a rebound in industrial and services demand as part of a broader sector-wide increase in energy usage. This clearly marks a turning point in the trend. The sharp rise in connection requests seen in recent years is now starting to materialize, representing a unique opportunity to reindustrialize the economy and to electrify the demand. Turning now to the price scenario on Slide 10. Although the average pool price has remained broadly unchanged year-on-year, the intraday volatility has been extremely high, ranging from EUR 145 per megawatt hour in the mid-winter to 0 or even negative prices in spring, coinciding with the strong renewable resources and low demand. This level of volatility has become a structural feature of a system with very high renewable penetration. Spain continues to display some of the most competitive power prices in Europe. That said, it is important to note that the final energy prices were affected by post-blackout measures adopted by the TSO, which led to a significant increase in ancillary services costs. Let me now focus on the main drivers behind our financial performance. As mentioned earlier, EBITDA reached almost EUR 5.8 billion. I'm now on Slide 11, up 9% year-on-year. This strong performance was supported by, first, generation and supply EBITDA increased by 11%, driven by in conventional generation, a strong gas management margin, reflecting the positive impact of hedges executed in previous years, partially offset by lower opportunities on the short position. In renewables, EBITDA was slightly lower, reflecting lower volumes and prices, both in wind and solar, while the hydro margin increased driven by higher volumes and the shape effect. And supply delivered sound results across both businesses, gas and power, with power performing well despite higher ancillary services cost. Turning to Networks. EBITDA increased by EUR 0.1 billion primarily explained by previous year's resettlements. If we go to Page 12 now, all these dynamics are reflected in our integrated power and gas unitary margins. The free power margin stood at EUR 52 megawatt hour, representing a decrease of only 5% year-on-year despite the increase in ancillary services cost, which weighed on results. On the other hand, gas margin reached EUR 9 per megawatt hour, a strong improvement driven by the factors mentioned above. Moving now to Slide 13. Net ordinary income came in at EUR 2.3 billion, significantly above the upper end of the guidance, reflecting strong operational performance and improving the net ordinary income to EBITDA conversion ratio to 41%. D&A increased by 9%, mainly reflecting higher amortization linked to increased investment level. Financial results almost flat and the effective tax rate stood at around 23.5%, no longer affected by the temporary levy that impacted last year's results. Turning to the next slide, Page 14 now. We delivered strong cash generation with FFO reaching an outstanding EUR 4.1 billion and a cash conversion ratio of 70% FFO on EBITDA, already above the level targeted for 2027. On Slide 15 now, the sound cash flow generated by the operation more than covered total investments, including EUR 1 billion of inorganic investments. Over the period, net financial debt increased by EUR 0.8 billion, up to EUR 10.1 billion, reflecting dividend payments amounting to EUR 1.5 billion as well as the execution of the share buyback program that resulted in a cash outflow of around EUR 500 million. Gross financial debt remained almost flat with the average cost declining to 3.3%. And with this, I will now hand over to Pepe to present the strategic plan for the next 3 years. José Gálvez: Okay. Thank you, Marco. As we move from the review of our full year results to the outlook for the coming years, it is important to start by looking at the broader energy market context in which our strategic plan 2026 to 2028 will unfold. Spain still demonstrate a very high dependence on oil and gas, and this will not decline unless we accelerate the electrification of final demand. Electrification is not only essential to cut emission and reduce energy dependence, but also a key opportunity to reindustrialize the country, thanks to competitive renewable resources. In the medium term, electricity demand grows towards level close to the PNIEC for conventional uses, but renewable hydrogen demand is significantly delayed due to the systematic halt of projects. As a result, energy dependence will remain around 60% in 2030 and electrification near 31%, both below target. Demand growth by 2030 is driven by GDP-linked inertia, the electrification of industry, transport and buildings, although compensated by efficiency gains. Data centers will represent less than 5% of total demand. In the longer term, in order to meet the European Union's 2040 goals, conventional demand should grow by around 3% per year driving electrification to almost 50%. On top of that, hydrogen would add 120 terawatt hour of new demand. The development of this promising scenario necessarily requires significant investment in new infrastructure. The streamlining of project approval processes and above all, a stable regulatory and attractive framework. As shown on Slide 18, as of the 31st January 2026, the Spanish distribution network is close to its capacity limit with a saturation level of 88%. The situation is even more critical at Endesa, where around 94% of network nodes already saturated and unable to accommodate new demand. With this framework, we have been able to grant only 18% of total demand connection requests received. To provide some context for these figures, the 26 gigawatt connection request received along the year is well above peak demand of our entire national distribution network. Grid constraints are delaying or canceling investment. Grid saturation being a major barrier for economic growth, industrial electrification and the achievement of Spain's decarbonization target. In this context, boosting investment in distribution network is essential to ensure that the country does not miss a opportunity for sustainable economic growth. The ministry is fully aware of the severity of the situation and the forthcoming royal decree aimed at increasing investment limit is expected to provide additional headroom and improve the framework for accelerating the grid reinforce. Spain faces growing security of supply challenges. Wind and storage deployed capacity is significantly behind PNIEC targets, creating stress during period of low renewable output. Solar is expanding rapidly, potentially above the PNIEC, but without sufficient storage, it cannot replace firm dispatchable capacity. This leads to seasonal curtailments and winter deficits triggering the higher gas-fired generation. Nuclear plays a critical role in ensuring security of supply. We believe that extending plant lifetimes strengthens system stability by providing inertia and voltage control, reducing CO2 emission and lowering wholesale prices by at least EUR 10 per megawatt hour. With the removal of specific taxes, nuclear's full cost would fall below the cost of replacing its production with a mix of solar batteries and CCGTs, which would be roughly twice as high. To guarantee long-term reliability, Spain must secure firm capacity, accelerate storage, adapt the nuclear closure schedule to real PNIEC products and maintain combined cycles as essential backup for future renewables. Moving now to our 2026-2028 strategic plan. Let's now break down how this energy landscape shapes the key highlight of our strategy for the next year, and I am now on Slide #21. We now present a clear and balanced approach focused on growth, risk return discipline and financial strength. First, we will deploy EUR 10.6 billion investment plan over the period with more than 50% allocated to network, reinforcing our commitment to support electrification and reinforce grid resilience. The plan also includes selective investment in value-accretive renewable projects. Second, our resilient low-risk asset portfolio will deliver predictable growth, providing a strong visibility on future performance with around 85% of EBITDA regulated or contracted. Third, our financial strength enable us to deliver sustained profitable growth. EPS is set to grow at a steady 5% year-on-year on average, driven by higher investment business growth and the ongoing effort to improve productivity and efficiency. Turning now to Slide 22. Let me walk you through the investment profile of our new plan. We plan to invest EUR 10.6 billion, 10% more than the old plan with a clear strategic focus on networks and selective renewable projects, key enablers of the energy transition, which together will account for around 80% of the total. Investment in grid will increase by around 40%, reaching EUR 5.5 billion. This increase assumes the approval of the Royal Decree that would allow CapEx above the current regulatory cap as well as the full recognition of the investment deployed. This level of investment is essential to accommodate new demand connections, support electrification and reinforce network resilience. In renewables, the plan involves EUR 3 billion of investment focused on selective project positioned to capitalize on rising demand. And finally, in non-mainland, in addition to maintenance investment, only those related to the outcome of the capacity auction have been considered in order to extend the useful life of our power plants. And on Slide 25, focusing on grid investment. 52% of the investment in this plan will be deployed on networks. This plan marks a significant step forward in the share of investment contributing to RAB growth, plus 60% versus previous plan. Indeed, out of the EUR 5.5 billion CapEx, around 80% will flow into the RAB. As a result, our RAB will increase 13% by 2028. Worth highlight is that around 70% of the total CapEx plan or around EUR 900 million will be accounted as RAB and will contribute to EBITDA growth beyond 2028. Operational performance will continue to improve with lower TEP and reduced technical losses. Moving to Slide 26. During the time frame of the plan, we are allocating around EUR 3 billion of investment, 80% devoted to asset development, investment are 20% down compared to last year due to the more selective approach and to the fact that some specific projects have been rescheduled, extending the completion date. We are working to bring into operation 1.9 gigawatts of renewable capacity by 2028, mainly wind and batteries. This will allow us to achieve 25 terawatt hour output. Batteries and storage projects will play a key role, enable us to optimize production, stabilize renewable output, while ensuring power availability throughout the day. This project will deliver attractive returns with an IRR versus WACC spread to around 300 basis points with 21% of the CapEx contributing beyond 2028. Moving to next slide on Slide #27. I would like to comment on our site portfolio to develop a hybrid platform that offer optimal condition for data centers. This project combined existing grid connection rights, transfer land for fast deployment and the ability to provide full supply solution based on renewable and grid access. Within this plan, we are also progressing selectively on some singular projects such as Pego, which is scheduled to be in construction in 2027 and will incorporate 600 megawatts of new hybrid renewable capacity, wind, solar and batteries with an estimated investment of EUR 600 million. Its hybrid configuration enables an energy profile close to baseload, making it highly suitable for large-scale customers such as data centers. Endesa is well positioned to capture emerging business opportunities in the data center segment. When it comes to customer business drivers, I am on Slide #26. We will strengthen our position through loyalty, commercial alliance and better value management. On the one hand, we will expand our physical store networks, improving face-to-face services, especially relevant after the approval of the regulation restricting spam calls and phone contracting that will help to reduce fraud in the short term while improving more than 10% churn rate in the medium term. On the other hand, new alliances such as the consolidation of MasOrange from 2026 broadens our blended offer portfolio and reinforce loyalty programs. As a result of all these initiatives, our customer base is set to grow from 6.2 million to 6.7 million free power clients by 2028, while total our sales remain stable. Finally, it should be noted that the launch of an efficiency plan to improve our competitiveness in the current market environment. Looking at our second strategic highlight on Slide #27, one of the key assets we intend to foster is the high visibility and low risk of our earnings profile. Over the period, we expect to deliver around EUR 18 billion of cumulative EBITDA around EUR 85 million stemming from regulated or contracted activities, providing clear visibility on future delivery. Grid, we are almost fully regulated and a large part of our generation portfolio, including non-mainland generation and regulated renewables also benefit from remuneration schemes. Finally, a relevant share of electricity generation is already lacking through long-term contract and PPAs as well as by our fixed price customer portfolio, which benefits from a strong inertia, given us substantial visibility and predictability over a 3-year plan period. And now let me hand over to Marco, who will explain the main financial target of this new plan. Marco Palermo: Thank you, Pepe. I would like to introduce the third strategic highlight. We go now to Page 30, financial strength by showing a slide that clearly illustrates the resilience of our business. Our 2025 results already exceeded the target set under the previous 2025-2027 plan, highlighting the strength, the consistency and the quality of our performance. 2025 net ordinary income reached EUR 2.3 billion, 21% above the original guidance. Moreover, when compared with the former 2027 guidance in the old plan, it already represents an outperformance of approximately EUR 0.2 billion. Importantly, this strong performance is reflected by a sound 41% of EBITDA to net ordinary income conversion ratio. On Slide 31 now. Overall, these results reinforce our confidence in the business outlook, and they are a good starting point for the growth plan for the coming 3 years. EBITDA is expected to grow at a compound annual rate of around 4%, together with an improvement in cash conversion with the FFO to EBITDA ratio increasing to 78%. Net ordinary income is also expected to grow at a similar pace at approximately 4% per year, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. Profitability will remain stable with the net ordinary income to EBITDA ratio broadly maintained at around 40%. Turning to capital structure. Net debt is expected to increase to a range of EUR 14 million, EUR 15 billion by the end of the plan period. With this overview in mind, let me now take you through the evolution of our main business lines on Slide 32. EBITDA is expected to increase by around 10% over the plan, reaching a range of EUR 6.2 billion, EUR 6.5 billion by 2028. This growth is underpinned by three main drivers, which we will discuss in more detail in the following slides. First, an improvement in the distribution margin, supported by higher investment levels under the new regulatory framework. Second, the expansion of the generation and supply businesses. where the increase in the integrated power margin more than offset the expected normalization of the gas margin. And finally, a reduction in fixed cost driven by the rollout of a new productivity program supporting competitiveness in an increasingly challenging environment. We will now take a closer look at each of these drivers in the following slides. Let me now turn to Networks on Slide 33. Networks' EBITDA is expected to increase by a solid 10% over the plan period, reaching EUR 2.3 billion in 2028. This growth is primarily driven by the strong expansion of the regulated asset base, which is expected to increase by around EUR 1.5 billion over the plan period. Our second key driver is the entry into force of the new regulatory framework for the 2026-2031 period. Taken together, these factors will support an increase in regulated remuneration over the planned horizon. Turning now to Slide 34. Let me provide you with a more detailed view on the evolution of the free power and gas margin of the plan period. Starting with the power business. Sales to liberalized customers will remain broadly stable with an increase in free fixed price sales, representing around 80% of the total free sales. These volumes are increasingly covered by infra-marginal technologies due to the higher renewable output, leading to structurally lower sourcing cost. By 2028, the free power unitary margin will increase driven by, first, a strong improvement in the supply margin, mainly explained by the recovery of extraordinary ancillary service costs incurred after the 2025 blackout by the resilience of fixed price customer portfolio and by the reduction of sourcing costs. Second, positive generation margin on higher renewable volumes then more than compensate the impact of a lower price scenario. Finally, a slight improvement from the short position engagement. Moving to the gas business. Total sales will decline by around 33%, reflecting the expiry of the Qatar and the Nigeria gas contracts. Gas margin will normalize over the planned period, essentially due to retail gas margin remaining broadly stable. And in contrast, other gas margin normalizing from the exceptional high levels recorded in 2025. Turning now to Slide 35. Productivity has always been at the core of our strategy. But over the next 3 years, it will be even more critical to maintaining competitiveness in an increasingly challenging market environment. Over the planned period, fixed costs are expected to decline by 10%. This improvement is driven by a strict and well-defined efficiency program to be deployed throughout the period. A key enabler of this program is the broad deployment of digitalization and progressive implementation of AI-based solution across the company. These initiatives support more intelligent and real-time grid operations, higher efficiency and reliability in generation, more personalized customer interactions and productivity improvements across selected corporate and support functions. Together, they allow us to structurally improve our cost base while enhancing operational performance. Efficiency measures will be primarily concentrated in the liberalized businesses where there is greater flexibility to capture value. Actions include organizational streamlining, process reengineering, increase in-sourcing of critical activities and the recalibration of services provided by external suppliers. In summary, disciplined cost control, combined with AI-driven efficiencies enable us to protect margins, improve competitiveness and sustained performance over the long term. Turning to Slide 38 now -- sorry, 36 now. Looking at the net ordinary income, we expect a solid and sustained growth trajectory of the period with a compound average growth rate of approximately 4%, reaching a range of EUR 2.5 billion, EUR 2.6 billion by 2028. The EBITDA to net ordinary income ratio will remain around 40% throughout the plan. The updated plan represents a clear improvement in earnings per share growth. EPS is now projected to grow at around 5% per year on average, a meaningful acceleration compared with the previous plan where we envisaged up 3%. This acceleration is driven by a combination of higher underlying earnings and the positive impact of capital allocation actions, including the execution of the share buyback program which further enhances per share value for shareholders. On Slide 37 now, we will maintain a solid financial position, leveraging on strong cash generation and financial flexibility to fund growth while delivering sustainable shareholder remuneration. Over the course of the plan, net financial debt is expected to increase by approximately EUR 4 billion to EUR 5 billion. This evolution is fully explained by the balance between robust cash flow generation and a significant step-up in capital allocation. On the sources of funds, we will generate close to EUR 14 billion of funds from operation over the period. This reflects the strength and resilience of our underlying cash generation, supported by EBITDA growth and solid cash conversion with the FFO to EBITDA ratio expected to reach a sound 78%. The total cash outflows will amount to around EUR 18 billion. Cash investments are projected at approximately EUR 11 billion, and shareholder remuneration remains a key priority with dividend payments totaling around EUR 5 billion over the period complemented by EUR 1.5 billion related to the completion of the remaining share buyback program. Consequently, net debt-to-EBITDA is expected to move from the current level of around 1.8x, reaching 2.3x by the end of the plan period. And now I will hand over to Pepe for the closing remarks. José Gálvez: Thank you, Marco. On Slide #39, we are confident that our strategy will generate visible and predictable returns, which is why we are updating our dividend policy based on current net ordinary income targets and the expected execution of the share buyback program, dividend per share is projected to grow at an average rate of approximately 4% over the period. This increase takes as a starting point an extraordinary 2025 DPS of EUR 1.58 per share. For the planned period, we improved the dividend policy by guaranteeing a minimum payment of 70% on net ordinary income further reinforced by the implementation of the remaining share buyback program by December 2027. Overall, we believe this represents a clear, sustainable and accretive remuneration policy, providing a high degree of visibility to our shareholders. Turning to Slide #40. In summary, Endesa is well positioned to capture demand growth opportunities beyond the horizon of the plan. This is why it is important to extend our perspective to 2030 for the business most directly linked to the energy transition. New demand will naturally transform into additional generation needs and further network strengthening requirements that will also put upward pressure on energy prices. Starting with renewables, the completion of the CapEx currently under construction, together with the additional capacity required to serve incremental demand will allow installed capacity to reach around 15 gigawatts by 2030. At the same time, our regulated asset base is expected to continue expanding steadily in line with the significant investment needs required by the Spanish electricity system over the coming years. RAB is projected to grow to around EUR 15 billion by 2030, implying a compound average growth of approximately 5%. This evolution reinforces the visibility and stability of our earnings profile and underlines and there's a long-term commitment to supporting the country's electrification and decarbonization objectives. This turns directly into stronger financial performance. Earnings per share are expected to increase from EUR 2.3 per share in 2025 to a range of EUR 2.8 to EUR 3 per share by 2030, also implying an average yearly growth of around 5%. On Slide #41, despite the increase in leverage envisaged in the business plan, Endesa preserves substantial financial flexibility, our strong balance sheet provides capability to move closer to the sector average leverage of around 3x without comprising capital discipline. These additional resources could be selectively allocated across several strategic priorities, starting maximum value from the hybrid project hub capitalizing on growing demand assessing selected M&A opportunities fully aligned with our long-term strategic framework and a strict value criteria accelerating the deployment of storage, leveraging on the increasing need for system flexibility. All of these opportunities will support additional growth, reinforcing the upward trend in EPS. Moreover, the possibility of enhancing shareholder remuneration policy is an optionality. Turning to environmental sustainability on Slide 42. This slide outlines Endesa's clear and credible decarbonization pathway. By 2030, Endesa's emission trajectory is fully alone with a 1.5-degree pathway reinforcing the credibility of our long-term ambition. Looking further ahead, our objective is to reach close to zero emission by 2040. In the short term, our focus remains on reducing direct greenhouse gas emission in the mainland system. By 2028, this translate into a further step down in emission supported by the continued decarbonization of the generation mix and the increasing weight of low-carbon technologies. This decarbonization road map is underpinned by a balanced approach that combines environmental ambition with system reliability and social responsibility. To conclude this presentation, let me turn to Slide 43 and share a few closing remarks. Our growth ambition is firmly anchored in highly predictable low-risk activities with a clear focus on business and projects that offer long-term visibility, stable cash flows and resilient returns. Efficiency is a central pillar of our strategy and a key lever to enhance performance and competitiveness. At the same time, we benefit from a strong financial flexibility, which provide meaningful optionality for growth and value creation. And finally, all these strategic drivers converge on a single, clear objective, delivering solid and attractive remuneration for our shareholders. Ladies and gentlemen, this concludes our 2025 financial results and 2026 to '28 strategic update presentation. Thank you very much for your attention, and we are ready to take questions. Operator: [Operator Instructions] Mar Martinez: Okay. We start now with the questions from our analysts. And the first one is Peter Bisztyga from Bank of America. Peter Bisztyga: I guess kind of my main question is to try and understand what has really changed versus your prior plan that drives basically like 600 megawatts -- sorry, EUR 600 million EBITDA improvement in your new 2028 guidance versus your previous 2027 guidance. If I look at your bridge on networks, EBITDA there is only EUR 100 million higher than in your previous plan. I think you're targeting, I think, only 600 megawatts more power generating capacity than the previous plan. So there must be a like a huge increase in your customer profitability, so in your retail business. So can you kind of confirm that, that's really where the biggest delta here is versus your kind of previous expectations? It would be useful actually if you could give euro per megawatt hour guidance on your sort of free power margin, gas margin and retail margin in 2028. You used to give that -- don't seem to in this presentation deck. You also actually don't guide specifically to EBITDA in renewables and customers, and I'm just wondering why that is? And then, sorry, final part to that very long question is how much EBITDA benefit do you assume in 2028 from the capacity market and also from the Almaraz extension, please? Marco Palermo: Okay. So good morning, Peter. Let's go through the three questions basically. So 2028, let me help you to bridge it with 2025. Basically, you have on distribution, as you were correctly noticing, I mean, we adjusted the 2025 because there were EUR 100 million of extraordinary. So if you look at with the adjusted 2025, it's a 15% increase, if you look at with the unadjusted is 10%. But basically, there, there is an improvement of EUR 300 million. And it could be even more because if you look, it's not everything optimized. If you look at charts, for example, '23, you can see that the CapEx generating margin beyond the plan, we put it at 17%. So basically, there is another EUR 1 billion that is not in RAB at the end of the plan. So -- but because, of course, it takes time just to build all the networks. So there is a that could be even more eventually. That is on the distribution, so EUR 300 million on the distribution that if you count the result of 2025 is EUR 200 million. Then you have another part that is on the margin -- on the free power margin that is the recovery of the ancillary services that we suffer in 2025. I mean, we always said that it was north of EUR 200 million, so slightly more than EUR 200 million. And we plan in 3 years' time, just to have all the time just to recover that. Then you have another part that is related to the higher production of inframarginal. That is the combined of two. On one side, we are, of course, doing a lot of repowering both in hydro and wind. So this somehow boost also the production, but we are also building new capacity. And therefore, you have a positive effect because on one side, you have less lower prices. But on the other side, you had another 8 terawatt production. So that net-net will bring you approximately EUR 300 million. And then you have another EUR 200 million of savings on OpEx. This is on the positive side. On the negative side, we will adjust the high marginality that we have enjoyed in 2025 on the gas, and that adjustment would count probably around EUR 400 million. So net-in-net, that's where you find basically this EUR 600 million of difference. This is on question number one. On question number two, just going a bit quicker. The free power margin that we are envisaging for the 2028, it's between EUR 55 and EUR 60 per megawatt hour. That basically is like taking the reference of 2025, the EUR 52 that were impacted by the ancillary services cost and bringing back these services there. Of course, there is most -- is more complex because you have power prices lowering down, but also the sourcing cost is going down, and that's why you basically keep that marginality. And on capacity, I would tell you that probably that is an upside of our business plan because basically, there is not much of capacity there, because we do not have visibility yet on what will be the market there, and we do not have visibility yet or what will be the plans that will benefit and they will win the payers bid there. So I mean it's like we will basically see what will come out. Thank you. Mar Martinez: Next question comes from Pedro Alves from CaixaBank. Pedro Alves: Congrats for the results and the presentation of cost targets. The first question, please, would be on the sensitivity of your 2028 targets to pool prices in Iberia and the TTF price as well for your gas margins? Second question on data centers. You mentioned ongoing discussions with data centers. So the question is, if you think that you could realistically announce something this year. And the third question on the CapEx envelope of EUR 10.6 billion. If you can provide us how much is roughly growth versus maintenance the CapEx? Marco Palermo: Okay. So thank you, Pedro. So on question number one, sensitivity on power and gas. On the power side, I guess that is another -- probably another feature of this plan. In this plan, we are not incorporating a strong increase of demand. So what we are seeing, just to give you an idea, is for this year, 2026, an increase of 1.2%. That, frankly, is lower than last year. And then in the following years, we are approximately at 2.4%. So basically, I mean it's not because we believe that this will be the increase in the demand, but it's because we really don't know where to place the real ramp up. We feel that probably it is starting. Of course, when we started the plan, we had not this feeling. But I mean, there -- it depends on what will happen on the demand. So on the demand side, I feel that we were kind of conservative. On prices, as you have seen, I mean, we adopted the forward that were at that time. So basically, in 2027, going to EUR 58 megawatt hour. So I mean there, I guess that there is a kind of balance between the two. And on gas, I mean, reality on gas in our plan, all the profitability and all the marginality will basically come from the retail business at the end of the plan. So basically, we are assuming that on the -- as I said in the speech, then from the other gas, there is not coming much of marginality, frankly. Regard data centers. In data centers, are we planning to announce something soon? I guess that definitely, we are planning to do something in the course of the year, of this 2026. We have some of the developments that are more advanced. We decided just to put one of the references of something that is very well known, that is the Pego project in the presentation. And there, we signed agreement. The positive part I guess of the plan is that in the plan, there are basically, there is not the upside of the data center. Why do I say so? First of all, because, as I said, in the demand increase, we are not assuming the data centers really kicking in, first. Second, in the plan, we are not assuming any particular PPA basically and higher price PPA. And the third, we are not assuming any upside or any extra margin related to the sale of the land or the access to the grid connection. Why is it so? Because, I mean, we want to see exactly what are numbers that we will somehow see when we sign the agreements. And on the third question regarding how much is growth and how much is maintenance. I would say that basically, the maintenance CapEx is approximately 30% of the total, with the rest, of course, being incremental CapEx, growth CapEx. Thank you, Pedro. Mar Martinez: We have missed a last question from Pedro. If you allow me, the sensitivity to EUR 1 of increase of prices -- power prices, it translates to around EUR 20 million. Okay? Thank you, Pedro. Now we have Javier Garrido from JPMorgan. Javier Garrido: First question would be on the supply business. I was wondering whether you can be a bit more specific about the supply margin in '25. And particularly, you could also elaborate a bit more on how do you plan to take control of customer losses given that the pace of reduction has slowed down, but you are still losing customers. How do you plan to make that increase in customers even if we exclude the MasOrange acquisition? The second question would be on the dividend policy. You could clarify a bit more the dividend policy. Am I right in understanding that the new dividend policy is at least 70% payout ratio, so that it results in at least 4% DPS CAGR? Or is there any different interpretation? And the third question is on the cash conversion of EBITDA. It increases significantly from 70% to 78% through the plan? Would you mind to please elaborate on why that increase? What's exactly driving the improved cash conversion? Marco Palermo: Okay. Thank you, Javier. And sorry to Pedro before for losing the last part of your question. Javier, so basically on supply on 2025, as you have seen, the marginality, the free power margin was 52%, so lower than the previous year, and it was a mix effect. I mean, it was lower than in 2024, but not so much lower when compared to what has been the impact of the ancillary services. So somehow there, I guess, that in 2025, you can see the good performance of the business. You're right. I mean, we have suffered last year of many losses of clients. But again, I mean, there are kind of two markets, I would say, there. There is a market that is healthy. There is a long-term client that experience a normal churn rate and then there is another market that experiences a very high churn rate. And if you allow me, even a very high level of fraud. And that has been constantly rotating. So I mean, what we understood at a certain point was that we were basically losing money on them. Because we were putting money just to acquire them and putting money and putting more money and then losing those -- the permanence of those clients was very short. There was no time just to get back the investment. So I mean, it simply made no sense. So we prefer to go for something different. So we accepted losing part of the clients, and we went for the acquisition of MasOrange that was basically not because we acquired the clients, but because we were now able to serve bundled products. And apparently, it is working because, of course, in the -- at the end of last year, we were reducing a lot the losses. And I mean, we cannot comment on this year, but I guess the situation is somehow also the acquisition of MasOrange is proving that probably we have seen it correctly. When you go to the dividend policy, yes, you're right. It's the correct understanding. So basically, at least our payout will be 70% and at least the 70% converts in at least 4% of CAGR on the DPS. And then on the cash conversion, I guess that, of course, there is a kind of a challenging target that we are giving to us. But basically, we're doing a lot of jobs, a lot of job on every business just to improve the cash profile of each one of those. So we think that all these efforts that actually we started in the previous years can somehow come to give all the fruits at the end of our business plan. Thank you. Mar Martinez: Okay. Thank you, Javier. We move now to Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I'll have three questions as well. Could you please elaborate on your churn rate assumption? And how much is it right now? And how sustainable are the current levels before the new entrants start to lose money? So can you maybe elaborate a bit on the dynamics that you embedded in the plan on this? Secondly, there is a very exhaustive slide on cost savings on the reduction in the fixed cost. I think you have four buckets, right, network automation to AI, labor. Would it be possible to tell us what the biggest buckets are one or two perhaps? How much of this is natural attrition, people that are retiring or being pre-retired? And then you hire someone coding on copilot or close that replaces five people. So how structural is this? Can we assume that this EUR 300 million reduction will carry on beyond '28 and for several years to come? And the third question. I mean, you still have ample balance sheet headroom. So if you were to think about how to utilize it in the medium term going to beyond '28? Is there any way you could rank in terms of priorities, either what you favor or what is possible? So would that be more organic growth in Power Grid? Would it external growth in clients or power gen? Would it be more share buyback? Marco Palermo: Thank you, Alberto. So regarding the first one on churn. I would say that there, the assumption of what we are experiencing right now, it's an elevated churn that is in the range of, I would say, 25%, 30%, okay? It's very high churn. And as I was saying, it's very somehow concentrating on some of the clients. Now are we seeing this somehow going to normal level during the plan? No. We are still assuming that at the end of the plan, the churn will remain very high, not at a normal rate. But yes, a bit decreasing. And we are assuming this because we think that at least the frauds and all the part of that is somehow impacting strongly on the churn should somehow be reduced. We recently approved Royal Decree on that, trying to get rid at least that part. And we really hope that, that will be somehow effective in reducing at least that. And on the other side, I mean, all the measures that we are somehow putting in the plan and that we are delivering, we started doing this last year in terms of, for example, physical point and that, of course, attract the clients and then they have a lower churn, but also all the changes that we made, the bundled products. I mean, there are many, many things because this is -- there is not something one specific stuff that stops the churns. So all this kind of stuff, we really think that will kick in. So again, very high churn in 2025. We still assume that at the end of the plan, we will be still high, but lower than this because of the reduction of the things that we are doing and also hopefully, the reduction in the fraud level. Regarding the second question, cost reduction, I mean, this is not making me very popular here. But I mean, here, there are many things. We started this -- first of all, is it structural? Of course, it is structural. We started this last year. Because it takes time just to have a structural contention of costs and productivity. And it's -- there are a lot of measures there. Some of those will reduce costs. Some others will improve the quality and not necessarily reducing cost, but -- so I mean there are a bundle of things. When it comes to whether this somehow touches also the personnel, I mean this is kind of still sensitive. What I can tell you is that this is not the first time whether we do this. I guess that is history. In history, this company has been used to make these structural changes. So for example, when the call was closed or when we decided to move to the cloud and blah, blah, blah. So I mean, in all these moments, the company has been capable of treating this properly and of course, doing it in the proper way with the support of all the employees. And on the third point regarding the ample balance sheet that we keep -- yes, it is true, we still keep it. We think it's actually a plus, it's a benefit. Why so? Because we think that there could be opportunity. The opportunity could come from the fact, for example, that if you look at the plan, there is, yes, an increase on the CapEx in distribution, but there is a decrease on the renewables that vis-a-vis the old plan that it's not something that explained it itself. But what we think is that we have a lot of things there ready to go. We need to assess exactly where the -- when the demand will start to kick in, just to somehow eventually go even more with investment there. And priorities, I guess that some of the things we can do ourselves. I guess that there could be things available in the near future. So I mean, of course, on all this, we do not comment. But in terms of our priority, I guess that it's very clear where we have been putting money along the last couple of years. So I mean, I will go to that. And will there be space eventually also for more shareholder remuneration or shareholder remuneration improvement? Of course. I mean, we will somehow balance. We have ample room there, and we will somehow balance. Mar Martinez: Thank you, Alberto. Next question is coming from Manuel Palomo from Exane BNP. Manuel Palomo: I've got three questions, if I may. The first one goes into one of the things that you've mentioned in order to achieve improvement in the integrated margin. First thing I'd like to know to get the confirmation that you assumed the extension of Almaraz 1 and 2. And in case there's no extension, what could be the impact in terms of terawatt hours? And if you are assuming in case that it gets extended, any additional CapEx related to it? The second one also related to the, well to the, production output is. What is the impact you're assuming from hydro normalization after an excellent '25? And it looks like still a very good '26? And lastly, on the generation output, why adding 1.5 gigawatts of wind and solar in Spain, given the level of curtailments that we are seeing? Do you really need it? Or would it be -- wouldn't it be enough just go into the wholesale market and purchasing the electricity? Second question is on the other side of the integrated margin is on clients. You are assuming 500,000 additional clients, if I'm correct. I understand that you have already purchased [ MasOrange ] plots, my question is, are you expecting to see a decline in the final achieved price to customers? And could you give us a reference? And lastly, it is about the regulated business. If I'm correct, you're roughly assuming EUR 1.8 billion per year CapEx. Is this granted? Or will you need any additional authorization from the Spanish government/regulator? Marco Palermo: Okay. So Manuel, let me go through, I guess, that let's see if I get all of those. First of all, on free power margin, actually, you were asking on Almaraz and someone else, I guess, that I forgot this before. On the Almaraz extension, yes, we are putting in as an assumption coherent with the request that we did to the nuclear authority that there will be an extension of Almaraz. Almaraz for us in the plan is basically one group in 2028 and means approximately 3-terawatt hour of increasing production. There, I would say that there are -- there is a positive that is that you have 3 terawatt hours more that you sell. But there is also a negative because, of course, the nuclear allowed the system just to keep a lower power price. So I mean that's why it is so important for Spain to keep it. Therefore, if you take it off, you have an effect on the prices there. So the mix of the two is positive for us because we are talking about the 3-terawatt hour but the combined effect is less than EUR 100 million. And on Hydro, yes, on hydro in what we are seeing, I mean, it's public dominance. I mean the hydro production in 2026, actually, apparently, it's better than in 2025. We had a very good start in 2025 than not a very good ending of the year in 2025. Apparently, it looks like it's better this year. On generation output, the combined, I mean, when you see solar, wind and so on, in reality, they are concrete projects, and those are related to, as I said, data centers. So it's -- can we buy this on the market? Yes, but those projects are the ones that have closer data center. So I mean, in that case, we would rather prefer the little more marginality if you build, if you develop the project and you serve the data centers instead of trying to buy energy on the market. On clients, I mean, the 500,000 more just basically, I mean, we are at the target right now. So if you look at from that perspective, with MasOrange, it means that we have to try to defend this until 2028. Do we see a decline in price? Of course. I mean, with the decline in price of the market, you -- it's lower, of course, that you see a decline in price on the customer, but you do also see a decline in the cost of sourcing. So that's why you maintain the marginality. It is true that then the prices on the market takes a bit of time just to reflect. So it is true that when the prices on the spot goes down, they do not immediately reflect on the B2C or on the SME, blah, blah, blah, but also the opposite is true. When they increase, they do not immediately reflect on the final market. And regarding the regulator, so regarding the level of investment, what is still missing is what the government announced that basically was a decree just to allow till 2030, an increase of the cap that currently is 0.13% of the internal product for up to 63%. So basically 60% more. So that is what has been announced by the government at the end of 2025, and we are expecting this decree to come. I hope that I got all your question. José Gálvez: Let me get some color about the nuclear and perhaps about the distribution. You should take -- why we have decided just to stand or to delay the close of Almaraz in our plan. First of all, you should take into account that the time table for closing nuclear plants was set in 1918. And since then, the context and priorities has changed substantially. The second thing is all countries are addressing extension and new power station even. But on top of that, for us, there are technical, environmental and economic reason for delaying its closer. Technical reason, let me say, on the one hand, it makes no sense for group belonging to the same plant closing in different years. That is, and you know that it was expected the close of Almaraz 1 in the year '27 and 2 in the year '28. The second thing is that the interim storage facility, the so-called ATI will not be completed until 2030 at the earliest and nuclear waste cannot be managed until then. So it can send just to delay a little. On the other hand, there is a significant delay in the deployment of storage and wind power also. The system requires synchronous generation to manage both frequency and voltage and the energy balance up to 2030 would be more balanced, if you want and secure and with less energy dependence if we continue with these power plants. With regard to the environmental reason, the closure of the nuclear power plants would not lead to a slower growth in renewables, but rather to an increase in combined cycle production and consequently in a mission. And the economic reason and Marco has said maintaining nuclear power generation, reduce the cost of the electricity market. So all in all, we have acted to the ministry just to delay the shutdown of Almaraz. And we are confident that it would be done. With regard to the networks, let me say that increasing investment in the Spanish network remains essential for the integration of renewable, for the electrification of demand and for ensuring system stability. As you know, the grid has virtually no remaining capacity to accommodate rising demand. And in any case, this increase in demand is going to be a very good team for the renewables, especially for the solar power plants. It would be a good thing for the economy of the country. So at the end, we have decided that it's going to be a good thing for all the government, for the country and for us. So that's the reason why we have decided. Let me say that we assume that the Spanish government has already anticipated, will rise the regulatory investment limit. The ministry projects a significant increase in investment in networks between 2026 and 2030, totaling 11.3% if I'm right, EUR 3.6 billion coming from transmission and EUR 7.7 billion from -- for distribution and exceptional, as Marco has said, a 62% increase in the investment limits in order to adapt them to the new context of the energy transmission. This EUR 7.7 billion increase in distribution investment limit is something around EUR 1.5 billion per year turns into a capital rising from the current EUR 2.1 billion to something around EUR 3.6 billion. So this could imply something around EUR 600 million in additional net investment for Endesa on top of the EUR 900 million that we had today. So based on this, we feel confident just to increase the investment in the network in Spain. Mar Martinez: Next analyst is Javier Suarez from Mediobanca. Javier Suarez Hernandez: Three questions on the context, the European context for electricity company. The first one is on the debate that maybe the Italian government and the German government have opened up on an effort to reduce overall electricity prices through the Eurozone. So I'm interested to see your view on the implication that this may have on the pricing setting dynamics through the Eurozone? And how do you think that debate is going to evolve? And in this context, you can share with us the assumption that you are embedding into your business plan regarding carbon prices to 2028. That would be the first question. The second one is on the data center discussion. So it's evident that there would be installation of new data centers to Europe and the Iberian Peninsula as well. So I wanted to ask you your view on the model that should be implemented to avoid unintended consequences, because obviously, there is going to be higher electricity demand, and that could impact overall electricity prices as well. So do you see that, that may impact the way data centers are going to be installed and what would be the way of isolating those unintended consequences? And the third question is on the slide when you are talking about a leverage evolution and financial flexibility. When you are referring to a scouting brownfield opportunities, if you can elaborate on those, how those opportunities should look like as you're referring to renewables energies on the Iberian Peninsula? Or are you referring to a broader set of opportunities? And also on the storage plan, how do you see installation of new storage impacting the dynamics for the Spanish electricity sector? José Gálvez: Okay. Thank you, Javier. I will try to give some color, and then Marco will go deeply on that. About the effort to reduce prices. Well, first of all, I would like to say that the energy transition at least, in my opinion, is entering a more mature challenging phase. Clean energy development continues, but delivering deeply decarbonized resilient energy system is far more complex than simply, I would like adding megawatt, renewable megawatt. Technology evolution when we see the technology evolution, Hydrogen is the most delayed driver of the PNIEC due to economic reasons, less than -- I think that in the PNIEC it was expected something around 50-terawatt hour in the year 2030. And I guess it's going to be less than 10-terawatt hour. Talking about the storage, PNIEC include plus 15 -- gigawatt of storage needed by 2030, up to 22.5 gigawatt, if I remember well. It is clear that we are going to be in a figure lower than 9-gigawatt instead of the 15 gigawatt expected. So that -- and why this? Many things is -- one of the thing is the delay in the development of these technologies. The other thing is the geopolitical tension and macroeconomic pressure, taking into account the COVID pandemic, the war in Ukraine and the delay is the, let's say, predictable trade tariff. So we are living in a market uncertainty, complexity and commodity price volatility. Energy demand was flat during the last year, but now we are expecting that outpaced improvement in energy efficiency. Also, there are movement in all the countries. So at the end, things could change. But in case of -- in the case of the carbon prices, I think the CO2 price should be and will be one of the main drivers of this transformation. So the focus for me is not going to be -- or not should be the reduction of the price of the CO2. It should be the electrification and the decarbonization. We should continue adding renewables. And we should -- we are obliged just to electrify the demand. So taking this into account, I think that it has no sense just to look for a reduction in the CO2 price. What I think is that the solution should be yes to subsidize some industries, perhaps the very high industry, very high consumption industries instead of that. I think that there is no sense to approve the one decree in Italy and also it's not going to be something general in the rest of Europe. What I think is that it's not going to be downward in our plan. Marco Palermo: Thank you, Javier. I mean, question number two related to data center. I mean, it's a very interesting question and will take us a very long time to debate on that. But the data centers consumption are consumption basically are baseload. So what we are seeing -- what we are proposing what we are seeing also on the data centers, developers and hyperscalers is they are conscious that from the fact that, of course, they will impact the demand. And therefore, we do see merit in trying to develop for them this integrated bundle of technologies in order to try to replicate a baseload and in order to have the data centers that is closed by to his own feeding, to his own supplier somehow. Then, of course, the grid would be a kind of back up for the peaks or for the moments where exactly this bundle of technologies, altogether, the wind, the solar and the battery are not able to provide the energy. But what we are seeing is that -- and we're seeing this in Aragon, I mean, this is starting. You are having the development of the data center, but in the close by, you're having also the development of renewables. And actually, the data centers, they are trying to develop close to big areas of development of renewables in order to have their suppliers in the close by. Of course, it's not perfect. It's not a perfect baseload. But for the time being, it's the best approximation of that. And on question number 3, regarding financial flexibility. I cannot be too specific because, of course, I mean, this -- I will be generic, because I don't want to screw conversation that we're having. But I would say that it's not a secret that we are interested in hydro. And when I'm in hydro, it's modulating hydro, but it's also storage hydro. Actually, in the plan, we have expansion of pumping in our plan. So we do not see the results in the plan. But yes, we do the CapEx in the plant. And we are looking for more. We are looking also at storage to develop our own storage or eventually, we could be interested in batteries for the time being. It's not of a secret that we are interested in wind. And I mean, I guess that, that in distribution, we are satisfied with all the investments that we have, but of course, I mean, it's also an area. So I would say that there is a big list of technologies and of areas where we could be interested. Again, yes, focused on the Iberia Peninsula. Mar Martinez: We move now to Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Congrats on an impressive plan and thanks for all the answers so far. You'll be glad to know I have one question, and that's just to clarify something on the buyback. So you mentioned the second tranche of EUR 500 million is 30% complete, if I heard you correctly. But I think you also said -- and is that going to be completed by mid-July? Or is that the third tranche? Effectively, can we just get a little bit of color on the sequencing of the buyback? So is the second tranche through to July, the third tranche in the second half of this year and then the fourth tranche will come in 2027? Or do I misunderstand this? Marco Palermo: So Rob, yes. First tranche was basically completed, almost completed. We bought, if I remember correctly, EUR 440 million out of the EUR 500 million and we are now canceling the shares. The second tranche that we launched another EUR 500 million should lapse by the 27th of February. And out of this, I mean, it's now ongoing. I guess that we bought approximately EUR 120 million probably at a price that was a bit higher than EUR 30 per share. But I mean, it's the one that, in any case, should elapse from the 27th -- of by the 27th of February. So the third tranche that we just announced will start -- will kick in from the 2nd of March until basically the end of June, and it's another EUR 500 million. And then with -- I guess that our idea is to continue with another tranche we have. At that point, we should have approximately another EUR 900 million to complete by 2027. And I mean, I guess, that we will continue also in the second part of 2026 with other tranche. I mean, that's like -- let's see, but it's our area. And we should be finished in any case by 2027. Mar Martinez: Thank you, Rob. Next question comes from Arturo Murua from Jefferies. Arturo Murua Daza: I just have one. Going back to the decree to increase the network investments. My understanding is that part of this increase will only be remunerated if the demand comes through after a few years. So if you could share a bit of more color how this will work? And how are you counting this in your numbers? Marco Palermo: Okay, Arturo. So basically, here, the point is that generally, what we try to do is to start an investment in the grid at the beginning of the year and to try to put in operation by the end of the year, so that we can get the RAB on that. Now sometimes there are -- particularly if you increase the pace of investments, there are investments that you start at a certain year and that not necessarily are put into operation at the end of the year. So there is a kind of ramp up. So in this ramp up when you have this ramp up, you have at the beginning the negative effect that you are investing and you are seeing -- you are always keeping the pace and you are seeing the remuneration from the next year. But of course, when you finish this ramp up, you have the benefit that you can still enjoying the ramp up even though you're not investing. Now we are in the first part. That is ramping up the investment and so not immediately seeing all the benefits. So that's why we wanted to highlight. Because in the plan, I would say that at the end of 2028, we are missing almost EUR 1 billion of RAB there that, of course, will come later but the plan in itself is not optimized. I mean, that's what it is. We cut at the plan at the end of 2028 and there were almost EUR 1 billion of investment that were done, but not yet in operations or not yet in RAB. So that, of course, you find out the next year. And that's why we wanted also to give you a flavor of what could be 2030 because this is something that is embedded in the plan in all the businesses. In distribution, you will see the benefit also in the year to come. And the same in the generation because also in the generation, we have some of the projects, I was mentioning, for example, the pumping, we were putting the money, and we were not seeing yet the EBITDA. So I mean, there are things that you only see later on. So that's why we wanted to give also a flavor of what could be the 2030 because the plan in itself is not optimized. We cut it at 2028, and that's it. Mar Martinez: Next question comes from Jorge Alonso from Bernstein. Jorge Alonso Suils: I have a couple of questions, please, and it's on the cost cutting and efficiency plan of this EUR 300 million. Could you give us some more color about in which areas can be allocated? So it will be more in distribution? Should we see that more in the whatever thermal generation just to understand, at the unit level, where can we see the impact of that efficiencies at EBITDA level? The other one is in distribution as well if you can quantify the expected incentives, the amount of incentives that you are expecting or considering in the calculation of the revenues or EBITDA in the plan? And as well, and I think that we already answered is that we see CapEx in 2028 in distribution of EUR 1.9 billion, but the legal cap will be the EUR 900-plus another EUR 600 million, so it's around EUR 1.5 billion. So if we should consider the normalized CapEx going forward between EUR 1.5 billion, EUR 1.6 billion or do you still see room because of the need of investing EUR 1.9 billion or EUR 2 billion annually beyond 2028? Marco Palermo: Thank you, Jorge. So on cost cutting, important question there because, of course, there are areas where we are not putting a particular focus. And those areas are mainly the one-off distribution because with the current scheme of how the regulator decided just to somehow squeeze the profitability of the efficiencies. I mean, there is not so much merit to whatever you do, actually, you're doing more for someone else. So I mean, on distribution is less of a focus and as well as on Nuc because it's another regulated staff and super sensitive. So all our effort is basically focused on, as you were correctly mentioning on generation. But I would say also supply that, of course, I mean, the market is changing a lot. We think that AI is -- will impact this a lot. And the things that we are doing and the restructuring that we are doing will impact it a lot. And as always, the structure and stuff that, of course, given what we are seeing could come as a revolution, it's an area that will be impacted. When we come to question #3 regarding the CapEx, yes, you're correct. I mean the EUR 1.9 billion. Is this over the limit? No, it's not over the limit. You have to remember that basically the limit applies to the 13% of the GDP, the 0.13% of the GDP, the GDP has been increasing. So of course, you have this limit that is increasing year-by-year. And on top of that, you put the expansion that is allowed until 2030. So our plan is designed not to overcome that limit in any of the year. Actually, we are every year, we are slightly below that. We cannot risk to go over that limit. And there was incentives. What was the question? Mar Martinez: [indiscernible] Marco Palermo: Yes. No. I mean on the incentives, Jorge, we will not give you numbers, but yes, there is, of course, an improvement. I mean, we also highlighted that basically offsets what you have been -- what we have been experiencing as a negative on the OpEx efficiencies. Mar Martinez: We have now Jenny Ping from Citi. Jenny Ping: A couple of questions from me, please. Firstly, just a clarification question on the power price sensitivity. You said EUR 1 per megawatt hour is EUR 20 million. Is that on EBITDA or net income? Secondly, in one of the notes in your slide around the net income growth of 4%. I think you explicitly say in the footnote that you've assumed a 71 million shares in terms of the net result of the buyback. If I take out what you've already bought back in 2025 implies a sub EUR 30 a share of price in terms of buybacks. So does that mean that you're expecting to limit your buyback, anything above a EUR 30 threshold? So that's the second question. And then thirdly, maybe I missed and apologies if I did. What are you -- where are you now on the Ireland generation investments where you've got to on that and the expectation of spending over the next 3 years, please? Marco Palermo: So power price, the EUR 20, it's for the EUR 1, it's on EBITDA level. On your assumption, I mean your deduction on the limit of our share buyback, I mean what I can tell you is that, we have been buying share last week. I mean, we just published. This is -- we can share it as a public information. We just shared it last night, it was published last night. The program has been buying last week for all the week. And I guess that the price of last week was around EUR 32 per share, I mean, something like that. So no. I mean, actually, the plan will buy at the price that is the price of the share on the market basically. And on the islands on the third question, regarding the islands there, we -- there has been the -- actually the final results of the tender. And we were assigned with some of those. Actually, we had an extension of life in some of the power plants. Some of this life extension were coming also from -- with the incremental CapEx. And I mean, that's what we are starting to work on for the near future. It is also worth noticing that there will be -- there has been also other players than being allocated new capacity in different islands, and we welcome that. And we think that -- I mean, that's what exactly what it is needed on the islands, and we welcome also the fact that we were not alone in defending the regulation there vis-a-vis the regulator. And in terms of investment, we are foreseeing approximately EUR 200 million, EUR 300 million along the plan. Mar Martinez: We have now Pablo Cuadrado from JB Capital. Pablo Cuadrado Tordera: Yes, quick questions for me. One will be on the tax rate that is assumed in the plan. I wonder -- I look at the full year results, and there was a decline of 3.5% on the tax rate year-on-year. Clearly, there were the removal of the tax impact and the revenue impact that it was before. But still, is the basically 2025 figure that 23.5%, the one that we should assume for the next few years? And second question will be on -- I saw that you provided the return, let's say, versus WACC that you get on the renewal segment at around 300 basis points, while the CapEx is going down in this new plan. I was wondering whether you can share which is the spread over WACC on the return that you are supposed to like on the network investments that they are clearly increasing in this plan. And final one is on the unitary generation supplier margin. Clearly, what you put on the slide in that you are expecting an increase and explained perfectly the reasons. But shall we assume given that there is no figure that basically the reference that you provided last year, is the EUR 57 per megawatt, if I'm not mistaken, still should be a valid reference going through 2028? Marco Palermo: Thank you, Pablo. So on tax rate, well, you should expect now that we do not have the extraordinary levy, you should expect as approximately south of 25% generally year-on-year. We generally can be lower because sometimes, I mean, we have also investments that are recognized as deduction, for example, in innovation and in this kind of things. So those when you have this kind of investment, then you tend to have a slightly lower tax rate. In terms of profitability actually from, expected profitability from our investment, yes, you're right, there are the 300 bps for what it is greenfield renewables. In the case of networks, we work with 200 basis points because, of course, the risk profile of those investments is lower, and therefore, it is okay with lower requirements in terms of bps. And in terms of prices, for 2028. I mean, of course, we didn't put the number there for a reason. But again, I guess that you're not far -- what I said is that we are in the range of EUR 55 to EUR 60. So with -- your EUR 57, you're not very far away from -- I mean, you're there basically. Mar Martinez: Good. This was the last question from the conference call. So thank you very much for attending this meeting. And as always, IR team will be available in case you need something else. Thank you very much. Have a nice day.
Operator: Ladies and gentlemen, welcome to the conference call on the preliminary figures for full year 2025. I'm [ Sargen,] the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Thomas Jessulat, CEO. Please go ahead. Thomas Jessulat: Ladies and gentlemen, hello and good afternoon, and thanks for being available today. I welcome you to our conference call on the preliminary and unaudited figures of the fiscal year 2025. I'll start with some remarks on today's release. Afterwards, I will hand over to our CFO, Isabelle Damen, who will walk you through the financials down to the EBIT level. As usual, you will then have the opportunity to ask questions. Please note that the outlook as well as the financial details will be published together with the final and audited figures on March 26. The company closed the year in an environment still marked by considerable uncertainty and volatility. At the same time, the group continued to prepare for the next phase of its transformation reflected in high levels of investments to launch additional series projects in the field of cell contacting systems. Despite these upfront costs, the year-end performance was strong with operating free cash flow reaching 2% of sales. The ramp-up of battery component projects progressed further, driving significant sales growth in the E-Mobility business unit. In addition, the group successfully implemented its STREAMLINE program, achieving a sustainable reduction in personnel costs. Overall, the company mainly met or in some areas, even slightly exceeded its full year guidance targets. Let us have a quick look on the markets. Across major automotive regions, the powertrain mix shows clear structural differences. In North America, internal combustion engine vehicles continue to hold a dominant share supported by market preferences and comparatively slower electrification dynamics. Europe, by contrast, sees a higher share of all electric vehicles as well as hybrid vehicles. Within the second half of the decade, there will be a significant shift towards all electric. A lot of new programs of the established players are going to ramp up; however, long-term forecasts point to a decisive shift. By 2030, all major auto regions are expected to accelerate strongly towards fully electric vehicles. Projections indicate that Europe and China will experience some of the fastest growth in battery electric vehicles, while North America is also set for a substantial increase by the end of the decade. In summary, although today's powertrain landscape varies widely between regions, the trajectory towards fully electric mobility by 2030 is clear and consistent around the globe. Let us have a closer look at the pure electric mobility because this will be our core growth market with regard to cell contacting systems, or other components from our broad range of e-mobility solutions. Across all major automotive regions, including China, Europe and North America, the shift toward electric mobility is firmly underway with strong growth projected through 2030. When considering our large-scale projects, you will see that we are covering quite a good share of those vehicles, especially in Europe and also North America. China continues to lead the global transition to electric vehicles and shows a different market development with regard to the rising importance of pure local players. Overall, the market of all electric mobility is expanding across all major regions and significant growth is expected throughout the coming years. The shift towards e-mobility is well underway and continues to accelerate. Let me now hand over to our Group CFO, Ms. Isabelle Damen. Isabelle Damen: Thank you for handing over, Thomas. Let me first come to the preliminary and audited figures on Slide #5. Summing up, we have successfully concluded the 2025 financial year and laid the foundation for our future transformation. We have generated sales revenue of EUR 1.6 billion, which is a decrease to previous year's figure on a reported level. But there have been M&A effects from the divestment of our entities in Sevelen and [ Buford ] amounted to EUR 159 million. In addition, we have been faced with headwinds from the exchange rate of EUR 40.4 million. Excluding these effects, we achieved an organic sales of 2.1%, which slightly exceeded our guidance given in March '25. The group reported adjusted EBIT of EUR 88.6 million in the financial year under review, which corresponds to an adjusted EBIT margin of 5.4%. Therefore, the group achieved a level at the upper end of the guidance range, which was around 5%. If you take into account that the earnings of the E-Mobility business unit currently remain in negative territory with an adjusted EBIT of minus EUR 62 million, it shows that ElringKlinger's classical business generates reliable cash flows and creates sufficient financial room for strategic investments. All in all, adjusted EBIT margin is fully on track to continuously improve profitability of the group in the medium term. Regarding the other metrics, we've seen strong efforts in the fourth quarter. Due to an active working capital management, we achieved a level of EUR 285 million in the financial year 2025. At 17.4% of the group revenues, net working capital ratio was even lower than prior year's figure. The target set in March '25 to maintain a net working capital ratio of under 25% of group revenue was therefore clearly fulfilled. In line with the lower level of working capital and despite the high level of investments for the ramp-up of the large-scale e-mobility projects, we have generated an operating free cash flow of EUR 32.6 million in the financial year 2025. With the ratio representing 2% of sales, we have achieved our target range of 1% to 3% of group revenue. As a result, net financial debt was kept at a low level. It amounts to EUR 288 million. As a result, the net debt-to-EBITDA ratio stood at [ 2.0 ] and fulfilled the guidance given in March '25 when we had appointed to a figure of around 2. When adjusted EBITDA for the one-off effects from SHAPE30 and STREAMLINE measures, the adjusted net EBITDA ratio would even amount to 1.5 compared to 1.2 in the previous year. Let me briefly reconnect these results to our transformation strategy, SHAPE30. SHAPE30 outlines our road map for transforming the group in response to the profound changes shaping our industry. The strategy is focused on enhancing our profitability and strengthening cash flow performance. To ensure long-term success, we continuously monitor global market developments and align our product portfolio accordingly. This enables us to remain well positioned for the future and to act with maximum flexibility as market dynamics evolve. This includes terminating nonperforming products, divesting CapEx-intense business areas and consolidating our global footprint. In an effort to position the group effectively for the future, ElringKlinger implemented STREAMLINE, a global program to scale back staff costs in 2025. The measures on a STREAMLINE and SHAPE30 will translate into a significant reduction of the group's cost level. As planned, the initial benefits of these measures will be seen as early as the current financial year. The measures will take full effect from 2027 onwards. In parallel, we entered the next steps of transformation by ramping up several large-scale e-mobility orders. With the ramp-ups, we returned to a normalized CapEx spending after an intense investment cycle as main investments have been done. The full and audited figures for fiscal 2025 will be released on March 26 in the morning. A press conference is scheduled for the morning, followed by an analyst conference call in the afternoon. The then released figures will include the full set of financial statements and therefore, more details on the financial KPIs. Moreover, we will provide you with an outlook on the fiscal year 2026. The invitation for the calls will be sent out in due time. Ladies and gentlemen, thank you for your attention. And now Thomas and I are happy to answer your questions. Operator: [Operator Instructions] And we have the first question from Michael Punzet from DZ Bank. Michael Punzet: I have -- I will start with some questions with regard to the development in Europe with regard to the transformation to e-mobility. I think we have seen a lot of changes in the strategy of the big German and other OEMs as well as we have seen that the European Commission decided to soften the rule for 2035. And when I look to the presentation, I look at the slide on Page 3, your data you've shown there are based on the S&P Global Mobility outlook based on October 2025. Do you think this will have an impact on the strategy changes as well as the decision by the European Commission on your ongoing forecast for the e-mobility? And the second question is, will this have any impact on your planned breakeven for the business unit E-Mobility in 2027? Thomas Jessulat: Yes. Thank you for your initial questions, Mr. Punzet. I think when we look at the likely shift now after the change of the EU legislation, there is, I think, some change to be expected. It's not necessarily an adverse change to our strategy. That means that the strategy that ElringKlinger has is sound. The growth market within the auto business here, in particular, in Europe will be e-mobility with battery electric vehicles. I think that's not going to change. The quantities may change. And therefore, it may have an impact on our initial assumption that we will see a 50%, 50% share of non-ICE versus ICE in our portfolio in 2030. That may be impacted. But it's not meaning on the other side that we need to change our strategy because then it would be merely a change in quantities to the ElringKlinger product portfolio. Isabelle Damen: Yes. And towards your second question on the breakeven point. So we don't expect a huge impact because of the measures you mentioned on '26 and '27. And I think we discussed before, we expect in '27 to realize a breakeven point on e-mobility. Operator: There are no more questions at this time. I would now like to turn the conference back over to Thomas Jessulat for any closing remarks. We have a last minute question from Klaus Ringel from ODDO BHF. Klaus Ringel: I just want to -- really to ask for the special items in Q4 were a bit higher than I had expected. So can you give a bit insight what was the driver here? And let's say, if you have pulled forward some of the measures that you might have planned for '26 for later, which now gives you a clean sheet to start in 2026. Isabelle Damen: So thanks for your question. On your first question, the adjustments we've booked in the fourth quarter are partially related to STREAMLINE, our personnel cost reduction program. So there's about EUR 6 million we booked in the fourth quarter versus EUR 21.5 million for the full year. Furthermore, we booked some adjustments on the consolidation of our global footprint of EUR 9.2 million in the fourth quarter, about EUR 12 million in the year. And on nonperforming assets, there we booked about EUR 35 million for the year, of which EUR 19.4 million in Q4. So that's for the adjustments we booked in this quarter and for the year, and we did not really pull ahead anything of '26. So we still expect some effect in '26. The intention is in '27, we will no longer have any impact in adjustments for -- related to STREAMLINE or SHAPE30. Thomas Jessulat: Also in regard to the measures, we indicated that we were -- we wanted to have a EUR 50 million cost improvement in the group. When we head into 2026 now, I would say we're half through of it. There is -- as part of the STREAMLINE program, there is still, in particular, in Germany here, contracts that will run out at the end of Q1 so that the full impact, in particular in Germany on the STREAMLINE program will be measurable starting in Q2 2026, like Isabelle is saying. Most of the accounting items in terms of impairments and also changes to the footprint, most of the items were already carried out. We're not fully complete yet in that regard. But the expectation is that there is, from an accounting perspective, a little left that would be a difference between reported items and adjusted items. So that we expect more improvements to be seen in the course of 2026. And like Isabelle said, that we shoot for a clean 2027 with our activities. Operator: And we have a follow-up question from Michael Punzet from DZ Bank. Michael Punzet: Michael, again, I have several questions on the business unit E-Mobility. First, I would like to thank you very much for publishing the earnings figures for that business division. And I hope this was not a onetime effect, so that we will see that figure on a quarterly basis going forward. I have two questions with regard to the business unit. The first one is, can you give us any kind of guidance for the revenues you expect in 2027 to reach breakeven in that division? Thomas Jessulat: Yes. Let me ask -- or let me give you some information here on your first remark. I mean the transformation here is a key activity for us within our strategy SHAPE30. And we are dedicating significant resources, including CapEx into this process as we have done throughout the last couple of years. And we approach, as you say rightly, the revenue cycle now. And I think -- and we think that it's the right point here to share this information with shareholders of ElringKlinger to show the financial progress in this transformation here for ElringKlinger. This is a background for that. And yes, we'll continue to report on that because, again, it shows the progress that we make in regard to this transformation process. When we look at your second question here in terms of the top line, it's expected that through 2028, you would say roughly that we will double revenues here. And you have also to take into account that the loss situation here, part of it is one-off as part of this and part is part of start-up. So it's not a full amount that we have shown here in regard to recurring loss-making, but there's also part of it that is one-off amounts. And I think that's important to understand. So with the contribution margin that will come in through the doubling of sales, we think that we'll generate sufficient contribution margin in order to reach breakeven in the area of 2027, okay? Michael Punzet: Okay. That means doubling revenues compared to the figure for 2025? Thomas Jessulat: Yes. Michael Punzet: Okay. And second question on that business unit. Is it right to assume that the fuel cell technology business is fully included in that figure on a 100% basis in EKPO... Thomas Jessulat: Yes, that is included in there. But it's included here. Michael Punzet: So it's not adjusted for the minority stake. So that is included on a 100% basis? Thomas Jessulat: Yes, exactly because EKPO here is fully consolidated within our figures and therefore, is 100% considered. Operator: Ladies and gentlemen, that was the last question. I would now finally hand over the conference back to Thomas Jessulat for any closing remarks. Thomas Jessulat: Yes, ladies and gentlemen, together, my colleague, Isabelle Damen and I thank you for your attendance here during this call. On March 26, we will release our full and audited figures on the 2025 fiscal year and host a press conference as well as an investor conference call. We're looking forward to welcome you again and wish you a good rest of the week. Thank you very much. All the best.
Operator: Welcome to BONESUPPORT Year-End Report 2025 Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Torbjorn Skold; and CFO, Håkan Johansson. Please go ahead. Torbjorn Skold: Thank you, operator, and welcome, everyone, to BONESUPPORT's Q4 and Full Year 2025 Results Call. My name is Torbjorn Skold, I'm the CEO of BONESUPPORT; and with me here today is our CFO, Håkan Johansson. And together, we will use the next 25 minutes to guide you through the Q4 presentation and then open the line for questions. But before we start the presentation, I would like to draw your attention to the disclaimers covering any forward-looking statements that we will make today. So let's look at the financial and operational highlights from the quarter. Q4 was another strong quarter with solid execution across the business. Net sales came in at SEK 313 million, corresponding to a growth of 22% versus Q4 2024. Sales growth at constant exchange rates was 36%, showing that there was a continued strong currency impact on our figures for the quarter. Our adjusted operating results, excluding incentive program effects was SEK 81 million, corresponding to an adjusted operating margin of 26%. Reported operating result was SEK 82 million, and we saw solid cash generation with operating cash flows reaching SEK 54 million. We continue to see strong traction for CERAMENT G in the U.S., where both new accounts and increased use among current users contributed to the strong progress. CERAMENT G sales in the U.S. reached SEK 207 million for the quarter compared to SEK 154 million in the same period the year before. In Europe & Rest of the World, we saw strong momentum, which more than offset the negative effects of the German market reforms. During the quarter, we also advanced our regulatory pipeline. As communicated in early December, the FDA submission for CERAMENT V has now been transferred from the 510(k) pathway to the De Novo process. This change reflects the FDA's assessment that CERAMENT V may constitute an entirely new product category like CERAMENT G in 2022 and positions us for a stronger long-term market entry. In addition, we initiated the early-stage launch of CERAMENT BVF for spine in the U.S., an important step as we continue expanding our portfolio of indications and applications. I will come back to that later in my presentation. Now let's move to the sales development. This chart shows total last 12 months reported sales in Swedish krona by quarter since 2019 in stacked bars per region and product category. As you can see, the launch momentum for CERAMENT G in the U.S. is exceptionally strong. Given that we keep bringing new strong clinical studies and opening up new market segments and new indications, a product like CERAMENT G will remain in launch phase for many years to come. However, throughout 2025, we have seen strong influence from the U.S. dollar to Swedish krona depreciation. Last 12 months growth in Q4 of 31% in the graph corresponds to an even stronger 40% at constant exchange rates. So most of this quarter-over-quarter slowdown in last 12 months sales is due to a strong currency impact. U.S. CERAMENT BVF last 12 months was flat year-over-year in constant currency. In total, antibiotic eluting CERAMENT grew with 54% last 12 months in the quarter in constant currency. Next slide, please. In U.S., sales amounted to SEK 259 million, representing a growth of 40% at constant exchange rate. There was some general variability during the quarter due to the number of working days. At the same time, we continue to experience strong growth of CERAMENT G, driven by both increased access through new accounts and new surgeons as well as wider adoption among existing accounts and surgeons. In trauma, we see expanding access and adoption in Level 1 trauma centers, which is an important validation of CERAMENT G for treating complex infections and bone voids in the most demanding clinical environments. There are roughly 250 Level 1 trauma centers in the U.S. These are the very large and most important centers for advanced trauma treatments. And at the end of 2024, we had sold CERAMENT to 15 of these. At the end of 2025, we had sold to more than 140 Level 1 trauma centers. That said, actual use is evolving gradually as trauma surgeons carefully assess and evaluate new products before they become part of regular use. And remember that full healing and evaluation of a trauma patient can take more than 6 months. As part of our mission to modernize an outdated standard of care in the U.S., we have successfully opened one market segment after another. We started in foot and ankle, followed by trauma and now moving into revision arthroplasty. Interest continues to grow for CERAMENT G in revision arthroplasty and periprosthetic joint infections, 2 areas where the clinical needs remain substantial and where the evidence supporting our antibiotic eluting technology has resonated strongly with surgeons. We've built a solid foundation for our spine strategy over the past quarters by establishing distributor coverage and preparing for the market. In Q4, we initiated the early-stage launch of CERAMENT BVF in spinal procedures with distributors now actively engaging spine surgeons across both existing and new partnerships. As this is a new clinical segment for us, more clinical data is needed to support broader market penetration longer-term. Importantly, the performance of CERAMENT BVF in spine will help confirm the value proposition for the CERAMENT platform, which will pave the way for the future CERAMENT G launch. We have made strong progress in evaluating and preparing the regulatory pathway, and we'll share more on the path forward at our Capital Markets Day this spring. Now let's turn to Europe. Next slide, please. Sales in Europe & Rest of the World came in at SEK 54 million, representing 18% growth at constant exchange rates. Sales in Europe continued to be influenced by the same dynamics as observed in Q3, meaning that hospital reforms and surgical protocol programs in Germany were still impacting our sales. However, direct markets, excluding Germany, delivered at normal growth rates. And by the way, when we say normal growth rates, we mean normal for CERAMENT. The growth rates that we see outside Germany are 4x to 5x higher than growth rates for the market in general. Furthermore, hybrid markets in Southern Europe, Australia and Canada are performing strongly. We see positive traction from the investments made during the first half of 2025 reflected in improved sales performance. Now I'll leave a deep dive into the numbers to Håkan. Håkan Johansson: Thank you, Torbjorn. Net sales improved from SEK 257 million to SEK 312.5 million, equaling a growth of 22% reported sales growth or 36% in constant exchange rates. Torbjorn has already spoken about the solid performance in especially the U.S. and the major drivers behind the sales growth. But as the weak U.S. dollar somewhat hides a continued strong trajectory in the U.S., I would like to share the U.S. sales performance in U.S. dollars. CERAMENT G is the growth driver in the U.S. and this slide shows the quarterly CERAMENT G sales in the U.S. in U.S. dollars with continued solid performance quarter-to-quarter. The number of working days in each period impacts sales, especially in Q4, which is impacted by both Thanksgiving and the holiday season over Christmas and New Year's. Taking this into consideration, a strong net sales per working day is noted during the quarter when looking at the orange line in the presentation. The contribution from the U.S. segment improved by SEK 30 million and amounted to SEK 120.2 million. The improved contribution relates to increased sales after effect from increased costs. Selling and marketing expenses during the quarter amounted to SEK 128 million compared with SEK 108.8 million previous year, of which sales commissions to distributors and fees amounted to SEK 85 million compared with SEK 69.6 million in the same quarter last year. From the graph at the bottom of the screen, showing net sales as bars and gross margin as the orange marker, it can be noted that the gross margin remained stable and strong at around 95% with a minor decline in the period following a gradual impact from U.S. tariffs. In Europe & Rest of World, a contribution of SEK 11.9 million was reported to be compared with SEK 12.8 million previous year. Selling and marketing expenses increased by SEK 4.9 million, including SEK 3.6 million related to the previously communicated commercial investments in the so-called EUROW booster program. From the lower graph and orange marker, a minor drop in gross margin can be noted, mainly impacted by the market mix. Selling expenses, excluding sales commission and fees increased by SEK 8.6 million, mainly in staffing expenses, of which SEK 3.6 million relates to the so-called EUROW booster. The increase from Q3 this year relates to seasonality as Q4 is usually intense in terms of congresses and marketing activities. R&D remained focused on the execution of strategic initiatives such as the application studies in spine procedures and the market authorization submission for CERAMENT V in the U.S. The expense for the quarter includes submission fees and other additional expenses related to the change in regulatory pathway for CERAMENT V in the U.S. And finally, administrative expenses, excluding the effects from long-term incentive programs, reports a small increase for the period, of which SEK 2.8 million relates to the CEO succession. The reported operating result amounted to SEK 81.8 million despite unfavorable currency effects totaling SEK 2.9 million. I will come back to this on a later slide. The newly introduced tariffs in the United States had a gradual impact on costs in the quarter. The full effect of the current 50% tariff will equal a 0.8% impact on U.S. gross margins, which will come gradually with full effect late 2026. The difference between adjusted and reported operating result are costs regarding our long-term incentive programs amounting to a negative expense of SEK 0.5 million in the quarter compared with an expense of SEK 13.7 million previous year, as you can see from the previous slide. The reduced costs are due to the drop in share price. Operating cash flow remains solid with an increase in accounts receivables at the end of the year, mainly as customer payments seem to have been deferred to after the holidays. During the period, the Swedish krona has continued to strengthen against the U.S. dollar. Other operating income and expenses, therefore, contain foreign exchange gains and losses from the translation of the group's receivables and liabilities in foreign currency amounting to a negative SEK 2.9 million. The graph on this slide shows with gray bars how the relationship between the U.S. dollar closing rate and the Swedish krona has varied over time. This is read out on the right Y-axis. The blue dotted line readout on the left Y-axis shows adjusted operating result. The adjusted operating result, excluding translation exchange effects is the orange line and gives a more comparable view of the underlying trend in operating results. In the table below the graph, you can see the FX adjusted operating margin of close to 27% in the period compared with 22.6% in the same quarter last year. And with this, I hand back to you, Torbjorn. Torbjorn Skold: Thank you, Håkan. So to summarize Q4 2025, sales grew by 36% in constant currencies, reflecting steady and consistent progress. Adjusted operating margin reached 26%. Cash flow also remained robust, underscoring the strength and scalability of the business. I'm convinced that the most exciting part of our journey still lies ahead. And as I said, to provide a clearer view of what that journey will look like, we will host a Capital Markets Day in Stockholm on the 26th of May this year, which you are, of course, all welcome to join. Now happy to open up the line for questions. Operator: [Operator Instructions] The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: First one on CERAMENT G in the U.S. As you mentioned, year-over-year growth in the quarters are decreasing, but it's mostly FX related, as you mentioned. But when you say mostly, is it anything that indicates any, let's say, underlying headwind in the U.S. in 2025? And also what kind of underlying growth have you baked into your guidance for 2026? And how does that growth compare to 2025 growth in constant exchange rates? That's my first question. Håkan Johansson: Thank you, Viktor. And I think that the takeaway from the report is 2. One is, again, we see a continued strong trajectory with CERAMENT G in the U.S., especially when looking at sales in average per working day. Taking that in combination also what Torbjorn mentioned in terms of access to Level 1 trauma centers, et cetera. And of course, both these aspects are aspect that's been included in our estimates and our works out ahead of presenting the guidance for 2026. So we remain very optimistic on the continued opportunities for CERAMENT G in the U.S. Torbjorn Skold: Indeed. And I would like just to add to that. When we look at the performance in '25 and in Q4, we look at 2 important aspects of where the growth comes from in general and also particularly in CERAMENT G. And it relates to new accounts calling access as well as increasing the adoption within existing accounts. So both those 2 levers, independent on whether it's on surgeon level, account level, IDN level or GPO level, we measure that and track it. And what's important for us is to make sure that we have a healthy growth, not only in access and not only in adoption. We want to have it in both. And what we've seen throughout '25 as well as in quarter 4 is that we have a really healthy adoption and the growth rate on the total stems from both of those legs contributing almost to an equal size, which is very positive. And that goes generally as well as for CERAMENT G. On CERAMENT G, in particular, we've already talked about the Level 1 trauma center adoption rate. I mean, in '24, we sold to 15 of them. And in '25, we have sold to more than 140. And what we mean with sell is that we sell at least one product. So again, it's very, very early phase, but it's a really strong indication for us at least that we get access, we get interest among orthopedic surgeons, among the infectious disease doctors, and we have a really strong foundation to build on in trauma for many, many years to come. So that's on trauma. The next segment that we're just about -- or just started to scratch the surface on is revision arthroplasty. Early days, we have very convincing evidence, but it's a pilot study from Charité, indicating very strong results for CERAMENT G in a revision arthroplasty segment. So this also looks very promising for both the short, medium and long-term in the U.S. On top of those parts, meaning trauma and revision arthroplasty, we have foot and ankle, which we still see a lot of potential to continue to build on as we develop more application techniques, as we come out with more clinical studies. And then, of course, very exciting for us is when we get FDA approval for CERAMENT V. We transitioned from a 510(k) process to a De Novo process, which longer-term is actually very positive for us. And that, of course, adds to the total mix. We do not expect a lot of cannibalization on CERAMENT G from CERAMENT V. We believe that's going to be somewhat immaterial in the grander scheme of things. So I think that paints the picture of our outlook short, medium and long-term for CERAMENT G in the U.S. Viktor Sundberg: Okay. And maybe in Germany and the U.K. also that's been a bit of a drag on growth in '25. How much of this drag is baked into your guidance for 2026? And when do you expect this to turn around? And any sense of what the underlying demand is if funding issues would be a bit better in these countries? Håkan Johansson: So we communicated already when releasing Q3 that we do not expect somewhat of a swift call it, recovery in Germany. We think that Germany will remain somewhat sluggish throughout 2026. However, when it comes to U.K. and part of that we also saw in Q4 is that we expect the situation in the U.K. to normalize in the sense that surgeries where CERAMENT is used is coming back to normal levels. The surgical backlog in the U.K. is still a launch, which means that somewhat there will be also periods where we see a bit of 2 steps forward, 1 step back, et cetera. But again, we have seen gradual improvements, Q4 confirmed that, et cetera. So we remain optimistic when it comes to the U.K. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, of course, everyone cares about the CERAMENT G U.S. number and what that was organically. If I pulled the data correct, it looked like it was up 55% organically and that we have a USD number that was 21.9% essentially. Could you give any more detail on that sort of number, if I'm correct in that assumption? Because that would imply like an FX rate of minus 21%. Håkan Johansson: Again, largely, the numbers could be recognized. We're not sharing the exact dollar numbers because we're reporting in Swedish krona. But as we shared in the presentation, you have both the absolute numbers in U.S. dollar sales and also the average sale per working day. And again, as communicated here, we see a continued very strong and solid trend. Erik Cassel: But the 55% organic, that seems reasonable to you, do you think? Håkan Johansson: Again, if you just look at it from Q3 to Q4 in U.S. dollars and not taking workdays in consideration, it is a small growth in Q4 to Q3. Erik Cassel: Okay. I'll leave it there. But can you maybe talk a bit on what sort of indications that happen to grow, say, faster than the overall CERAMENT G sales in the U.S. and which indications may be lagging that growth rate a bit, so we sort of can understand what's driving this going forward? Torbjorn Skold: Yes. So I think if we look at the U.S. and CERAMENT G sales only and then we look at the 3 segments that we are in today and actively sell into. Foot and ankle, of course, is the segment where we have been the longest period of time. That's where BONESUPPORT started really. But still both in absolute as well as in relative terms, an important contributor to the growth of CERAMENT G. But given the size of it and given that we've been there for a number of years, it's further on in its life cycle, so to say. Second is trauma. And here, of course, a relatively new segment. You saw the numbers in terms of access. So that's clearly a segment that will continue to drive growth rates both short and medium-term. So we're very bullish about trauma as well as we are on revision arthroplasty. So I think you can sort of relate how long we've been in the respective segments to how much relative growth rates we can expect from them. But having said that, all 3 segments are very important in absolute terms for us short and medium-term. And just to be totally transparent and perhaps obvious to several of you on the call, CERAMENT G for spine is not yet approved in the U.S. and will, therefore, not drive any growth in the short-term. But longer-term, we expect CERAMENT G once it's approved and launched in the U.S. for spine to be an important segment also in parallel to the 3 segments that we're already in. Erik Cassel: Okay. Should I read that as the osteomyelitis indication being a bit more matured, maybe not growing as much right now? Torbjorn Skold: I wouldn't read that into it. Osteomyelitis is actually an indication that can happen in foot and ankle. It can happen in trauma and also technically it can happen in -- also in revision arthroplasty. So I wouldn't draw that conclusion. Osteomyelitis is an underserved indication with a lot of unmet clinical need where CERAMENT G and V play an important role. So I would not draw that conclusion that we've reached a saturation or maturity on osteomyelitis in general. It's a very healthy and fast-growing segment for us. Erik Cassel: Okay. And then I just have a question on commission rates. They sort of hit a new low here in this quarter. Does that sort of imply that fewer and fewer distributors are hitting their sort of bonus quotas? And if that's the case, could you maybe share a bit on sort of what's required for them to get to that sort of, I guess, 35% commission rate. This was, I think, high and say normalized lower. What's the difference there and how much they need to sell and grow the accounts to get different bonus levels? Håkan Johansson: So a good question, Erik. So it sounds like an area for clarification because I guess the line is defined as commission and fees and involves everything from commission to the distributors, GPO fees, credit card charges for the customers paying by credit card, et cetera. And it's the combination of these that is down a few percentage points and so on. So it's small movements in percentage of sales. Commission remains relatively stable around 30%. The commission are somehow included certain incentives if the distributors are exceeding their so-called quotas substantially, but we see very little movement in the average commission rate to sales. So the reason why it's down a few percentage points more relates to the other aspects of fees. Torbjorn Skold: And to that, in terms of the distributor turnover, it's part of the beauty of the model that we have in BONESUPPORT in the U.S. is that we want distributors to be on the journey with us. We want them to share the same goals. So we actively add new distributors. And when we have distributors that are not performing in line with the targets and goals and principles that we set, we don't hesitate to phase them out. So turnover among distributors, we've always had. We will continue to have that. But as Håkan said, that is not one of the reasons why we see lower commission rates on the contrary. Erik Cassel: Okay. And just the last question. So far, I mean, we saw that sort of surgical volumes per day was up a bit in Q4. Can you say anything on the sort of pace that has been now through January and February, if we're seeing the daily averages being roughly the same, increasing, just so we can think about the Q1 number we could expect? Torbjorn Skold: Yes. No, thank you for the question. I mean we don't comment on Q1, as you know. But similar to -- we got a lot of questions on Q4 when we released Q3, I mean we feel confident in the journey that we're on. We feel confident in the guidance that we have said, indicating that we should grow in constant exchange rates at least 35%. And if we see any reason to change that, we will communicate it adequately and accordingly. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have a couple of questions as well. First one, what you shared there regarding Level 1 trauma centers, 140 versus 15 end of 2024. So just if you could share some color on how important this has been whilst establishing the sales guidance for '26. And of course, also interesting to hear some insights on adoption rates in sort of early Level 1 trauma centers as well? That's the first one. Torbjorn Skold: Sure. So starting with your first question around the guidance of 35 -- more than 35% growth in constant exchange rates. So first of all, we have also communicated that we expect CERAMENT V to be approved by the FDA around mid this year. Of course, if we get an earlier approval and we launch earlier than that, then of course, we will distance ourselves or we expect to distance ourselves more on the upside versus the 35%. But however, let's say that we get late approval or no approval, then we will, of course, be close to the 35%. I think that's important to just point out that, that's the role of CERAMENT V. Now when we did the guidance for '26, there's not only one factor, of course, that we take into account. We look at growth potential across the geographies. We look at the growth potential of the different segments, of course, trauma in the U.S. is an important segment for us and the data point that we have on the Level 1 trauma centers is an important data point as there are others as well, in foot and ankle, in revision arthroplasty in both U.S. as well as Europe & Rest of the World. What is very important for us, and we've said this before, and it's important to continue to say that, it's the balance between access and adoption that is very important. We don't want to just only grow by getting new accounts. We don't only want to grow by increasing the adoption in existing accounts. We want to have a healthy balance between the 2. So that's also a very important factor when we put the guidance together. Another also very important factor is when we simply again recalculate the penetration, meaning that the number of surgeries that we are in by geography, by market segment versus what we think is a realistic or a longer-term outlook. We still believe that we have a long runway to get to what we think are perfectly realistic penetration levels. So I think, Mattias, it's not just the trauma number, but it's an important factor as -- and combined with many other factors, as I just described. Mattias Vadsten: Good. And are you happy with what you see in terms of adoption in the Level 1 trauma centers that you won early days? Torbjorn Skold: Yes, very happy. Mattias Vadsten: Good. Then I just have a follow-up on the revision arthroplasty segment that you discussed here in the presentation, which was good. Your position here and maybe how much work is yet to be done for BONESUPPORT in terms of evidence and so forth to be able to have an ideal position, call it, for a more material contribution and better sales pitch around the segment? That's my next one. Torbjorn Skold: Yes. Very good. So it's early days for us in revision arthroplasty. We have a fantastic pilot study that came out of Charité as communicated last year. I mean the results from that couldn't have been better from a BONESUPPORT and CERAMENT point of view, showing excellent results. But again, it's a pilot study and the number of patients is limited. We're building on that study going forward. And I think this is an area where we, over several years, will need to do a lot more, which is perfectly natural, and that's part of the BONESUPPORT approach to penetrate a new market segment, meaning that we always lead with evidence. We know that our product is very innovative. It has unique capabilities in terms of its handling and in terms of how it elutes antibiotic. But we always lead with evidence. So a lot more work remains to be done in revision arthroplasty on the evidence side. So more specific evidence. And we're working on it. We've initiated new studies, and we will continue to initiate new studies in this field. However, orthopedic surgeons, in general, they understand the unmet clinical need in the space of revision arthroplasty, where typically you face 2 challenges. Number one, how do you heal the bone? How do you make sure that you grow bone in areas where you, for example, have bone voids as a result of explanting the implants in a revision situation. So having to deal with bone voids is normal, and it's standard for revision arthroplasty surgeon. We have a great solution for that with CERAMENT. Also, infections in revision arthroplasty is one of the key reasons why primary implants need to be revised because the patients have infections. So dealing with infections is also high on the agenda of the revision arthroplasty surgeons. And there with CERAMENT G and V in Europe and hopefully, when we get the approval for V in the U.S., we have a very, very intuitive solution that we already see now, surgeons are willing to try and test. Some of the surgeons actually already use it as part of their standard routine. Several surgeons want to wait until we have more evidence. But nothing is stopping us to enter this segment and penetrating this segment already now. But of course, we need more evidence. In addition to that, we believe very much in specialization of our sales channels, meaning that a revision arthroplasty surgeon is not the same guy that does trauma, who is not the same guy that does foot and ankle. So we need specialization in our go-to-market channels. So that's, of course, another aspect that we need to make sure that we get relevant sales channels, whether that's distributors as well as direct people to go deeper in the respective market segments. So I hope that answers your question. Mattias Vadsten: Absolutely. Good answer. And my last one is fairly quick. In terms of working days that you discussed here, how many fewer working days was it Q4 vis-a-vis Q3? Was it like 2 days or... Håkan Johansson: It was 3 days shorter, if I remember, 3 or 4 days, but my memory is not skewing me 3 days shorter. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I have 3 or 4 questions. The first one on this sequential growth for CERAMENT G in the U.S. per surgery day seems much stronger in Q4 versus pretty weak third quarter. So could you explain, is there any particular reason for this or just natural swings between quarters? Håkan Johansson: Again, as much as we refer to underlying natural swings quarter-to-quarter in Q3, that explanation remains in Q4 because again, it's -- as with the forward-looking estimates, there are several parameters that is moving and so on. So I don't see any specifics, and I'm looking at Torbjorn, but I think that we share that view. Kristofer Liljeberg-Svensson: Okay. Good. And the better growth in Europe, would you say that's sustainable, just making sure that there is no positive one-off larger orders or anything this quarter, explaining the much better growth in Q4 versus what we have seen previously. Håkan Johansson: Again, what was positive to see, Kristofer was the improvement in the U.K. to see what's been in our analyzer to see that also realized. But at the same time, we're -- we remain modest. We have to remain modest because again, as I mentioned in the call, the surgical backlog remains long in the U.K. So there could be short periods of swings back to a slower momentum and then swing back again, et cetera. But again, I think it's -- we're remaining optimistic, good to see the improvements in Q4. When we look at the investment markets, I call it, we expect that momentum to continue when looking outside our direct markets and investments made in our so-called hybrid markets, Italy, Spain, Australia, South Africa, Canada, just to mention a few. And again, there, we start from quite a low penetration level, and there are so much market potential remaining in these markets. And we believe that the investments done is a good way to capture that potential. Kristofer Liljeberg-Svensson: Okay. Good. And then my third question, you mentioned the increased number of trauma centers that you are selling to, still early days, but have you reached good adoption already at some of those centers? Or is that also too early to see? Torbjorn Skold: No. I mean, clearly, in some of them, but still it's a very small number where we have reached a solid adoption level, but it's really early days. And if you -- again, the definition that we use here is that selling to meaning that we've sold minimum 1 packet of CERAMENT. Of course, some of them, early adopters that were early out, we have a good adoption level, but not even close to what we think is the potential. And most of these -- I mean, just do the math. Most of these trauma centers that we've sold to are still very, very early in their journey. So yes, we'll keep ourselves busy to increase the adoption in these Level 1 trauma centers in the U.S. Kristofer Liljeberg-Svensson: Okay. And then finally, just a clarification when it comes to guidance for 2026. So you have included, as it seems then, very little or no CERAMENT V sales in the guidance? Torbjorn Skold: Yes, that's correct. And that's to be prudent because we only know what we know. And although we have a great dialogue with FDA, you never know with FDA, and we follow their guidance similar to what we did now in Q4 in terms of transferring CERAMENT V from a 510(k) to a De Novo. We think that although unexpected to us, we think it was a very good decision longer-term for us. And it is important that we follow and deliver on what FDA wants us to. But of course, if we don't get CERAMENT V, we still believe that the 35% growth rate is definitely realistic, but it's going to be a lot easier to overdeliver if we get an early approval of CERAMENT V in the first half of this year. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: As a follow-up on the U.S. market penetration and adoption. I think to ask it in a different way. But I think in the past, you have shared with us a number of surgeons you have trained. And I believe maybe I'm mistaken here, but the last number I have in my head is 1,000 surgeons. I was wondering if you could update me on where you are today on that number. Torbjorn Skold: Yes. No, good question, Sten. Thank you very much. So first of all, to put your question into context, this relates to all the sort of relevant surgeons in the fields that we're in today, excluding spine. So that relates to foot and ankle, trauma and revision arthroplasty. The boring part of my answer is that, no, we're not going to provide an update to that number. We don't have that routine yet. But when we have that routine and when we have updated numbers that we are willing to disclose, we will, of course, do that. But having said that, we are not slowing down. We're putting our foot on the gas to accelerate, which I think we see from both the financial as well as the operational numbers, including that reference point around the major trauma centers because clearly, you don't really get access without training an orthopedic surgeon. Sten Gustafsson: I understand. And those Level 1 trauma centers, on average, do they have like 50 or 100 different surgeons? Or what's the size like? Torbjorn Skold: I mean, it, of course, varies depending -- I mean, in total, U.S. as per our segmentation, we have 250 Level 1 major trauma centers. If you're major trauma centers, you're not running around with only sort of 5 trauma surgeons. You're not the major trauma centers. But it can vary. And I don't want to put a number out there, but it could be anything from -- I would only be guessing, but there are several -- quite a number of trauma surgeons on these different centers. And our ambition in the first place is to focus on the market segments, of course, where we focus on, so foot and ankle and trauma and then focus on the most complex, difficult cases within trauma where we see that CERAMENT G adds the most clinical value. And then you typically start with 1, maybe 2 surgeons and 1 ID doc. You start there, only one indication or one type of case and then you expand from there. And that's a journey that honestly can take several years. And of course, we want to do it in the right way and make sure that we and our product adds value to not only the orthopedic surgeon, but also the hospitals and the health care system. Sten Gustafsson: Makes sense. My next question would be on BVF and spine in particular. And I noticed a nice uptick in the -- and change in growth trajectory for CERAMENT BVF in North America. And I was wondering how much of that is sort of quarterly variation? And how much is related to spine? Torbjorn Skold: Well, given the fact that we honestly launched -- we initiated the launch in December on spine BVF, and we try to keep it a very focused launch. In Q4, I wouldn't draw any conclusions that it is the spine launch in the U.S. with the CERAMENT BVF that sort of made that number look the way it looks. It's more normal variations. Sten Gustafsson: Okay. Excellent. My final question is India. What's the timeline looking like? And what type of potential are we -- or should we consider for India? Torbjorn Skold: Yes. No, India, I mean -- so of course, no sales in Q4 for India. When we look at India strategically long-term, it's an attractive market for a couple of reasons. The main reason is it's a lot of people in India. And second, there's a lot of people who are willing to pay for care in India. So the approach that we take is a very focused approach on private payers and the hospitals that serve this patient population. When we look at that patient population in terms of size, it's a sizable segment, very attractive longer-term. And what we see now in India is first early steps -- and longer-term, give it a couple of years, it could be an important contributor for us. But most importantly, it's another growth leg to have in Europe & Rest of the World because we say that a lot of times, even in Europe & Rest of the World, we're very, very early phase. I mean, we depend and have depended a lot on U.K. and Germany, and we've been painfully aware of that when we have had the market reforms in Germany. So adding India is an attractive segment. But again, as with all countries, it will take time. But if you count the total population and if you segment that population into how many of them do have private insurers and how many of them have access to certain private hospitals, we feel very confident about that number, and we expect sales to start in India already in the first half of 2025 -- 2026, sorry. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: I just have 3 questions for you. The first one, I think, at U.S. ambassador sites for bone infection, could you give sort of a ballpark figure of what percentage of relevant procedures on Berlin-CERAMENT G today? I mean, have they -- or have you become the type of standard of care at some of the centers in the U.S. Torbjorn Skold: Great question. To answer that last part, I would dare to say, yes, but it's still only a relatively small number where we have genuinely become the standard of care. And of course, it goes to what's the definition of standard of care. Do you only look at one patient indication? Do you look at several, et cetera, et cetera. So I think we're getting traction. Clearly, one very important way to establish this for us is to look at our great collaboration with the Oxford Bone Infection Unit in the U.K., and we have a fantastic collaboration and partnership with them. And one of the best ways we can educate patients in the U.S. -- sorry, educate the surgeons in the U.S. is simply by sending them to Oxford and see how they work with it. And we see great results, including changing the standard of care, moving to more CERAMENT use in their daily practice. But I would say, yes, there are centers in the U.S. that have changed their standard of care, but it's still very early days. But I don't have any hard data to share. Oscar Bergman: Okay. And do you know those centers are typically university hospitals? Torbjorn Skold: Yes. I mean one of the key strategies in the U.S. that we have and had for several quarters and potentially years is that we target academic medical centers. And that is simply because that's where they are very evidence and research focused. So they actually pay a lot of attention to the evidence that we have. You know that one of the key pillars in our strategy is to invest in and promote and lead by evidence. So that sort of fits like a hand in the glove to that. Commercially, it's a really good way to sell and target academic medical centers because they train a lot of fellows that when they're done training and when they're done with their fellowships, they go to somewhere else. They could go to a different academic medical center or they could start their own practice or go somewhere else. So definitely, our product fits very well in academic medical centers simply because it's much higher evidence level on our product than what's currently on the market. Oscar Bergman: Okay. And India, it was very interesting to hear about. I assume that the regulatory processes there are piggybacking CE marks for CERAMENT G and BVF, right? Torbjorn Skold: Yes. I mean, of course, we use the clinical data, we'll use the material that we've produced for U.S. that we've used for Europe. India is a particular country and with a somewhat complicated process, but the team has done a fantastic job on that, and we're getting very close to starting the launch in India in the first half of 2026. Oscar Bergman: Okay. And are there any other markets that you aim to launch at in the near to medium-term? I think we spoke about Japan before, very high level, of course, but it would be interesting to hear about Japan. Torbjorn Skold: Yes. I mean, Japan is still on the list. It's a very attractive orthopedic market. Similar to India, somewhat complex regulatory pathway to enter in Japan, but we're actively working on it. We've said that before also. So there's no change in that strategy. And we're getting closer to launch. But from a timing-wise, India will happen before Japan. Oscar Bergman: Okay. And you also mentioned some safety inventory and the longer payment terms due to the holidays. Is it a fair assumption then to make that your free cash flow conversion should normalize already in Q1? Håkan Johansson: And again, I think that -- when you look at that, Oscar, it's key to see you have some accounts receivables, but you also have accounts receivables in combination with some of the so-called K sheets that is reported as accrued revenue. So part of the increase in accounts receivables in Q4 relates to a reduction in accrued revenue or open K sheets end of Q4 compared to Q3. And the rest is simply that payments has been deferred from December to after the holidays. So with that, yes, we can expect to see the situation stabilize and normalize going into Q1. But again, the balance sheet is measured on the clock on 1 day. So there will always be volatility in the balance sheet. But over time, cash flow never lies. Operator: The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: Just to follow-up on your progress in trauma. One of the worries in the market with regards to trauma in the U.S. has been that maybe surgeons do not always feel the acute need to prophylactically use infection prevention in the surgery risk with the products such as CERAMENT G that comes with a bit of a price premium to other products without infection prevention in contrast to osteomyelitis when the infection is already always present at the intervention. So can you just comment on that as you have met more surgeons day-to-day at these Level 1 centers and got their feedback if this is correct or not to look at adoption in trauma in that way? And maybe also quickly, the NTAP here, any more color on how the added NTAP for trauma and the dropped NTAP for osteomyelitis will impact U.S. sales when we have moved a bit into 2026 and you might have gotten a bit more data on this dynamic? Torbjorn Skold: Yes. So we'll start with the second question first for simplicity and then we'll comment on the first one. So in Q4, we did not see any material impact -- negative impact of the lost NTAP, that actually came into effect 1st of October. So we don't see that we lose volume due to that. Again, early days, but in Q4, we didn't have any signals on that. I think to your point on trauma surgeons prophylactically or not, I think we need to start even more basic in trauma, meaning that actually, when there is a very high risk of infection or actually that they have confirmed infection, that's where we start with in trauma. And I don't think that we have reached any maturity or saturation on that level. Once we've done that, then, of course, it comes to prophylactically. Prophylactically, of course, is always more challenging than the starting point. But once you get the starting point right, my experience is at least that once you get that right, you see -- you get the surgeons to understand and see the value that CERAMENT has, then moving into that prophylactic stage becomes more natural. And different surgeons, different clinics, different centers are in different parts of this journey. But I would argue that still prophylactically is further out, but we're making really good progress by starting with the basics and getting them to be aware and understand the role of CERAMENT G in these type of cases. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Torbjorn Skold: No. With that, thank you all for your interest, and we wish you all a great rest of the day. Thank you.
Operator: Ladies and gentlemen, welcome to the conference call on the preliminary figures for full year 2025. I'm [ Sargen,] the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Mr. Thomas Jessulat, CEO. Please go ahead. Thomas Jessulat: Ladies and gentlemen, hello and good afternoon, and thanks for being available today. I welcome you to our conference call on the preliminary and unaudited figures of the fiscal year 2025. I'll start with some remarks on today's release. Afterwards, I will hand over to our CFO, Isabelle Damen, who will walk you through the financials down to the EBIT level. As usual, you will then have the opportunity to ask questions. Please note that the outlook as well as the financial details will be published together with the final and audited figures on March 26. The company closed the year in an environment still marked by considerable uncertainty and volatility. At the same time, the group continued to prepare for the next phase of its transformation reflected in high levels of investments to launch additional series projects in the field of cell contacting systems. Despite these upfront costs, the year-end performance was strong with operating free cash flow reaching 2% of sales. The ramp-up of battery component projects progressed further, driving significant sales growth in the E-Mobility business unit. In addition, the group successfully implemented its STREAMLINE program, achieving a sustainable reduction in personnel costs. Overall, the company mainly met or in some areas, even slightly exceeded its full year guidance targets. Let us have a quick look on the markets. Across major automotive regions, the powertrain mix shows clear structural differences. In North America, internal combustion engine vehicles continue to hold a dominant share supported by market preferences and comparatively slower electrification dynamics. Europe, by contrast, sees a higher share of all electric vehicles as well as hybrid vehicles. Within the second half of the decade, there will be a significant shift towards all electric. A lot of new programs of the established players are going to ramp up; however, long-term forecasts point to a decisive shift. By 2030, all major auto regions are expected to accelerate strongly towards fully electric vehicles. Projections indicate that Europe and China will experience some of the fastest growth in battery electric vehicles, while North America is also set for a substantial increase by the end of the decade. In summary, although today's powertrain landscape varies widely between regions, the trajectory towards fully electric mobility by 2030 is clear and consistent around the globe. Let us have a closer look at the pure electric mobility because this will be our core growth market with regard to cell contacting systems, or other components from our broad range of e-mobility solutions. Across all major automotive regions, including China, Europe and North America, the shift toward electric mobility is firmly underway with strong growth projected through 2030. When considering our large-scale projects, you will see that we are covering quite a good share of those vehicles, especially in Europe and also North America. China continues to lead the global transition to electric vehicles and shows a different market development with regard to the rising importance of pure local players. Overall, the market of all electric mobility is expanding across all major regions and significant growth is expected throughout the coming years. The shift towards e-mobility is well underway and continues to accelerate. Let me now hand over to our Group CFO, Ms. Isabelle Damen. Isabelle Damen: Thank you for handing over, Thomas. Let me first come to the preliminary and audited figures on Slide #5. Summing up, we have successfully concluded the 2025 financial year and laid the foundation for our future transformation. We have generated sales revenue of EUR 1.6 billion, which is a decrease to previous year's figure on a reported level. But there have been M&A effects from the divestment of our entities in Sevelen and [ Buford ] amounted to EUR 159 million. In addition, we have been faced with headwinds from the exchange rate of EUR 40.4 million. Excluding these effects, we achieved an organic sales of 2.1%, which slightly exceeded our guidance given in March '25. The group reported adjusted EBIT of EUR 88.6 million in the financial year under review, which corresponds to an adjusted EBIT margin of 5.4%. Therefore, the group achieved a level at the upper end of the guidance range, which was around 5%. If you take into account that the earnings of the E-Mobility business unit currently remain in negative territory with an adjusted EBIT of minus EUR 62 million, it shows that ElringKlinger's classical business generates reliable cash flows and creates sufficient financial room for strategic investments. All in all, adjusted EBIT margin is fully on track to continuously improve profitability of the group in the medium term. Regarding the other metrics, we've seen strong efforts in the fourth quarter. Due to an active working capital management, we achieved a level of EUR 285 million in the financial year 2025. At 17.4% of the group revenues, net working capital ratio was even lower than prior year's figure. The target set in March '25 to maintain a net working capital ratio of under 25% of group revenue was therefore clearly fulfilled. In line with the lower level of working capital and despite the high level of investments for the ramp-up of the large-scale e-mobility projects, we have generated an operating free cash flow of EUR 32.6 million in the financial year 2025. With the ratio representing 2% of sales, we have achieved our target range of 1% to 3% of group revenue. As a result, net financial debt was kept at a low level. It amounts to EUR 288 million. As a result, the net debt-to-EBITDA ratio stood at [ 2.0 ] and fulfilled the guidance given in March '25 when we had appointed to a figure of around 2. When adjusted EBITDA for the one-off effects from SHAPE30 and STREAMLINE measures, the adjusted net EBITDA ratio would even amount to 1.5 compared to 1.2 in the previous year. Let me briefly reconnect these results to our transformation strategy, SHAPE30. SHAPE30 outlines our road map for transforming the group in response to the profound changes shaping our industry. The strategy is focused on enhancing our profitability and strengthening cash flow performance. To ensure long-term success, we continuously monitor global market developments and align our product portfolio accordingly. This enables us to remain well positioned for the future and to act with maximum flexibility as market dynamics evolve. This includes terminating nonperforming products, divesting CapEx-intense business areas and consolidating our global footprint. In an effort to position the group effectively for the future, ElringKlinger implemented STREAMLINE, a global program to scale back staff costs in 2025. The measures on a STREAMLINE and SHAPE30 will translate into a significant reduction of the group's cost level. As planned, the initial benefits of these measures will be seen as early as the current financial year. The measures will take full effect from 2027 onwards. In parallel, we entered the next steps of transformation by ramping up several large-scale e-mobility orders. With the ramp-ups, we returned to a normalized CapEx spending after an intense investment cycle as main investments have been done. The full and audited figures for fiscal 2025 will be released on March 26 in the morning. A press conference is scheduled for the morning, followed by an analyst conference call in the afternoon. The then released figures will include the full set of financial statements and therefore, more details on the financial KPIs. Moreover, we will provide you with an outlook on the fiscal year 2026. The invitation for the calls will be sent out in due time. Ladies and gentlemen, thank you for your attention. And now Thomas and I are happy to answer your questions. Operator: [Operator Instructions] And we have the first question from Michael Punzet from DZ Bank. Michael Punzet: I have -- I will start with some questions with regard to the development in Europe with regard to the transformation to e-mobility. I think we have seen a lot of changes in the strategy of the big German and other OEMs as well as we have seen that the European Commission decided to soften the rule for 2035. And when I look to the presentation, I look at the slide on Page 3, your data you've shown there are based on the S&P Global Mobility outlook based on October 2025. Do you think this will have an impact on the strategy changes as well as the decision by the European Commission on your ongoing forecast for the e-mobility? And the second question is, will this have any impact on your planned breakeven for the business unit E-Mobility in 2027? Thomas Jessulat: Yes. Thank you for your initial questions, Mr. Punzet. I think when we look at the likely shift now after the change of the EU legislation, there is, I think, some change to be expected. It's not necessarily an adverse change to our strategy. That means that the strategy that ElringKlinger has is sound. The growth market within the auto business here, in particular, in Europe will be e-mobility with battery electric vehicles. I think that's not going to change. The quantities may change. And therefore, it may have an impact on our initial assumption that we will see a 50%, 50% share of non-ICE versus ICE in our portfolio in 2030. That may be impacted. But it's not meaning on the other side that we need to change our strategy because then it would be merely a change in quantities to the ElringKlinger product portfolio. Isabelle Damen: Yes. And towards your second question on the breakeven point. So we don't expect a huge impact because of the measures you mentioned on '26 and '27. And I think we discussed before, we expect in '27 to realize a breakeven point on e-mobility. Operator: There are no more questions at this time. I would now like to turn the conference back over to Thomas Jessulat for any closing remarks. We have a last minute question from Klaus Ringel from ODDO BHF. Klaus Ringel: I just want to -- really to ask for the special items in Q4 were a bit higher than I had expected. So can you give a bit insight what was the driver here? And let's say, if you have pulled forward some of the measures that you might have planned for '26 for later, which now gives you a clean sheet to start in 2026. Isabelle Damen: So thanks for your question. On your first question, the adjustments we've booked in the fourth quarter are partially related to STREAMLINE, our personnel cost reduction program. So there's about EUR 6 million we booked in the fourth quarter versus EUR 21.5 million for the full year. Furthermore, we booked some adjustments on the consolidation of our global footprint of EUR 9.2 million in the fourth quarter, about EUR 12 million in the year. And on nonperforming assets, there we booked about EUR 35 million for the year, of which EUR 19.4 million in Q4. So that's for the adjustments we booked in this quarter and for the year, and we did not really pull ahead anything of '26. So we still expect some effect in '26. The intention is in '27, we will no longer have any impact in adjustments for -- related to STREAMLINE or SHAPE30. Thomas Jessulat: Also in regard to the measures, we indicated that we were -- we wanted to have a EUR 50 million cost improvement in the group. When we head into 2026 now, I would say we're half through of it. There is -- as part of the STREAMLINE program, there is still, in particular, in Germany here, contracts that will run out at the end of Q1 so that the full impact, in particular in Germany on the STREAMLINE program will be measurable starting in Q2 2026, like Isabelle is saying. Most of the accounting items in terms of impairments and also changes to the footprint, most of the items were already carried out. We're not fully complete yet in that regard. But the expectation is that there is, from an accounting perspective, a little left that would be a difference between reported items and adjusted items. So that we expect more improvements to be seen in the course of 2026. And like Isabelle said, that we shoot for a clean 2027 with our activities. Operator: And we have a follow-up question from Michael Punzet from DZ Bank. Michael Punzet: Michael, again, I have several questions on the business unit E-Mobility. First, I would like to thank you very much for publishing the earnings figures for that business division. And I hope this was not a onetime effect, so that we will see that figure on a quarterly basis going forward. I have two questions with regard to the business unit. The first one is, can you give us any kind of guidance for the revenues you expect in 2027 to reach breakeven in that division? Thomas Jessulat: Yes. Let me ask -- or let me give you some information here on your first remark. I mean the transformation here is a key activity for us within our strategy SHAPE30. And we are dedicating significant resources, including CapEx into this process as we have done throughout the last couple of years. And we approach, as you say rightly, the revenue cycle now. And I think -- and we think that it's the right point here to share this information with shareholders of ElringKlinger to show the financial progress in this transformation here for ElringKlinger. This is a background for that. And yes, we'll continue to report on that because, again, it shows the progress that we make in regard to this transformation process. When we look at your second question here in terms of the top line, it's expected that through 2028, you would say roughly that we will double revenues here. And you have also to take into account that the loss situation here, part of it is one-off as part of this and part is part of start-up. So it's not a full amount that we have shown here in regard to recurring loss-making, but there's also part of it that is one-off amounts. And I think that's important to understand. So with the contribution margin that will come in through the doubling of sales, we think that we'll generate sufficient contribution margin in order to reach breakeven in the area of 2027, okay? Michael Punzet: Okay. That means doubling revenues compared to the figure for 2025? Thomas Jessulat: Yes. Michael Punzet: Okay. And second question on that business unit. Is it right to assume that the fuel cell technology business is fully included in that figure on a 100% basis in EKPO... Thomas Jessulat: Yes, that is included in there. But it's included here. Michael Punzet: So it's not adjusted for the minority stake. So that is included on a 100% basis? Thomas Jessulat: Yes, exactly because EKPO here is fully consolidated within our figures and therefore, is 100% considered. Operator: Ladies and gentlemen, that was the last question. I would now finally hand over the conference back to Thomas Jessulat for any closing remarks. Thomas Jessulat: Yes, ladies and gentlemen, together, my colleague, Isabelle Damen and I thank you for your attendance here during this call. On March 26, we will release our full and audited figures on the 2025 fiscal year and host a press conference as well as an investor conference call. We're looking forward to welcome you again and wish you a good rest of the week. Thank you very much. All the best.
Operator: Welcome to BONESUPPORT Year-End Report 2025 Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Torbjorn Skold; and CFO, Håkan Johansson. Please go ahead. Torbjorn Skold: Thank you, operator, and welcome, everyone, to BONESUPPORT's Q4 and Full Year 2025 Results Call. My name is Torbjorn Skold, I'm the CEO of BONESUPPORT; and with me here today is our CFO, Håkan Johansson. And together, we will use the next 25 minutes to guide you through the Q4 presentation and then open the line for questions. But before we start the presentation, I would like to draw your attention to the disclaimers covering any forward-looking statements that we will make today. So let's look at the financial and operational highlights from the quarter. Q4 was another strong quarter with solid execution across the business. Net sales came in at SEK 313 million, corresponding to a growth of 22% versus Q4 2024. Sales growth at constant exchange rates was 36%, showing that there was a continued strong currency impact on our figures for the quarter. Our adjusted operating results, excluding incentive program effects was SEK 81 million, corresponding to an adjusted operating margin of 26%. Reported operating result was SEK 82 million, and we saw solid cash generation with operating cash flows reaching SEK 54 million. We continue to see strong traction for CERAMENT G in the U.S., where both new accounts and increased use among current users contributed to the strong progress. CERAMENT G sales in the U.S. reached SEK 207 million for the quarter compared to SEK 154 million in the same period the year before. In Europe & Rest of the World, we saw strong momentum, which more than offset the negative effects of the German market reforms. During the quarter, we also advanced our regulatory pipeline. As communicated in early December, the FDA submission for CERAMENT V has now been transferred from the 510(k) pathway to the De Novo process. This change reflects the FDA's assessment that CERAMENT V may constitute an entirely new product category like CERAMENT G in 2022 and positions us for a stronger long-term market entry. In addition, we initiated the early-stage launch of CERAMENT BVF for spine in the U.S., an important step as we continue expanding our portfolio of indications and applications. I will come back to that later in my presentation. Now let's move to the sales development. This chart shows total last 12 months reported sales in Swedish krona by quarter since 2019 in stacked bars per region and product category. As you can see, the launch momentum for CERAMENT G in the U.S. is exceptionally strong. Given that we keep bringing new strong clinical studies and opening up new market segments and new indications, a product like CERAMENT G will remain in launch phase for many years to come. However, throughout 2025, we have seen strong influence from the U.S. dollar to Swedish krona depreciation. Last 12 months growth in Q4 of 31% in the graph corresponds to an even stronger 40% at constant exchange rates. So most of this quarter-over-quarter slowdown in last 12 months sales is due to a strong currency impact. U.S. CERAMENT BVF last 12 months was flat year-over-year in constant currency. In total, antibiotic eluting CERAMENT grew with 54% last 12 months in the quarter in constant currency. Next slide, please. In U.S., sales amounted to SEK 259 million, representing a growth of 40% at constant exchange rate. There was some general variability during the quarter due to the number of working days. At the same time, we continue to experience strong growth of CERAMENT G, driven by both increased access through new accounts and new surgeons as well as wider adoption among existing accounts and surgeons. In trauma, we see expanding access and adoption in Level 1 trauma centers, which is an important validation of CERAMENT G for treating complex infections and bone voids in the most demanding clinical environments. There are roughly 250 Level 1 trauma centers in the U.S. These are the very large and most important centers for advanced trauma treatments. And at the end of 2024, we had sold CERAMENT to 15 of these. At the end of 2025, we had sold to more than 140 Level 1 trauma centers. That said, actual use is evolving gradually as trauma surgeons carefully assess and evaluate new products before they become part of regular use. And remember that full healing and evaluation of a trauma patient can take more than 6 months. As part of our mission to modernize an outdated standard of care in the U.S., we have successfully opened one market segment after another. We started in foot and ankle, followed by trauma and now moving into revision arthroplasty. Interest continues to grow for CERAMENT G in revision arthroplasty and periprosthetic joint infections, 2 areas where the clinical needs remain substantial and where the evidence supporting our antibiotic eluting technology has resonated strongly with surgeons. We've built a solid foundation for our spine strategy over the past quarters by establishing distributor coverage and preparing for the market. In Q4, we initiated the early-stage launch of CERAMENT BVF in spinal procedures with distributors now actively engaging spine surgeons across both existing and new partnerships. As this is a new clinical segment for us, more clinical data is needed to support broader market penetration longer-term. Importantly, the performance of CERAMENT BVF in spine will help confirm the value proposition for the CERAMENT platform, which will pave the way for the future CERAMENT G launch. We have made strong progress in evaluating and preparing the regulatory pathway, and we'll share more on the path forward at our Capital Markets Day this spring. Now let's turn to Europe. Next slide, please. Sales in Europe & Rest of the World came in at SEK 54 million, representing 18% growth at constant exchange rates. Sales in Europe continued to be influenced by the same dynamics as observed in Q3, meaning that hospital reforms and surgical protocol programs in Germany were still impacting our sales. However, direct markets, excluding Germany, delivered at normal growth rates. And by the way, when we say normal growth rates, we mean normal for CERAMENT. The growth rates that we see outside Germany are 4x to 5x higher than growth rates for the market in general. Furthermore, hybrid markets in Southern Europe, Australia and Canada are performing strongly. We see positive traction from the investments made during the first half of 2025 reflected in improved sales performance. Now I'll leave a deep dive into the numbers to Håkan. Håkan Johansson: Thank you, Torbjorn. Net sales improved from SEK 257 million to SEK 312.5 million, equaling a growth of 22% reported sales growth or 36% in constant exchange rates. Torbjorn has already spoken about the solid performance in especially the U.S. and the major drivers behind the sales growth. But as the weak U.S. dollar somewhat hides a continued strong trajectory in the U.S., I would like to share the U.S. sales performance in U.S. dollars. CERAMENT G is the growth driver in the U.S. and this slide shows the quarterly CERAMENT G sales in the U.S. in U.S. dollars with continued solid performance quarter-to-quarter. The number of working days in each period impacts sales, especially in Q4, which is impacted by both Thanksgiving and the holiday season over Christmas and New Year's. Taking this into consideration, a strong net sales per working day is noted during the quarter when looking at the orange line in the presentation. The contribution from the U.S. segment improved by SEK 30 million and amounted to SEK 120.2 million. The improved contribution relates to increased sales after effect from increased costs. Selling and marketing expenses during the quarter amounted to SEK 128 million compared with SEK 108.8 million previous year, of which sales commissions to distributors and fees amounted to SEK 85 million compared with SEK 69.6 million in the same quarter last year. From the graph at the bottom of the screen, showing net sales as bars and gross margin as the orange marker, it can be noted that the gross margin remained stable and strong at around 95% with a minor decline in the period following a gradual impact from U.S. tariffs. In Europe & Rest of World, a contribution of SEK 11.9 million was reported to be compared with SEK 12.8 million previous year. Selling and marketing expenses increased by SEK 4.9 million, including SEK 3.6 million related to the previously communicated commercial investments in the so-called EUROW booster program. From the lower graph and orange marker, a minor drop in gross margin can be noted, mainly impacted by the market mix. Selling expenses, excluding sales commission and fees increased by SEK 8.6 million, mainly in staffing expenses, of which SEK 3.6 million relates to the so-called EUROW booster. The increase from Q3 this year relates to seasonality as Q4 is usually intense in terms of congresses and marketing activities. R&D remained focused on the execution of strategic initiatives such as the application studies in spine procedures and the market authorization submission for CERAMENT V in the U.S. The expense for the quarter includes submission fees and other additional expenses related to the change in regulatory pathway for CERAMENT V in the U.S. And finally, administrative expenses, excluding the effects from long-term incentive programs, reports a small increase for the period, of which SEK 2.8 million relates to the CEO succession. The reported operating result amounted to SEK 81.8 million despite unfavorable currency effects totaling SEK 2.9 million. I will come back to this on a later slide. The newly introduced tariffs in the United States had a gradual impact on costs in the quarter. The full effect of the current 50% tariff will equal a 0.8% impact on U.S. gross margins, which will come gradually with full effect late 2026. The difference between adjusted and reported operating result are costs regarding our long-term incentive programs amounting to a negative expense of SEK 0.5 million in the quarter compared with an expense of SEK 13.7 million previous year, as you can see from the previous slide. The reduced costs are due to the drop in share price. Operating cash flow remains solid with an increase in accounts receivables at the end of the year, mainly as customer payments seem to have been deferred to after the holidays. During the period, the Swedish krona has continued to strengthen against the U.S. dollar. Other operating income and expenses, therefore, contain foreign exchange gains and losses from the translation of the group's receivables and liabilities in foreign currency amounting to a negative SEK 2.9 million. The graph on this slide shows with gray bars how the relationship between the U.S. dollar closing rate and the Swedish krona has varied over time. This is read out on the right Y-axis. The blue dotted line readout on the left Y-axis shows adjusted operating result. The adjusted operating result, excluding translation exchange effects is the orange line and gives a more comparable view of the underlying trend in operating results. In the table below the graph, you can see the FX adjusted operating margin of close to 27% in the period compared with 22.6% in the same quarter last year. And with this, I hand back to you, Torbjorn. Torbjorn Skold: Thank you, Håkan. So to summarize Q4 2025, sales grew by 36% in constant currencies, reflecting steady and consistent progress. Adjusted operating margin reached 26%. Cash flow also remained robust, underscoring the strength and scalability of the business. I'm convinced that the most exciting part of our journey still lies ahead. And as I said, to provide a clearer view of what that journey will look like, we will host a Capital Markets Day in Stockholm on the 26th of May this year, which you are, of course, all welcome to join. Now happy to open up the line for questions. Operator: [Operator Instructions] The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: First one on CERAMENT G in the U.S. As you mentioned, year-over-year growth in the quarters are decreasing, but it's mostly FX related, as you mentioned. But when you say mostly, is it anything that indicates any, let's say, underlying headwind in the U.S. in 2025? And also what kind of underlying growth have you baked into your guidance for 2026? And how does that growth compare to 2025 growth in constant exchange rates? That's my first question. Håkan Johansson: Thank you, Viktor. And I think that the takeaway from the report is 2. One is, again, we see a continued strong trajectory with CERAMENT G in the U.S., especially when looking at sales in average per working day. Taking that in combination also what Torbjorn mentioned in terms of access to Level 1 trauma centers, et cetera. And of course, both these aspects are aspect that's been included in our estimates and our works out ahead of presenting the guidance for 2026. So we remain very optimistic on the continued opportunities for CERAMENT G in the U.S. Torbjorn Skold: Indeed. And I would like just to add to that. When we look at the performance in '25 and in Q4, we look at 2 important aspects of where the growth comes from in general and also particularly in CERAMENT G. And it relates to new accounts calling access as well as increasing the adoption within existing accounts. So both those 2 levers, independent on whether it's on surgeon level, account level, IDN level or GPO level, we measure that and track it. And what's important for us is to make sure that we have a healthy growth, not only in access and not only in adoption. We want to have it in both. And what we've seen throughout '25 as well as in quarter 4 is that we have a really healthy adoption and the growth rate on the total stems from both of those legs contributing almost to an equal size, which is very positive. And that goes generally as well as for CERAMENT G. On CERAMENT G, in particular, we've already talked about the Level 1 trauma center adoption rate. I mean, in '24, we sold to 15 of them. And in '25, we have sold to more than 140. And what we mean with sell is that we sell at least one product. So again, it's very, very early phase, but it's a really strong indication for us at least that we get access, we get interest among orthopedic surgeons, among the infectious disease doctors, and we have a really strong foundation to build on in trauma for many, many years to come. So that's on trauma. The next segment that we're just about -- or just started to scratch the surface on is revision arthroplasty. Early days, we have very convincing evidence, but it's a pilot study from Charité, indicating very strong results for CERAMENT G in a revision arthroplasty segment. So this also looks very promising for both the short, medium and long-term in the U.S. On top of those parts, meaning trauma and revision arthroplasty, we have foot and ankle, which we still see a lot of potential to continue to build on as we develop more application techniques, as we come out with more clinical studies. And then, of course, very exciting for us is when we get FDA approval for CERAMENT V. We transitioned from a 510(k) process to a De Novo process, which longer-term is actually very positive for us. And that, of course, adds to the total mix. We do not expect a lot of cannibalization on CERAMENT G from CERAMENT V. We believe that's going to be somewhat immaterial in the grander scheme of things. So I think that paints the picture of our outlook short, medium and long-term for CERAMENT G in the U.S. Viktor Sundberg: Okay. And maybe in Germany and the U.K. also that's been a bit of a drag on growth in '25. How much of this drag is baked into your guidance for 2026? And when do you expect this to turn around? And any sense of what the underlying demand is if funding issues would be a bit better in these countries? Håkan Johansson: So we communicated already when releasing Q3 that we do not expect somewhat of a swift call it, recovery in Germany. We think that Germany will remain somewhat sluggish throughout 2026. However, when it comes to U.K. and part of that we also saw in Q4 is that we expect the situation in the U.K. to normalize in the sense that surgeries where CERAMENT is used is coming back to normal levels. The surgical backlog in the U.K. is still a launch, which means that somewhat there will be also periods where we see a bit of 2 steps forward, 1 step back, et cetera. But again, we have seen gradual improvements, Q4 confirmed that, et cetera. So we remain optimistic when it comes to the U.K. Operator: The next question comes from Erik Cassel from Danske Bank. Erik Cassel: First, of course, everyone cares about the CERAMENT G U.S. number and what that was organically. If I pulled the data correct, it looked like it was up 55% organically and that we have a USD number that was 21.9% essentially. Could you give any more detail on that sort of number, if I'm correct in that assumption? Because that would imply like an FX rate of minus 21%. Håkan Johansson: Again, largely, the numbers could be recognized. We're not sharing the exact dollar numbers because we're reporting in Swedish krona. But as we shared in the presentation, you have both the absolute numbers in U.S. dollar sales and also the average sale per working day. And again, as communicated here, we see a continued very strong and solid trend. Erik Cassel: But the 55% organic, that seems reasonable to you, do you think? Håkan Johansson: Again, if you just look at it from Q3 to Q4 in U.S. dollars and not taking workdays in consideration, it is a small growth in Q4 to Q3. Erik Cassel: Okay. I'll leave it there. But can you maybe talk a bit on what sort of indications that happen to grow, say, faster than the overall CERAMENT G sales in the U.S. and which indications may be lagging that growth rate a bit, so we sort of can understand what's driving this going forward? Torbjorn Skold: Yes. So I think if we look at the U.S. and CERAMENT G sales only and then we look at the 3 segments that we are in today and actively sell into. Foot and ankle, of course, is the segment where we have been the longest period of time. That's where BONESUPPORT started really. But still both in absolute as well as in relative terms, an important contributor to the growth of CERAMENT G. But given the size of it and given that we've been there for a number of years, it's further on in its life cycle, so to say. Second is trauma. And here, of course, a relatively new segment. You saw the numbers in terms of access. So that's clearly a segment that will continue to drive growth rates both short and medium-term. So we're very bullish about trauma as well as we are on revision arthroplasty. So I think you can sort of relate how long we've been in the respective segments to how much relative growth rates we can expect from them. But having said that, all 3 segments are very important in absolute terms for us short and medium-term. And just to be totally transparent and perhaps obvious to several of you on the call, CERAMENT G for spine is not yet approved in the U.S. and will, therefore, not drive any growth in the short-term. But longer-term, we expect CERAMENT G once it's approved and launched in the U.S. for spine to be an important segment also in parallel to the 3 segments that we're already in. Erik Cassel: Okay. Should I read that as the osteomyelitis indication being a bit more matured, maybe not growing as much right now? Torbjorn Skold: I wouldn't read that into it. Osteomyelitis is actually an indication that can happen in foot and ankle. It can happen in trauma and also technically it can happen in -- also in revision arthroplasty. So I wouldn't draw that conclusion. Osteomyelitis is an underserved indication with a lot of unmet clinical need where CERAMENT G and V play an important role. So I would not draw that conclusion that we've reached a saturation or maturity on osteomyelitis in general. It's a very healthy and fast-growing segment for us. Erik Cassel: Okay. And then I just have a question on commission rates. They sort of hit a new low here in this quarter. Does that sort of imply that fewer and fewer distributors are hitting their sort of bonus quotas? And if that's the case, could you maybe share a bit on sort of what's required for them to get to that sort of, I guess, 35% commission rate. This was, I think, high and say normalized lower. What's the difference there and how much they need to sell and grow the accounts to get different bonus levels? Håkan Johansson: So a good question, Erik. So it sounds like an area for clarification because I guess the line is defined as commission and fees and involves everything from commission to the distributors, GPO fees, credit card charges for the customers paying by credit card, et cetera. And it's the combination of these that is down a few percentage points and so on. So it's small movements in percentage of sales. Commission remains relatively stable around 30%. The commission are somehow included certain incentives if the distributors are exceeding their so-called quotas substantially, but we see very little movement in the average commission rate to sales. So the reason why it's down a few percentage points more relates to the other aspects of fees. Torbjorn Skold: And to that, in terms of the distributor turnover, it's part of the beauty of the model that we have in BONESUPPORT in the U.S. is that we want distributors to be on the journey with us. We want them to share the same goals. So we actively add new distributors. And when we have distributors that are not performing in line with the targets and goals and principles that we set, we don't hesitate to phase them out. So turnover among distributors, we've always had. We will continue to have that. But as Håkan said, that is not one of the reasons why we see lower commission rates on the contrary. Erik Cassel: Okay. And just the last question. So far, I mean, we saw that sort of surgical volumes per day was up a bit in Q4. Can you say anything on the sort of pace that has been now through January and February, if we're seeing the daily averages being roughly the same, increasing, just so we can think about the Q1 number we could expect? Torbjorn Skold: Yes. No, thank you for the question. I mean we don't comment on Q1, as you know. But similar to -- we got a lot of questions on Q4 when we released Q3, I mean we feel confident in the journey that we're on. We feel confident in the guidance that we have said, indicating that we should grow in constant exchange rates at least 35%. And if we see any reason to change that, we will communicate it adequately and accordingly. Operator: The next question comes from Mattias Vadsten from SEB. Mattias Vadsten: I have a couple of questions as well. First one, what you shared there regarding Level 1 trauma centers, 140 versus 15 end of 2024. So just if you could share some color on how important this has been whilst establishing the sales guidance for '26. And of course, also interesting to hear some insights on adoption rates in sort of early Level 1 trauma centers as well? That's the first one. Torbjorn Skold: Sure. So starting with your first question around the guidance of 35 -- more than 35% growth in constant exchange rates. So first of all, we have also communicated that we expect CERAMENT V to be approved by the FDA around mid this year. Of course, if we get an earlier approval and we launch earlier than that, then of course, we will distance ourselves or we expect to distance ourselves more on the upside versus the 35%. But however, let's say that we get late approval or no approval, then we will, of course, be close to the 35%. I think that's important to just point out that, that's the role of CERAMENT V. Now when we did the guidance for '26, there's not only one factor, of course, that we take into account. We look at growth potential across the geographies. We look at the growth potential of the different segments, of course, trauma in the U.S. is an important segment for us and the data point that we have on the Level 1 trauma centers is an important data point as there are others as well, in foot and ankle, in revision arthroplasty in both U.S. as well as Europe & Rest of the World. What is very important for us, and we've said this before, and it's important to continue to say that, it's the balance between access and adoption that is very important. We don't want to just only grow by getting new accounts. We don't only want to grow by increasing the adoption in existing accounts. We want to have a healthy balance between the 2. So that's also a very important factor when we put the guidance together. Another also very important factor is when we simply again recalculate the penetration, meaning that the number of surgeries that we are in by geography, by market segment versus what we think is a realistic or a longer-term outlook. We still believe that we have a long runway to get to what we think are perfectly realistic penetration levels. So I think, Mattias, it's not just the trauma number, but it's an important factor as -- and combined with many other factors, as I just described. Mattias Vadsten: Good. And are you happy with what you see in terms of adoption in the Level 1 trauma centers that you won early days? Torbjorn Skold: Yes, very happy. Mattias Vadsten: Good. Then I just have a follow-up on the revision arthroplasty segment that you discussed here in the presentation, which was good. Your position here and maybe how much work is yet to be done for BONESUPPORT in terms of evidence and so forth to be able to have an ideal position, call it, for a more material contribution and better sales pitch around the segment? That's my next one. Torbjorn Skold: Yes. Very good. So it's early days for us in revision arthroplasty. We have a fantastic pilot study that came out of Charité as communicated last year. I mean the results from that couldn't have been better from a BONESUPPORT and CERAMENT point of view, showing excellent results. But again, it's a pilot study and the number of patients is limited. We're building on that study going forward. And I think this is an area where we, over several years, will need to do a lot more, which is perfectly natural, and that's part of the BONESUPPORT approach to penetrate a new market segment, meaning that we always lead with evidence. We know that our product is very innovative. It has unique capabilities in terms of its handling and in terms of how it elutes antibiotic. But we always lead with evidence. So a lot more work remains to be done in revision arthroplasty on the evidence side. So more specific evidence. And we're working on it. We've initiated new studies, and we will continue to initiate new studies in this field. However, orthopedic surgeons, in general, they understand the unmet clinical need in the space of revision arthroplasty, where typically you face 2 challenges. Number one, how do you heal the bone? How do you make sure that you grow bone in areas where you, for example, have bone voids as a result of explanting the implants in a revision situation. So having to deal with bone voids is normal, and it's standard for revision arthroplasty surgeon. We have a great solution for that with CERAMENT. Also, infections in revision arthroplasty is one of the key reasons why primary implants need to be revised because the patients have infections. So dealing with infections is also high on the agenda of the revision arthroplasty surgeons. And there with CERAMENT G and V in Europe and hopefully, when we get the approval for V in the U.S., we have a very, very intuitive solution that we already see now, surgeons are willing to try and test. Some of the surgeons actually already use it as part of their standard routine. Several surgeons want to wait until we have more evidence. But nothing is stopping us to enter this segment and penetrating this segment already now. But of course, we need more evidence. In addition to that, we believe very much in specialization of our sales channels, meaning that a revision arthroplasty surgeon is not the same guy that does trauma, who is not the same guy that does foot and ankle. So we need specialization in our go-to-market channels. So that's, of course, another aspect that we need to make sure that we get relevant sales channels, whether that's distributors as well as direct people to go deeper in the respective market segments. So I hope that answers your question. Mattias Vadsten: Absolutely. Good answer. And my last one is fairly quick. In terms of working days that you discussed here, how many fewer working days was it Q4 vis-a-vis Q3? Was it like 2 days or... Håkan Johansson: It was 3 days shorter, if I remember, 3 or 4 days, but my memory is not skewing me 3 days shorter. Operator: The next question comes from Kristofer Liljeberg from Carnegie. Kristofer Liljeberg-Svensson: I have 3 or 4 questions. The first one on this sequential growth for CERAMENT G in the U.S. per surgery day seems much stronger in Q4 versus pretty weak third quarter. So could you explain, is there any particular reason for this or just natural swings between quarters? Håkan Johansson: Again, as much as we refer to underlying natural swings quarter-to-quarter in Q3, that explanation remains in Q4 because again, it's -- as with the forward-looking estimates, there are several parameters that is moving and so on. So I don't see any specifics, and I'm looking at Torbjorn, but I think that we share that view. Kristofer Liljeberg-Svensson: Okay. Good. And the better growth in Europe, would you say that's sustainable, just making sure that there is no positive one-off larger orders or anything this quarter, explaining the much better growth in Q4 versus what we have seen previously. Håkan Johansson: Again, what was positive to see, Kristofer was the improvement in the U.K. to see what's been in our analyzer to see that also realized. But at the same time, we're -- we remain modest. We have to remain modest because again, as I mentioned in the call, the surgical backlog remains long in the U.K. So there could be short periods of swings back to a slower momentum and then swing back again, et cetera. But again, I think it's -- we're remaining optimistic, good to see the improvements in Q4. When we look at the investment markets, I call it, we expect that momentum to continue when looking outside our direct markets and investments made in our so-called hybrid markets, Italy, Spain, Australia, South Africa, Canada, just to mention a few. And again, there, we start from quite a low penetration level, and there are so much market potential remaining in these markets. And we believe that the investments done is a good way to capture that potential. Kristofer Liljeberg-Svensson: Okay. Good. And then my third question, you mentioned the increased number of trauma centers that you are selling to, still early days, but have you reached good adoption already at some of those centers? Or is that also too early to see? Torbjorn Skold: No. I mean, clearly, in some of them, but still it's a very small number where we have reached a solid adoption level, but it's really early days. And if you -- again, the definition that we use here is that selling to meaning that we've sold minimum 1 packet of CERAMENT. Of course, some of them, early adopters that were early out, we have a good adoption level, but not even close to what we think is the potential. And most of these -- I mean, just do the math. Most of these trauma centers that we've sold to are still very, very early in their journey. So yes, we'll keep ourselves busy to increase the adoption in these Level 1 trauma centers in the U.S. Kristofer Liljeberg-Svensson: Okay. And then finally, just a clarification when it comes to guidance for 2026. So you have included, as it seems then, very little or no CERAMENT V sales in the guidance? Torbjorn Skold: Yes, that's correct. And that's to be prudent because we only know what we know. And although we have a great dialogue with FDA, you never know with FDA, and we follow their guidance similar to what we did now in Q4 in terms of transferring CERAMENT V from a 510(k) to a De Novo. We think that although unexpected to us, we think it was a very good decision longer-term for us. And it is important that we follow and deliver on what FDA wants us to. But of course, if we don't get CERAMENT V, we still believe that the 35% growth rate is definitely realistic, but it's going to be a lot easier to overdeliver if we get an early approval of CERAMENT V in the first half of this year. Operator: The next question comes from Sten Gustafsson from ABG Sundal Collier. Sten Gustafsson: As a follow-up on the U.S. market penetration and adoption. I think to ask it in a different way. But I think in the past, you have shared with us a number of surgeons you have trained. And I believe maybe I'm mistaken here, but the last number I have in my head is 1,000 surgeons. I was wondering if you could update me on where you are today on that number. Torbjorn Skold: Yes. No, good question, Sten. Thank you very much. So first of all, to put your question into context, this relates to all the sort of relevant surgeons in the fields that we're in today, excluding spine. So that relates to foot and ankle, trauma and revision arthroplasty. The boring part of my answer is that, no, we're not going to provide an update to that number. We don't have that routine yet. But when we have that routine and when we have updated numbers that we are willing to disclose, we will, of course, do that. But having said that, we are not slowing down. We're putting our foot on the gas to accelerate, which I think we see from both the financial as well as the operational numbers, including that reference point around the major trauma centers because clearly, you don't really get access without training an orthopedic surgeon. Sten Gustafsson: I understand. And those Level 1 trauma centers, on average, do they have like 50 or 100 different surgeons? Or what's the size like? Torbjorn Skold: I mean, it, of course, varies depending -- I mean, in total, U.S. as per our segmentation, we have 250 Level 1 major trauma centers. If you're major trauma centers, you're not running around with only sort of 5 trauma surgeons. You're not the major trauma centers. But it can vary. And I don't want to put a number out there, but it could be anything from -- I would only be guessing, but there are several -- quite a number of trauma surgeons on these different centers. And our ambition in the first place is to focus on the market segments, of course, where we focus on, so foot and ankle and trauma and then focus on the most complex, difficult cases within trauma where we see that CERAMENT G adds the most clinical value. And then you typically start with 1, maybe 2 surgeons and 1 ID doc. You start there, only one indication or one type of case and then you expand from there. And that's a journey that honestly can take several years. And of course, we want to do it in the right way and make sure that we and our product adds value to not only the orthopedic surgeon, but also the hospitals and the health care system. Sten Gustafsson: Makes sense. My next question would be on BVF and spine in particular. And I noticed a nice uptick in the -- and change in growth trajectory for CERAMENT BVF in North America. And I was wondering how much of that is sort of quarterly variation? And how much is related to spine? Torbjorn Skold: Well, given the fact that we honestly launched -- we initiated the launch in December on spine BVF, and we try to keep it a very focused launch. In Q4, I wouldn't draw any conclusions that it is the spine launch in the U.S. with the CERAMENT BVF that sort of made that number look the way it looks. It's more normal variations. Sten Gustafsson: Okay. Excellent. My final question is India. What's the timeline looking like? And what type of potential are we -- or should we consider for India? Torbjorn Skold: Yes. No, India, I mean -- so of course, no sales in Q4 for India. When we look at India strategically long-term, it's an attractive market for a couple of reasons. The main reason is it's a lot of people in India. And second, there's a lot of people who are willing to pay for care in India. So the approach that we take is a very focused approach on private payers and the hospitals that serve this patient population. When we look at that patient population in terms of size, it's a sizable segment, very attractive longer-term. And what we see now in India is first early steps -- and longer-term, give it a couple of years, it could be an important contributor for us. But most importantly, it's another growth leg to have in Europe & Rest of the World because we say that a lot of times, even in Europe & Rest of the World, we're very, very early phase. I mean, we depend and have depended a lot on U.K. and Germany, and we've been painfully aware of that when we have had the market reforms in Germany. So adding India is an attractive segment. But again, as with all countries, it will take time. But if you count the total population and if you segment that population into how many of them do have private insurers and how many of them have access to certain private hospitals, we feel very confident about that number, and we expect sales to start in India already in the first half of 2025 -- 2026, sorry. Operator: The next question comes from Oscar Bergman from Redeye. Oscar Bergman: I just have 3 questions for you. The first one, I think, at U.S. ambassador sites for bone infection, could you give sort of a ballpark figure of what percentage of relevant procedures on Berlin-CERAMENT G today? I mean, have they -- or have you become the type of standard of care at some of the centers in the U.S. Torbjorn Skold: Great question. To answer that last part, I would dare to say, yes, but it's still only a relatively small number where we have genuinely become the standard of care. And of course, it goes to what's the definition of standard of care. Do you only look at one patient indication? Do you look at several, et cetera, et cetera. So I think we're getting traction. Clearly, one very important way to establish this for us is to look at our great collaboration with the Oxford Bone Infection Unit in the U.K., and we have a fantastic collaboration and partnership with them. And one of the best ways we can educate patients in the U.S. -- sorry, educate the surgeons in the U.S. is simply by sending them to Oxford and see how they work with it. And we see great results, including changing the standard of care, moving to more CERAMENT use in their daily practice. But I would say, yes, there are centers in the U.S. that have changed their standard of care, but it's still very early days. But I don't have any hard data to share. Oscar Bergman: Okay. And do you know those centers are typically university hospitals? Torbjorn Skold: Yes. I mean one of the key strategies in the U.S. that we have and had for several quarters and potentially years is that we target academic medical centers. And that is simply because that's where they are very evidence and research focused. So they actually pay a lot of attention to the evidence that we have. You know that one of the key pillars in our strategy is to invest in and promote and lead by evidence. So that sort of fits like a hand in the glove to that. Commercially, it's a really good way to sell and target academic medical centers because they train a lot of fellows that when they're done training and when they're done with their fellowships, they go to somewhere else. They could go to a different academic medical center or they could start their own practice or go somewhere else. So definitely, our product fits very well in academic medical centers simply because it's much higher evidence level on our product than what's currently on the market. Oscar Bergman: Okay. And India, it was very interesting to hear about. I assume that the regulatory processes there are piggybacking CE marks for CERAMENT G and BVF, right? Torbjorn Skold: Yes. I mean, of course, we use the clinical data, we'll use the material that we've produced for U.S. that we've used for Europe. India is a particular country and with a somewhat complicated process, but the team has done a fantastic job on that, and we're getting very close to starting the launch in India in the first half of 2026. Oscar Bergman: Okay. And are there any other markets that you aim to launch at in the near to medium-term? I think we spoke about Japan before, very high level, of course, but it would be interesting to hear about Japan. Torbjorn Skold: Yes. I mean, Japan is still on the list. It's a very attractive orthopedic market. Similar to India, somewhat complex regulatory pathway to enter in Japan, but we're actively working on it. We've said that before also. So there's no change in that strategy. And we're getting closer to launch. But from a timing-wise, India will happen before Japan. Oscar Bergman: Okay. And you also mentioned some safety inventory and the longer payment terms due to the holidays. Is it a fair assumption then to make that your free cash flow conversion should normalize already in Q1? Håkan Johansson: And again, I think that -- when you look at that, Oscar, it's key to see you have some accounts receivables, but you also have accounts receivables in combination with some of the so-called K sheets that is reported as accrued revenue. So part of the increase in accounts receivables in Q4 relates to a reduction in accrued revenue or open K sheets end of Q4 compared to Q3. And the rest is simply that payments has been deferred from December to after the holidays. So with that, yes, we can expect to see the situation stabilize and normalize going into Q1. But again, the balance sheet is measured on the clock on 1 day. So there will always be volatility in the balance sheet. But over time, cash flow never lies. Operator: The next question comes from Viktor Sundberg from Nordea. Viktor Sundberg: Just to follow-up on your progress in trauma. One of the worries in the market with regards to trauma in the U.S. has been that maybe surgeons do not always feel the acute need to prophylactically use infection prevention in the surgery risk with the products such as CERAMENT G that comes with a bit of a price premium to other products without infection prevention in contrast to osteomyelitis when the infection is already always present at the intervention. So can you just comment on that as you have met more surgeons day-to-day at these Level 1 centers and got their feedback if this is correct or not to look at adoption in trauma in that way? And maybe also quickly, the NTAP here, any more color on how the added NTAP for trauma and the dropped NTAP for osteomyelitis will impact U.S. sales when we have moved a bit into 2026 and you might have gotten a bit more data on this dynamic? Torbjorn Skold: Yes. So we'll start with the second question first for simplicity and then we'll comment on the first one. So in Q4, we did not see any material impact -- negative impact of the lost NTAP, that actually came into effect 1st of October. So we don't see that we lose volume due to that. Again, early days, but in Q4, we didn't have any signals on that. I think to your point on trauma surgeons prophylactically or not, I think we need to start even more basic in trauma, meaning that actually, when there is a very high risk of infection or actually that they have confirmed infection, that's where we start with in trauma. And I don't think that we have reached any maturity or saturation on that level. Once we've done that, then, of course, it comes to prophylactically. Prophylactically, of course, is always more challenging than the starting point. But once you get the starting point right, my experience is at least that once you get that right, you see -- you get the surgeons to understand and see the value that CERAMENT has, then moving into that prophylactic stage becomes more natural. And different surgeons, different clinics, different centers are in different parts of this journey. But I would argue that still prophylactically is further out, but we're making really good progress by starting with the basics and getting them to be aware and understand the role of CERAMENT G in these type of cases. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Torbjorn Skold: No. With that, thank you all for your interest, and we wish you all a great rest of the day. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the FIS Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, George Mihalos, Head of Investor Relations. Georgios Mihalos: Good morning, everyone. Thank you for joining us today for the FIS Fourth Quarter 2025 Earnings Conference Call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Joining me on the call this morning are CEO and President, Stephanie Ferris; and James Kehoe, our CFO. Stephanie will begin the call with a strategic and operational update, followed by James, who will review our financial results. Turning to Slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings and adjusted net earnings per share. These are important financial performance measures for the company, but they are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn it over to Stephanie. Stephanie Ferris: Good morning, and thank you, George. I'm excited to share our results today. But before I do, let me start off by saying how thankful and incredibly proud I am of the teams at FIS. The last 12 months has been full of change and complexity. But through it all, our team has stayed focused on our customers, on executing against our strategy and delivering on our expected outcomes. We didn't let the noise become a distraction, and that's exactly what you'll see here today. As we move into 2026, market transformation persists, and the technology changes continue to accelerate. But when I look at how the businesses are positioned, the innovation that we're bringing to market and the strength of our client relationships alongside their growing demand for technology, I've never been more confident in the growth prospect of the financial services industry or of FIS' ability to grow with it. I'm extremely excited by the opportunities that lie ahead of us. Now, let me walk you through why. We delivered very strong results in 2025. First, we met or exceeded our key financial commitments for the year, positioning us for an even stronger 2026. Second, we are executing on our strategy to transform and simplify our portfolio by fully divesting our merchant-focused business and acquiring the market leader in credit issuing, strengthening our position in the large financial institution space. And third, we are positioning our business to double our cash flow in 3 years to over $3 billion. Now, let's move to Slide 4. We delivered on the key strategic pillars we set out to achieve. Adjusted revenue grew 5.8%, exceeding our outlook. EBITDA came in at the high end of expectations. Adjusted EPS grew over 10% to $5.75, and we generated robust free cash flow, enabling us to return $1.3 billion to shareholders through buybacks. These results reflect a business delivering on the commitments we made when we began our transformation journey. But the story isn't just about strong execution. It's about what these results enable us to do at this moment when financial services is positioned to grow. Turning to Slide 5. We are witnessing a generational moment reshaping financial services, and FIS is in the best position to capitalize on it. Three powerful forces are converging simultaneously. First, the banking industry is experiencing exceptional strength. Banks have excess capital, stable credit and strong operating performance, emboldening them to pursue aggressive growth agendas. Second, banks are executing on those agendas now. We've seen approximately $50 billion in announced M&A in 2025, and analysts project financial services tech spending will increase roughly 30% by 2029. Third, emerging technology, particularly AI, is moving from experimental to mainstream at unprecedented speed. AI adoption is accelerating to 8x 2023 levels, and banks recognize AI isn't a future opportunity, it's a competitive imperative today. Here's what makes this moment so compelling for FIS. No technology provider is better positioned to capitalize on this convergence. We have 3 important advantages: proprietary data sets spanning the entire money life cycle; long-standing, deeply embedded relationships with institutions built on trust; and a highly specialized regulatory and compliance infrastructure that took decades to build and cannot be replicated quickly. We believe these advantages translate to a significant opportunity for FIS to deliver differentiated AI solutions, which challengers without comparable data, scale, operational integration, trust or relationship cannot replicate. I'm going to discuss more around our AI moat in a few slides. Moving to Slide 6. Unlike some peers, our focus isn't about serving the most banks. Our strategy is partnering with banks that are growing faster than the market, both organically and through consolidation. Our strategy is to grow side-by-side with them in areas where they're spending, payments, digital and lending. These LFIs represent a particularly attractive segment, accounting for a disproportionate percentage of industry revenue, account and payment transaction growth. Over the past 10 years, the number of LFIs has grown by 56%, and those banks continue to increase their spend on technology with tech spending increasing 11% of their revenue today. As a reminder, this is exactly where FIS shines, working with growing banks, looking to take advantage of technology to continue to grow their franchises. In 2025, bank M&A increased approximately 30% compared to the prior year with over 170 deals announced, including a number of mega deals, creating super regional banks with expanded geographic footprints. FIS was on the winning side of most transactions, including the ones listed on this slide. In fact, one large bank CEO called out FIS as the most scalable platform to help them consolidate acquisitions and grow their business. This is why our strategy is focused on helping these banks modernize and grow and why our investments and innovations are focused on the places where these banks are spending money. Now turning to Slide 7. Our Issuer Solutions acquisition positions FIS to lead across every major industry theme, shaping banking and payments today. Demonstrating the value of our combined data assets, we've already established a modern product roadmap announcing a new product on the first day after the close of our acquisition. This includes the industry's first AI transaction platform supporting Agentic Commerce, enabling AI agents to make, negotiate and pay for purchases using preapproved payment methods, keeping banks central to those flows. Additionally, total issuing solutions rolled out 12 new modernized offerings in 2025, including enhanced loyalty solutions and origination's preapproval and decisioning capabilities. Client validation is equally compelling. With this acquisition, we have expanded our relationship with 14 of the top 25 U.S. LFIs across our banking and capital markets businesses. Over the last 12 months, we have renewed or extended relationships accounting for approximately 30% of total issuing revenue and have no large renewals pending in 2026. That renewal momentum tells you something important. The largest, most sophisticated banks in the country are choosing to deepen their commitment to FIS. We're confident in achieving our revenue and expense synergy targets of $45 million and $125 million in 3 years, respectively, as we laid out in April of 2025. The integration is tracking well, and the combined platform positions us to meet evolving market needs from real-time payments and digital currency to AI-powered fraud and risk management. All of this gives us confidence in the value creation ahead. Turning to Slide 8. Now, let's talk a bit more about the value I just discussed. With the completion of this transaction, we exclusively serve the financial services industry and operate the most comprehensive data platform and financial technology. With over 1 billion accounts on file, driving approximately 73 billion transactions annually. We can now see money at rest in core banking deposits, money and motion across all payment rails and money at work in lending and investing. In a world where data is essential for AI-enabled insights, this integrated visibility is highly differentiating. Demonstrating the power of this combined data even before the transaction closed, we started working with a large regional bank to grow their credit card portfolio, combining core data from FIS and credit transaction data from total issuing solutions, together into a model, enabling the bank to increase their consumers' credit limit, ultimately resulting in higher consumer spend and transaction income to the bank. Our product set is wide and deep, creating valuable systems of record. And here's why that matters: a recent Forbes article explained that AI agents make systems of record more valuable because these core systems provide the accurate, authoritative data AI needs to function effectively. FIS operates mission-critical systems of record, defined by deep integration into regulated workflows, decades of accumulated proprietary data and enterprise-grade governance, security and auditability. These characteristics cannot be easily replicated by stand-alone AI tools or horizontal platforms. And financial institutions continue to prioritize reliability, accountability and compliance, areas where incumbency and trust matters most. That scale, that trust, that operational integration are durable differentiating advantages. Turning to Slide 9. Our commercial muscle is flexing across the entire enterprise. In Q4, we grew recurring ACV sales 20% year-over-year, clearly demonstrating enterprise-wide commercial excellence. I will detail these on the next slide. Another example of our strategy in action, our build by partner approach. It's driving innovation and accelerating new product development. Beyond our Agentic commerce solution I discussed earlier, we built and rolled out next-gen cloud-based solutions like Money Movement Hub with over 100 customers signed up since our launch in 2025. Other recent launches include SmartBasket, a real-time AI-powered solution that analyzes shopping behavior to automatically apply optimal payment methods, personalized rewards and targeted promotions at checkout. And our acquisition of Amount is offering clients a modern digital account opening solution that helps banks grow across deposits and lending. We've won 22 new deals since acquiring this capability late last year. More recently, our acquisition of [ DWA ] in Capital Markets puts us at the forefront of computational law and regulation. Leveraging [ DWA's ] AI capabilities, the acquisition strengthens our competitive position across the buy and sell-side compliance space, empowering our clients to make millions of accurate regulatory decisions across global jurisdictions. The common thread, modern, cloud-based and AI-enabled. No one else sees money across its entire life cycle, and that data advantage is now our strategic engine. We 4x'ed our investment in data and AI transformation, unifying our data stack, deploying agents that drive real client outcomes and building domain-specific AI capabilities. The result is differentiated value for clients on the things that matter most: fraud prevention, deposit and lending growth and operational efficiency. Our data moat gets stronger every day given our infrastructure powers critical and complex workflows for our clients at scale. AI is a strategic accelerant for FIS with adoption unfolding inside existing platforms, augmenting software to improve automation, decisioning and productivity rather than replacing core systems. This dynamic favors data-rich platform owners like FIS. Moving to Slide 10. We saw strong recurring ACV growth across all segments in Q4, with banking solutions up 13% and Capital Market Solutions up 34% year-over-year. Our high-growth solutions delivered very strong full year results. Digital Solutions grew recurring sales ACV 123%, payments grew 70% and lending grew 62%. These are leading indicators of where the enterprise is heading, as we drive improved product and revenue mix. This is our strategy in action, what we highlighted at Investor Day, driving significant increases in highly recurring revenue. And all of this is driving significantly improved and higher quality revenue and margin mix, as we head into 2026. Turning to Slide 11. So let me bring this together. We are executing our differentiated strategy from a position of strength. We delivered strong results in 2025, and our commercial and operational excellence momentum gives us confidence heading into 2026. Our innovation strategy is working. Our focus and targeted investments in high-growth vectors such as payments, digital and lending are resonating in the market with strong recurring ACV growth. And we continue to drive innovation across the enterprise, leveraging emerging technology, including AI to accelerate new product development. We are uniquely positioned for this moment. In a fast-growing financial services sector, we are in the right markets at the right time with the right solutions. We are at the center of an important inflection point in our industry, and we're uniquely positioned to capitalize on it. With that, let me turn it over to James to discuss our financial results and outlook in more detail. James Kehoe: Thank you, Stephanie, and good morning. As you just heard, we are entering 2026 with positive momentum, both operationally and strategically. We are seeing clear results across commercial excellence, operating efficiency and cash generation. Strategically, the acquisition of the total issuing solutions enhances our financial profile by reinforcing our durable recurring revenue growth and delivering strong free cash flow. All of this positions us to deliver strong growth across revenue, margins and free cash flow. Moving to our financial results on Slide 13. Fourth quarter revenue growth accelerated to 7.4%, led by strong recurring revenue growth and another quarter of outperformance from banking. EBITDA grew 7.3% in the quarter. As expected, we delivered good margin expansion across both operating segments. But the segment gains were offset by corporate expenses, where we were lapping an exceptionally low prior year period. Adjusted EPS increased 20% in the quarter, led by both EBITDA growth and below-the-line favorability. Full year revenue grew 5.8% to $10.7 billion, and EBITDA grew 4.7% with margins contracting 28 basis points, a rising contribution from cost saving programs almost entirely offset a 45 basis point dilutive impact from acquisitions and a 70 basis point headwind from declining TSA income. Absent these 2 factors, underlying margins would have increased by approximately 90 basis points. EPS increased 10.2% for the year, well within our midterm guide. Free cash flow was a strength for us, outpacing EPS growth and growing 19% to $1.6 billion. Capital expenditures came in at 9.3% of revenue, in line with our expectations, and cash conversion finished strongly and ahead of expectations at 88%. And we returned $2.1 billion to shareholders, exceeding our capital allocation commitments. And our Board of Directors recently increased the annual dividend by 10%, underscoring their confidence in the durability of our business. Turning now to our fourth quarter segment results on Slide 14. Adjusted revenue growth was 7.4% with recurring revenue growing faster at 7.8%. Once again, banking exceeded our expectations. Revenue growth was 8.3%, well above the high end of our implied outlook, led by recurring revenue growth of 8.8% with strength in digital and payments and higher output solutions than we anticipated. M&A contributed 130 basis points. And as a reminder, revenue growth also benefited from an easier year-on-year comparison of around 190 basis points. Nonrecurring revenue increased 28%, including a 16-point benefit from an easier prior year comp, and professional services declined 16%, as we continue to prioritize recurring revenue sales activity. Banking EBITDA margin expanded 132 basis points, including a rising contribution from cost management, favorable product mix and an easier comparison. Turning now to capital markets. Adjusted revenue growth of 5.6% came in largely in line with our expectations, with recurring revenue growth of 5.3%. Nonrecurring revenue increased 13.7%, reflecting strength in license sales, whereas professional services declined 6.9%, as we continue to focus on recurring sales. Capital Markets EBITDA margin expanded by more than 200 basis points, reflecting continued cost optimization, operating leverage and favorable revenue mix. Moving now to Slide 15 for a quick overview of our full year results. Full year revenue was consistent and resilient across both banking and capital markets. Banking adjusted revenue grew 5.6%, led by strong 6% growth in recurring revenue. Capital Markets posted adjusted revenue growth of 6.3%, including recurring revenue growth of 5.8%. Turning now to Slide 16 to discuss our expectations for 2026. The recently acquired Total Issuing Solutions business will be included in our Banking Solutions segment, and we have provided a full set of historical pro forma financials in the appendix. Additionally, we will be reporting 2 divisions within banking solutions, payments and banking. And we have included a summary of the platforms that make up each division on Slide 26. To further align our business with our strategic vision, we have also transitioned certain businesses across our operating segments or into the Corporate and Other segment. For example, we have moved our Automated Finance business from Banking to Capital Markets to better align with our office of the CFO strategy. Overall, these changes had an immaterial impact on our historical segment growth rates. Our 2026 outlook will be presented on an adjusted basis, which includes 8 days of Worldpay EMI plus Total Issuing Solutions from the date of acquisition. However, we are providing growth metrics on both an adjusted and pro forma basis. Please note, post the close of the acquisition, we have reclassified certain non-GAAP expenses to operational expenses and refined our revenue and EBITDA expectations to account for some minor perimeter changes. As compared to our original assumptions at the time of announcement, this will reduce pretax earnings by $40 million and adjusted EPS by $0.07, and this is accounted for in our 2026 outlook. We have provided a full reconciliation on Page 29. For the first time, we will be providing an outlook for free cash flow, reflecting cash flow from operations less capital expenditures and adjusted only for cash taxes on the Worldpay sale, which will be payable in 2026 and won't repeat in 2027 and beyond. With that, let's review our full year outlook on Slide 17. On an adjusted basis, revenue is projected to grow 30% to 31% with EBITDA growing 34% to 35%. EBITDA margins are projected to increase 155 to 175 basis points with 62 basis points coming from the addition of total issuing solutions to the pro forma base. On a pro forma basis, revenue is anticipated to grow 5.1% to 5.7%, compared to 4.5% to 5.5% at Investor Day. Pro forma EBITDA will grow faster than revenue with anticipated growth of 7.2% to 8.4%. As a result, we expect pro forma margins to expand by 95 to 110 basis points, as we ramp our cost efficiency programs, drive favorable revenue mix and deliver year 1 synergies. Adjusted EPS is projected to grow 8% to 10% to a range of $6.22 to $6.32, consistent with our prior commentary. The issuer transaction is slightly accretive in the first year. As a reminder, our outlook does not include share repurchases, as we temporarily paused buybacks to prioritize deleveraging post-deal close. A key thesis for the acquisition was generating significant and sustainable free cash flow growth, and we are confident in delivering on this commitment. For 2026, we anticipate free cash flow of over $2 billion, growing 27% to 33% year-on-year and growing more than 3x faster than EPS. As I mentioned earlier, this is an all-in number. The only item that is excluded is any cash taxes paid on the recent sale of Worldpay. On an adjusted basis, we continue to target cash conversion of 90% for the year. I'll now talk through our revenue growth projections on Slide 18. Banking adjusted revenue is projected to grow more than 40% with pro forma growth of 5% to 5.5%. This is the second year in a row that banking will exceed our Investor Day growth targets, demonstrating the successful pivot to accelerated growth. These projections include approximately 60 basis points of M&A contribution with pro forma organic growth of 4.4% to 4.9%, compared to 4.5% in 2025. For capital markets, we project revenue growth of 5.5% to 6.5%, including an M&A contribution of approximately 95 basis points. This outlook is slightly below our Investor Day target, reflecting a lower level of M&A activity and a decision to pivot our focus to higher-quality recurring revenue. As a reminder, our long-term capital market strategy is to gradually shift license sales to more predictable recurring revenue. In 2020, our recurring revenue was 68% of total revenue, expanding to over 71% in 2025, with a further increase expected this year. Specifically, in 2026, accelerating mid- to high-single-digit recurring revenue growth will be partly offset by slower growth in nonrecurring revenue, as we execute on this strategy. Turning now to EBITDA margins on Slide 19. The actions we took last year give us good line of sight into delivering significant margin expansion of 155 to 175 basis points or 95 to 110 basis points on a pro forma basis. These include accelerating cost actions, rising leverage from AI, our commercial focus on more profitable ACV and improving product mix and the strong margin profile of total issuing solutions and the related cost synergies. Let's go through the building blocks of our margin outlook. First, a strong margin profile of total issuing solutions add 62 basis points to our pro forma base. Next, there will be a reduction in TSA income from Worldpay, resulting in a margin headwind of approximately 40 basis points. And this is lower than the 70 basis points of headwind we encountered in 2025. The net cost reduction column includes inflation, investments and other cost increases. However, our cost-saving initiatives and synergies are offsetting these increases and driving 80 to 85 basis points of margin improvement on top. We have high conviction here. AI is a significant lever going forward, and we will capture integration synergies over the coming months and years. Importantly, we took a series of cost actions in 2025 and exiting the year that drive sizable savings in 2026. Overall, these projections include synergies of $30 million to $40 million or 20 to 30 basis points of margin enhancement. And finally, leverage and mix will add 55 to 65 basis points. Here, you can see the inherent operating leverage of the business and the flow-through of favorable product mix. Altogether, we have a high degree of visibility, 70% of the cost savings have already been actioned and a majority of the improved product mix was already sold in 2025. Now, let's turn to Slide 20 for an overview of free cash flow. In 2025, we drove a broad series of cash optimization initiatives and successfully accelerated growth to 19%, almost double the rate of earnings growth. Looking ahead, we are anticipating a further acceleration in cash flow. For 2026, we expect to drive free cash flow growth of 27% to 33%. Beyond 2026, we expect to continue growing cash flow well ahead of earnings, as we steadily improve capital efficiency and working capital ratios and reduce one-time integration and transformation costs. We are well positioned to double our free cash flow to over $3 billion by 2028, and this implies a compound annual growth rate of approximately 25%. This will allow us to meaningfully increase future capital returns to shareholders once we have reduced our debt leverage to our long-term target. Let's now discuss our first quarter outlook on Slide 21. Adjusted revenue will grow 29% to 30%, with pro forma growth of 5.5% to 6.2%, largely consistent with the full year outlook. We expect a strong start to the year across our banking business with revenue growth of 7% to 7.5% compared to full year growth of 5% to 5.5% growth. Capital Markets full year revenue is projected at 5.5% to 6.5%. But as expected, the first quarter will be a bit softer, entirely due to the tough comparison in the year ago quarter on nonrecurring license revenue. You will recall that Capital Markets other nonrecurring revenue posted very strong growth of 47%, and the exceptionally strong license renewals in the year ago quarter is negatively impacting Capital Markets by approximately 5 points. Excluding this, Capital Markets revenue growth would be in the 6% to 7% range. Adjusted EBITDA is projected to increase 33% to 35%, and margins will expand by 115 to 135 basis points, including a favorable mix impact from the total issuing transaction. Pro forma EBITDA will increase 7.1% to 8.4%, ahead of the pro forma revenue growth with pro forma margin expansion of 35 to 55 basis points. Core margin expansion is much stronger, expanding by more than 100 basis points if you adjust for the timing of the capital market of renewables. This is a solid start to the year, positioning us to deliver consistent margin expansion over the course of the year, in line with our full-year outlook. Adjusted EPS is expected to increase 4% to 7% to $1.26 to $1.30. In summary, we had a good finish to the year with particular strength in our Banking segment. We recently closed 2 transformative transactions, acquiring the Total Issuing Solutions business and monetizing our noncash-generating Worldpay stake, meaningfully improving the company's cash flow profile. We are projecting durable revenue growth combined with significant margin expansion. And lastly, we are targeting free cash flow of over $2 billion and are well on track to generating more than $3 billion of free cash flow in 2028. With that, operator, could you please open the line for questions? Operator: [Operator Instructions] Our first question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: I appreciate the question here. Just maybe for Stephanie. I appreciate your comments upfront. Forgive me for asking the first question on AI. But just -- I like what you said about the systems of record businesses, but can you give us a little bit more on how you think about the risk that AI could automate or replace some of the key functions that FIS currently provides to banks, just thinking about the surround products, core banking itself? I know that it's weathered the storm of past tech waves in the past, but just trying to understand if AI will be different in any way in your mind. Stephanie Ferris: Yes. Thanks, Tien-Tsin. No problem with the AI question. It wouldn't be earnings season this year, I think, without an AI question. So a couple of things. I would highlight 3 things: one, we do believe we have a durable advantage here, and I'll walk through why. We actually view AI as a strategic accelerant for our business, and we'll talk about where we're focused to use it as a strategic accelerant, which is in the places where we think AI can add a lot of value inside and around our system. So first, talking about FIS, we -- as you know, we operate mission-critical systems of record. These are -- these provide accurate authoritative data sources. They're not predictive in nature. They have to be audited. They have to be regulated. We think in this scenario, and this is broadly across FIS, those are the systems of record we operate if you think about all of our systems. And so we believe we have a durable advantage here because there's really 3 important advantages if you think about FIS. We have proprietary data sets with decades of accumulated data across the entire money life cycle. So you think about core banking, payments, lending, investing, these proprietary data sets are massive, and you need them to do AI -- to have AI capabilities built on top of them. Second, our core systems are deeply integrated into regulated workflows. These regulated workflows have to be auditable, and you have to create a significant amount of compliance and regulatory reports out of them. And then finally, enterprise-grade governance, security and auditability. So if you think about durable advantages around systems of record, those are how we see the biggest 3 important advantages. And I referenced in my prepared remarks the Forbes article that effectively said that AI agents make systems of record more valuable. So we really believe and see our technology and our data as a strategic advantage. Now, how do we think about AI as a strategic accelerant? And where do we think AI can enhance and/or disrupt our systems of record? So as we think about AI really being a strategic accelerant, our data moat is now our strategic advantage. And we talked about how big that is now across the entire money life cycle. Bringing the credit issuing business inside FIS, we now have and see over 1 billion accounts on file, 73 billion transactions. We go across core banking every single payment rail now with credit issuing. And so you think about the data that banks need or anybody needs to create AI capabilities, we have more than ever. And so we talked about we're 4x'ing our investment in data and AI, focusing on unifying our data stack. So we're spending a lot of money now as you think about enhancing those data capabilities, deploying agents inside our existing systems and on top and building domain-specific AI capabilities. So where do I -- where are we focused? And where do I think there's potential for enhancement or disruption? It's really where the predictive part of our systems are needed. So think about fraud prevention, how to predict the next best deposit and lending account. So we're focused on enhancing our capabilities using our dataset and putting AI in those. That's where the predictive TSYS is where we think the opportunity is. Being able to onboard clients more efficiently because you can get through KYC, KYB regulatory risk much more quickly with AI predictive capability. And then, broadly in the banks helping them with productivity initiatives taking down costs where they have people that use our core systems of record and workflows and help use AI to automate those processes. So that's where we see AI being enhancing, and we really think it's a strategic accelerant for us versus risk, but we have our eye on the whole market. Operator: Our next question comes from Ramsey El-Assal with Cantor Fitzgerald. Ramsey El-Assal: I wanted to ask about the pace of the shift in capital markets to higher-quality recurring revenue within the segment. How long do you expect this shift to have an impact on segment revenue growth? And how should we think about the steady state segment kind of growth profile after the shift is complete? Stephanie Ferris: Yes. Maybe I'll start in terms of how to think about that strategically and James can add on in terms of if he thinks I missed anything. If you look back, and I think we talked about this to 2020, the recurring revenue was 69% of Capital Markets revenue. We ended 2025 at 71%. The market is moving away from licenses, which is a good thing. And we are, at the same time, while the market is moving away from licenses, really focused on driving recurring, highly profitable product revenue. So we are leaning into that, as we think about continuing that journey, and I would expect to see a similar like an accelerating recurring increase, as you think about the total. I think we also said in our prepared remarks that we would expect recurring revenue in capital markets to be mid- to high-single digits in 2026. So you would expect us to continue to lean into recurring. It's a market condition. It's also a better outcome for FIS. It's how our customers want to buy, and it's a higher recurring revenue, higher margin business over time. I don't know, James, if there's anything you want to add? James Kehoe: No, nothing to add. It's just -- I think you'll see a similar trend over the coming years. So accelerating recurring growth and call it moderate to -- moderate growth on nonrecurring. Bear in mind, the nonrecurring is still growing in 2026. It's just growing at a much lower rate, and then, we're highly optimistic about the business and the accelerating trend on the recurring revenue. Operator: Our next question comes from Darrin Peller with Wolfe Research. Darrin Peller: Nice job on the quarter and the year. I just want to revisit a higher level question again and maybe a little bit away from AI and focusing on the issuer business. I guess, there's been more conversations over competitive dynamics with some of the big -- bigger networks getting into issuer processing and some of the -- just some ankle biters coming in, in terms of trying to disrupt the space. So maybe similar to the question on high level like AI, but maybe focused on issuer, what do you see in terms of the barriers there again to maintain your position, especially now that you've really just acquired into a big part of the credit side? And then, on a side note, just financially, what are you incorporating for the year in terms of issuer synergies? Is it too early to expect any in terms of embedded in the financial outlook? Or do you already see cross-sell opportunities embedded in the later part of this year? Stephanie Ferris: Thanks, Darrin. So yes, so great question, pulling back. So if you think about our acquisition of the Total Issuing business, we have now added to our product suite the marquee large-scale credit processing business globally. I think, when you think about that, there's 2 things in terms of how we compete there. One is the product capabilities that it brings into FIS, but also how we will be able to leverage our relationships that are very large with the existing FIS' around the world. So if you think about the product capabilities, and there's always new entrants that make us all better, I think we would say we have in North America, by far, the biggest product credit business. It's large. It's scaled. It has expertise that is decades long. I think we talked about, as a proof point, how valuable that is to our existing base considering that we renewed approximately 30% of the revenue in that base in 2025 and have no renewals in 2026. Just trying to express our customers' belief in the existing business. That being said, we obviously have modernization going on, and we can talk about that a bit later. When you think about the international business, and I think the global folks have probably talked about that, we have a product in prime, which is the industry leader. It's driving about $200 million of revenue. It's been growing at a 15% CAGR from 2016 to 2025. It competes globally, and it's very, very competitive against whatever new entrant is out there. So I think we think about product capabilities, whether it's in North America, as being large and scaled and best-in-class. Internationally, the same thing. So we do believe we have a very, very competitive product set, if you think about credit issuing on its own. Then, when you think about how do we leverage the FIS relationship, so when you think about some of the competitors you're thinking about that are bigger, you are leveraging, or would be leveraging, their broader relationships. We now have that advantage with the issuing business inside FIS, think about the size and scale we are now to the large financial institutions. We provide debit processing. We provide credit processing. We provide core banking. We provide lending. We provide trading and processing. So we have an ability with the credit issuing business to also lean into relationship size and scale that I think will make the total issuing business continue to be very competitive. And then I think finally, I'd say just the data advantage that I mentioned in the first question with respect to AI, do not underestimate how important data is to all of these financial institutions to pursue their own AI agendas. And I talked about this, and might have got lost in the prepared comments, the value of having a bank's core processing system as well as doing their credit issuing off of total issuing was so -- we've already started to have conversations. And we're in a POC with a large regional bank to bring that data together inside our systems, serve that up and help them build a model to make their credit card customers and -- enhance their credit line increases in a much more dynamic way than they've ever been able to do before. This is an example of where bringing the data together makes us even more valuable to our end customers. And we don't see any other competitor having that kind of capability across core debit, credit, et cetera, in the landscape. So try to view that as -- or give that as an example. And that -- and we started doing that. As soon as we announced, they reached out to us in terms of working together on that. So more to come on data products, as we think about enhancing our data capabilities. But that's probably what I'd say around credit issue. Operator: Our next question comes from Will Nance with Goldman Sachs. William Nance: I appreciate the disclosures on the makeup of the Banking business. I wanted to maybe zero in on just how you're thinking about the growth algorithm between these. I think -- with a lot of the payments-oriented assets going into this payments line, I think it's somewhat surprising to see that -- it seems like TSYS is only 40% less than half of the Payments business, so really kind of highlighting the diversity of the segment. Can you talk a little bit about how to think about growth drivers across of these? Obviously, TSYS was something like a mid-single-digit growth business. Should we be thinking about Banking as something in the kind of low-ish single digits with kind of like stronger, sustained growth across payments over time? Stephanie Ferris: Yes. Thanks, Will. I don't think we're ready to talk about segment -- subsegment growth rates. I think what we would say, and what we've shared is, I think you can think about the total issuing business growing consistent with what it grew in 2025, so about 4.5%. So think about that staying consistent in 2026, and legacy FIS business, obviously growing a bit faster than that to make the overall guide work. And so we're really excited and proud of the work we've done broadly across the FIS organic business and Banking and the acceleration you're seeing there in 2025 and it continuing into 2026. So I think, as you think about the TSYS, as we sit here today, that's the best we can probably provide to you. As we come into first quarter, we'll give you a little bit more color around subsegment growth rate. Operator: Our next question comes from Dan Dolev with Mizuho. Dan Dolev: Stephanie, great results, really, really nice. Just maybe a strategic question here on the portfolio. Obviously, you've got like a really good portfolio right now, and your shares are definitely trading below what they're worth. As you think about sort of your portfolio today in terms of the assets that you have, is everything from now on considered core? Is there anything you're thinking of in terms of what could be done to enhance buybacks, just to get the sense of how you're thinking about the portfolio? Stephanie Ferris: Yes. I think we're really happy with where the portfolio sits. Obviously, we've done 2 very strategic transactions to simplify the portfolio meaningfully, really focused on a single client base and financial services, our products make sense and go together. I think we will always be doing pruning of the portfolio. We've done that for years. And so you can see a bit of that, as we move things into Corporate and Other. But I wouldn't expect you to hear from us around large sales or anything like that. We feel -- we're really wrapped up, frankly, in integrating the TSYS business and making sure that we really focus on executing well on that and executing on the base business. I think -- I'm sorry, James commented in his prepared remarks that we're also focused on repaying our debt. That's our primary focus. That will be our focus. Until we get that done, you wouldn't expect to hear from us on buybacks. Operator: Our next question comes from Jason Kupferberg with Wells Fargo. Jason Kupferberg: I wanted to go a bit deeper into the Banking segment. Obviously, the organic outlook here, again, is outpacing your medium-term range from the Investor Day, I think, by maybe about 150 bps at the midpoint. So just wanted to get some more perspective on what's driving the above trend performance. You talked about it a little bit high level in the prepared remarks, but it seems like there's sustainability behind that. So if you can just unpack where you've seen particular success with some of your refreshed go-to-market motion over the last year or so? It seems like it's bearing fruit. So we'd love to just hear more on that. Stephanie Ferris: Yes. Thanks, Jason. Yes, look, we're really, really happy with our commercial excellence. I think I'd start there. We have been focused in driving commercially selling on the products that we think makes sense for FIS and where growth, frankly, is demanded from the end markets. So you saw us through 2025 continue to drive commercial excellence. We knew we had that in our back pockets with tailwinds, as we came out of 2024. We talked about that. We talked about both reenergizing the sales engine as well as having higher rates of renewal. So the combination of those has really been helpful in terms of driving and outperforming on the banking business, probably even faster than we expected. So it's fantastic. I would say with respect to where we're seeing demand, it is broad-based. We have demand across all of our products, in particular, obviously, core and our core capabilities, as we're -- we have left core modernization behind in terms of core consolidations. But probably more importantly, if you remember, when we talked at Investor Day, I talked about needing to be focused in selling in payments, digital and lending, and we continue to see demand there, and our products continue to have huge uptakes there in terms of what our customers are needing from us. We've also been able to supplement our organic products like Money Movement Hub, frankly, which has had huge demand with some of the acquired products like Amount, like I mentioned, that's really around digital capabilities. So we're seeing it's really broad-based. But what I think you should really take away is we have our commercial excellence back. We're operating with excellence there. Our products are really strong in the market with our buy-build partner strategy. And we're just really focused on continuing to drive that as we move into 2026 and feeling really good about where the Banking business is performing. Operator: Our next question comes from Timothy Chiodo with UBS. Timothy Chiodo: Great. First on the Worldpay revenue. So there's the Worldpay revenue that hits into the Banking segment. In 2023, I believe that was about $30 million. It was about $140 million in 2024, and it was expected originally to be sort of flat to down in 2025. I believe that it came in ahead of expectations for the full year for 2025. And I was hoping you could give us a little context on, one, what was that full year number for '25 and a little more context on what's in there. You've mentioned in the past that there's premium payback and maybe some other services that are being provided through Worldpay. And then lastly on this topic, just what revenue contribution is implied in 2026, meaning will it be a headwind, a tailwind or relatively neutral? Stephanie Ferris: Yes. Thanks, Tim. So if you recall, when we separated Worldpay from FIS, we talked about commercial revenues because we serve each other. And so some of the things or the things that are in there and that are driving growth are Worldpay's use of our loyalty and premium payback product, use of our network routing capabilities on NICE. These are really, really strong products that they use in cross-sell. So the continued growth of them is natural growth, just like they are now a completely separate customer. You continue to see strong demand, and you'll see strong demand because those are some of our best payment products. So I think that's really what's been driving them strong payment growth, like I said, broadly across the market. And then, it's -- they are obviously great products that we always have had, as we work together, and then, as we've now separated become natural third-party agreements. So I'm not sure that we're going to give a 2026 guide. I don't think that makes any sense anymore given that it's Global Payments. But I do think this is -- this ends up showing and expressing the value of the commercial agreements and really excited for Global to continue to consume these products. Operator: Our next question comes from Bryan Bergin with TD Cowen. Bryan Bergin: I want to dig in a bit on free cash flow and talk about the bridge to '28. So can you give us a sense what the largest sources of that projected expansion from the $2.1 billion base here in '26 to the $3 billion target that you have? What are the building blocks? And kind of where do you have most confidence versus where it may be more fluid? James Kehoe: Yes. I would take a couple of blocks here. One is on capital intensity. So last year, it was 9.3%. We're projecting 8.5% for this year. We think longer term, the natural trend level is around 8%. So that's 0.5 point from capital. Two is we're not at the end yet of our working capital optimization. I think we made great inroads in 2025. We have significant carryover benefits into '26. And there's probably still some optimization in 2027. The biggest one, however, is going to be the reduction in transformation and integration. It's kind of intuitive because in the 2026 year, there's about $200 million of cash costs relating to the integration of the credit issuer business. By the time we get to 2028, those costs will no longer be in the cash flow statement. Two is 2026 is a pretty high level for, call it, transformation expenses. And you've seen from our margins that we're driving core FIS margins substantially higher than what we said when we gave the midterm guide of 60 bps. It's closer to 80 bps on the base business. So we're getting good traction on cost reduction in '26. Those programs will decline as we get -- go closer to '28. So the biggest single driver, '28 versus '26, is actually lower one-time. So a significant reduction on the credit issuer integration and a significant reduction on FIS transformation. Operator: Our next question comes from Andrew Schmidt with KeyBanc Capital Markets. Andrew Schmidt: Stephanie, I totally agree with you on the generational moment at financial services, certainly an exciting time. Just 2 questions, if you don't mind, if I could squeeze in. Just one bank M&A, just can you talk about to what extent bank M&A is included in the outlook and then opportunities in subsequent years as more product is taken and customers grow. And then the second one, just on Agentic or GenAI solutions, maybe you can level set us. What are customers actually asking for? And maybe you could just talk about the opportunity for FIS to be a conduit versus other third parties coming in and providing different workflows? I think there's an opportunity to be a conduit versus the runaround that we currently hear out there as a narrative. But anything on those would be helpful. Stephanie Ferris: Yes. Thank you. Happy to. So on bank M&A, it is a generational moment, lots seen in 2025. I would expect us to see more in 2026. Given where we sit in the market, we view ourselves to be share gainers there. We won't win them all, obviously, but we've been on the winning side of most. In terms of the 2026 guide, we only guide the ones that we know. So to the extent there's another one in 2026, typically, what happens is we'll update our forecast. But usually, it -- although it's been going much quicker, usually, if we hear of something in 2026, it will close in 2027. But -- so we don't have anything baked in. So any of it would be upside or downside depending on where it goes. We do expect though to see more bank M&A broadly, and so, we'll stay tuned on that. In terms of Agentic, it's really interesting. So there's been a lot of talk about Agentic commerce. And when you hear about it, most is focused on how to make sure that merchants and acquirers and Visa/Mastercard can facilitate the Agentic capabilities. Where we're focused, because we're focused solely on financial institutions, has been ensuring that when the bank -- when we receive the Agentic transaction on behalf of a bank that we can identify it as an agent working on your behalf because there's 2 things. One, bank models are -- I want to make sure that we can authorize that Agentic commerce transaction for you and that we don't decline it because it's coming in at a weird time at night that you don't normally shop at, but maybe your agent does. So we're helping banks think about and making sure that we can provide the flag to say this is an Agentic commerce transaction, and you want to make sure that you authorize it. So that's point one for financial solutions -- for financial institutions. And then the second is really starting to work with financial institutions to help them think through Agentic fraud. So -- and this is very new and cutting edge, but at the same time, you want your car to be processed for your Agentic transaction. There are a lot of bad guys out there thinking about how to use agents to also transact on your card. And as you know, financial institutions have very sophisticated fraud models built that we either provide them data or we run the fraud models for them. And so we're spending a bunch of time working with our FIs to figure out how do we update those models for new ways of fraud using Agentic commerce. So for us, and this is where it's really good for us to be singularly focused on financial institutions, we're spending less time thinking about how to make sure a merchant can facilitate an Agentic transaction. We're leaving that to Visa, Mastercard and acquirers. We're working with Visa and Mastercard and other FIs to make sure that we can authorize the transaction, it doesn't get declined, and that we can make sure that our FIs can protect themselves against what is probably going to be more fraud used against them. So that's how we're thinking about Agentic. Operator: Our next question comes from Vasu Govil with KBW. Vasundhara Govil: Maybe Stephanie, another AI question for you. Just how much engagement are you seeing from bank clients today on deploying AI solutions? And if you could give us a sense of whether it's coming from the largest banks, the mid-sized banks? And how quickly do you think we will start to actually see traction and sort of flowing into the P&L? And if I could ask a quick one to James as well, just on the margin variability we saw in the quarter, I got the dilutive impacts from M&A and TSA headwinds. I'm just guessing like what surprised you in the quarter relative to expectations on that front, I guess. Stephanie Ferris: So what I would say, Vasu, is that I've never seen banks want to or start to adopt technology faster than they're adopting AI. They all see the potential advantage of using it. If you think about their cost structures, they have significant cost structures, whether you're big or small, decked against operational flows, in particular, like making sure that they stay compliant with regulatory KYC, KYB, et cetera, or deposit loan ops or places where they have a lot of people is where I see banks wanting to attack -- wanting to use AI to tackle taking out those costs and redeploying those cost savings into ways they can grow, think deposits, loans, et cetera. And so whether you're a small bank or you're a big bank, you're thinking a lot about it. Now, how you're deploying it is a little bit different depending on if you're small, medium or big. If you're large, then you are likely deploying AI yourself, but what you're coming to FIS to talk about is needing to get data from us in a real-time fashion as well as talking to us about, okay, you can now serve me up my core data, my credit data, my debit data in real-time capabilities. And we have a lot of banks that are very interested in consuming capabilities from us like that. So we're building those out. You would expect them to be building their own agents on top of that. We then also have regional or mid-sized banks where they're saying to us, look, we love -- we need all that data. We want you to help us build out our models and our modeling capabilities. Then, you have small banks who are saying, look, I really need you to help me and we are working with them to build out agents that are embedded inside the core and the transaction platforms so that they can reduce their operational costs in the back office. For the most part, banks are really using AI to take down their back office costs. And if you think about banks broadly, no matter how big or small you are, that's in compliance and regulatory areas, that's in where they have large amounts of people. And so that's where we're working with banks to really focus in terms of how to take down costs. The other place that they're spending a bunch of time on is in fraud because AI does help models become more predictive. Again, we provide a lot of data there and capabilities. And so with all the data we have -- now have with total issuing, our fraud models become even more valuable to them. So lots of conversations, varying levels of implementation levels. But I would say there's not a bank that I talk to that isn't talking about and exploring what AI can do for them. James Kehoe: And then, Vasu, you had a question on margins in the fourth quarter. Yes, I think you asked what surprised us. I guess, as we went into the quarter, we were pretty happy with the consumer demand. What we saw later in the quarter, we saw much higher levels of actually customer demand for output services and equipment. And then the second thing is currency rates went slightly negative at 35 bps. And this customer demand were on generally lower-margin products and that pulled down margins a little bit. That being said, I will go back to what you alluded to. We're exiting the year on a few -- on a full-year basis, take out TSA and M&A, the core margins were up about 90 basis points. And then, you look into 2026, and the pro forma margin growth is at 95, call it, 100 bps. And as I said earlier is, if you take out the benefit from synergies on credit issuer, the actual FIS margins for next year are projected at around 80 bps expansion, which is above what we were thinking on back at Investor Day of about 60 bps. So we're actually very, very bullish on the margin side. Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Brightstar Lottery’s Q4 2025 and Full Year 2025 Earnings Call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star again. I will now hand the conference over to James Hurley, Senior Vice President of Investor Relations. James, please go ahead. James Hurley: Thank you, and thank you all for joining us on Brightstar Lottery’s Q4 and full year 2025 Conference Call, which is hosted by Vince Sadusky, our Chief Executive Officer, and Massimiliano Chiara, our Chief Financial Officer. After some prepared remarks, both Vince and Max will be available for your questions. During today’s call, we will be making some forward-looking statements within the meaning of the Federal securities laws. Forward-looking statements are not guarantees and our actual results may differ materially from those expressed or implied in the forward-looking statements. The principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our latest earnings release and in our SEC filings. During this call, we will discuss certain non-GAAP financial measures. You will find additional disclosures regarding these non-GAAP measures including reconciliations with comparable GAAP measures in our press release, slides accompanying this webcast, and our filings with the SEC, each of which is posted on our Investor Relations website. Our statements are as of today, February 24, and we have no obligation to update any forward-looking statements we make. Now I will turn the call over to Vince. Vincent Sadusky: Pure play lottery leader. We strengthened our balance sheet, improving leverage to the best levels ever, secured the critical Italy Lotto license, and introduced a multiyear capital allocation strategy that both increases returns to shareholders and provides investment capital to fund Brightstar Lottery’s growth initiatives in digital, core technology, geographic expansion, retail points of sale, and printing. We generated $2,500,000,000 in revenue supported by the diversity of our global portfolio. Same-store sales grew nearly 4% for the quarter, and 2% for the year, underscoring the consistency and resilience of our global lottery operations. At the same time, we invested heavily in our teams, our technology, and our processes, enhancing the organizational capabilities that will support the next decade of growth. Our OPTIMA program delivered cost reductions enabling funds to be reallocated to growth initiatives. $1,100,000,000 of EBITDA in fiscal year 2025 represents a 45% margin even as we are investing for the long term. We also produced nearly $750,000,000 in cash from operations before funding the first two lottery license payments, returned over $1,000,000,000 to shareholders through dividends and share repurchases, and announced two consecutive dividend increases, including the new quarterly payout of $0.23, which is a 15% increase from the historical run rate. These actions reflect our confidence in the strength, durability, and long-term growth potential of our cash flows. 2026 will be another year of investment in several long-term growth initiatives. In Italy, securing Lotto for the next nine years provides the opportunity to execute a major digital expansion across iLottery, iCasino, and sports betting, leveraging one of the largest retail networks in the world with over 50,000 points of sale. This is an opportunity to extend our reach, broaden our B2C capabilities, and bring new digital experiences to one of the world’s most established lottery markets. Vincent Sadusky: We are also investing in our US retail footprint by adding new points of sale, deploying self-service solutions, and partnering with national retailers to expand lottery access across the country. Internationally, one of the most exciting developments is in Sao Paulo. As the economic engine of Brazil and one of the largest global metropolitan regions, Sao Paulo represents a rare, large-market, full-service, new lottery launch. We are building this business from the ground up, combining our technology, operational excellence, and game innovation to create a modern, scalable lottery ecosystem across both retail and digital channels. Initiatives combined with ongoing expansion in iLottery content, new games, data-driven CRM tools, and advanced AI capabilities, position Brightstar Lottery to accelerate organic growth and extend our industry leadership. Vincent Sadusky: Brightstar Lottery today is the largest and most advanced lottery operator and technology provider globally, across both retail and digital channels. Our core business is one of the most stable and predictable models in gaming or entertainment, and it has demonstrated remarkable consistency through all economic times. On top of this solid foundation, we are executing targeted growth initiatives in Italy B2C digital, iLottery, US retail expansion, and Brazil’s Sao Paulo greenfield opportunity, each of which enhances our long-term growth profile. Despite our leadership position, strong margins, and highly resilient cash flows, Brightstar Lottery continues to trade at a significant valuation discount to publicly traded lottery peers and an even larger discount relative to adjacent sectors such as sports betting and iCasino, which operate with far lower EBITDA and far greater volatility. Current valuation discount versus peers presents a compelling opportunity for investors. With durable cash flows and multiple growth catalysts underway, we are well positioned to realize the full value of our focused lottery platform. Now I will turn the call over to Max. Massimiliano Chiara: Thank you, Vince, and hello to everyone joining us on the call today. Fourth quarter revenue of $668,000,000 increased 3% from $651,000,000 in the prior year, beating expectations on an elevated US multistate jackpot activity and strong iLottery performance. 0.5% same-store sales growth included increases across all geographies, when normalized for a like number of Italy Lotto ball rolls. This was more than offset by the transition of the UK technology contract. Massimiliano Chiara: US multistate jackpot revenue rose year over year, driven by the $1,800,000,000 Powerball and the $980,000,000 Mega Millions jackpot that hit in the quarter. Other service revenue includes the impact of higher amortization related to the Italy Lotto upfront license fee. The new Lotto license commenced in early December and adds about €41,000,000 a quarter in additional amortization. It is treated as contra revenue under US GAAP. Favorable foreign currency rates also helped drive the year-over-year increase in revenue. Full year 2025 revenue of $2,510,000,000 was in line with the prior year and included the benefits of increased demand for instant ticket and draw games and favorable foreign currency rates, which mitigated some meaningful headwinds, including $51,000,000 from higher LMA incentive revenue in the prior year, and current year impacts of $18,000,000 from the UK technology contract transition, and $25,000,000 from the incremental Italy Lotto license fee amortization. We delivered adjusted EBITDA of $304,000,000 in the fourth quarter, a 5% increase compared to $290,000,000 in the prior year. Favorable foreign currency rates drove the year-over-year increase in profit. Operationally, the high flow-through of elevated US multistate jackpot activity was more than offset by the UK transition. OPTIMA cost savings, split relatively equally between service gross margin and other operating expenses, were partially offset by project expenses related to contract bids as well as enhancements of cloud-based solutions and point-of-sale optimization. For the full year, adjusted EBITDA was $1,120,000,000 compared to $1,170,000,000 in the prior year period, as growth in wager-based revenue was more than offset by higher LMA incentives in the prior year, the UK transition, and the timing of terminal and software service deliveries in our product sales vertical. We also incurred higher start-up costs associated with the new printing press. OPTIMA cost savings are tracking nicely to our target of around $50,000,000 by 2026 versus a 2024 baseline. These savings are not readily apparent on the face of the financial statements, as they are somewhat offset by the investments in the business that I just described, which we are incurring to drive growth in pursuit of our 2028 financial targets. Sustained cash generation funded key investments and significant shareholder returns in 2025. On a full year basis, both cash from operations and free cash flow included $926,000,000 related to the first two installments of the Italy Lotto upfront license fee, which were paid in July and December 2025. The full amount of the license fee is reported in cash from operations. Brightstar Lottery is only responsible for its 61.5% share, or $569,000,000, of the amount paid in full year 2025. Cash from operations as reported was a negative $193,000,000, or a positive $733,000,000 before the upfront license fee, exceeding the recently revised guidance. Free cash flow was negative $509,000,000, or a positive $417,000,000 when you make the same adjustment. As a reminder, the Lotto license renewal occurs every nine years, and these figures do not include the benefit of the pro rata contributions from our minority partners. The final installment of the upfront license fee is €1,430,000,000, or approximately $1,680,000,000, and is expected to be paid in 2026. Brightstar Lottery’s proportionate share of the final payment is €880,000,000, or approximately $1,000,000,000. As Vince mentioned, Brightstar Lottery delivered significant shareholder returns, over $1,000,000,000 in 2025, including $770,000,000 in cash dividends comprised of a $3 per share special dividend and regular quarterly dividends totaling $0.82 per share, and $271,000,000 in the form of share repurchases through a $250,000,000 accelerated share repurchase program and a 10b5-1 plan. To date, in 2026, we repurchased an additional 2,100,000 shares for a total cost of $30,000,000 via the 10b5-1. We have utilized to date 60% of the $500,000,000 share repurchase authorization that was approved in Q2 2025, repurchasing 18,600,000 shares, representing a 9% reduction in shares outstanding. $200,000,000 remains under this authorization. In addition, today, we announced a $0.23 per share regular quarterly cash dividend to be paid in March. This represents a $0.01 increase from the prior quarter when the dividend was raised by $0.02. In aggregate, these increases reflect a quarterly cash dividend that is 15% higher than the historical run rate. This reflects our confidence in future cash flows and reinforces our commitment to increasing shareholder returns. Net debt improved significantly to $2,700,000,000 at the end of 2025, compared to $4,800,000,000 at the end of 2024, mainly due to the allocation of $2,000,000,000 for debt reduction from the IGT Gaming sale proceeds. Net debt leverage was also reduced to 2.4x compared to 4.1x at the end of the prior year, providing room to absorb the Lotto upfront license fee and still maintain leverage at a manageable level. We expect net debt leverage to peak at around 3.5x following the final installment of the license payment in the second quarter, then begin to decline thereafter. Our target leverage ratio mid-cycle is at or below 3x. Our financial condition is strong with no significant near-term maturities, due in part to the successful issuance of $750,000,000 5.75% senior secured notes due in 2033, the proceeds of which were used to retire $750,000,000 6.25% bonds due in 2027. And we have over $3,000,000,000 in liquidity, which is more than enough to fund our portion of the remaining Lotto license fee. Now I would like to introduce our outlook for 2026. We expect to generate revenue of $2,500,000,000 to $2,550,000,000, which includes about $175,000,000 in incremental Lotto license fee amortization as a contra revenue item. This target represents a more than 5% organic growth rate on a year-over-year basis, led by expansion of our core business in Italy, our core business and Italy B2C digital efforts, and is in line with the three-year CAGR we expect to generate from 2025 to 2028. Adjusted EBITDA is forecasted between $1,160,000,000 and $1,190,000,000 as organic growth and OPTIMA savings more than offset an additional $50,000,000 of investments we are making in growth initiatives such as Italy B2C and iLottery expansion, R&D investments in technology, product and services, and project costs associated with the extensive contract renewal cycle recently completed and in progress. Our outlook assumes a euro-dollar exchange rate of 1.15 throughout the year. Cash from operations is expected to be a negative $900,000,000, or a positive $750,000,000 when you adjust for approximately the $1,680,000,000 related to the final Lotto license fee. CapEx is expected to be in the range of $450,000,000 to $475,000,000. About three-fourths of this investment is related to contractual obligations associated with wins and extensions we have already secured. The balance is primarily related to upcoming bids not yet secured. We recently communicated 2028 financial targets: revenue of approximately $2,750,000,000 and adjusted EBITDA of around $1,300,000,000. 2025 actual results, the 2026 outlook, and 2028 targets are laid out here to highlight we are on plan to achieving those goals. You can infer we believe the business can generate an average of $800,000,000 in cash from operations in the 2027–2028 period annually, excluding upfront license payment. As a reminder, following the 2025 to 2028 peak CapEx cycle, we expect CapEx to moderate to about $200,000,000 to $225,000,000 annually, yielding over $400,000,000 in annual free cash flow before or after license fees and after minority distributions. This would represent a mid-teens free cash flow yield at the current share price. Now, we would like to open the call for your questions. Operator: Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. First question comes from the line of Jeff Stantial with Stifel. Jeff, your line is open. Please go ahead. Jeffrey Stantial: Good morning. This is Jeff. Thanks for taking our questions, and congrats on a strong quarter and guide here. Maybe starting off on the quarter, so Italy, same-store sales up a half a percent. You normalize the timing of draws. It is a little bit below sort of the recent trend and historically, it has been about a low single-digit growth algorithm. So can you just maybe dig in a little bit further on what is driving that? And as we think about 2026, how you view that KPI shaping up based on the content launch and the online strategy that you laid out? Vincent Sadusky: Yes. Sure thing. So when we reviewed 2025 and the fourth quarter, we would say we exited 2025 with really good momentum. And that was the great thing about being international and having strong operations around the world is, you know, certain quarters, you have got really good launches of products in certain markets in North America or Italy, other quarters, you do not. And so having that geographical and product diversity, we think, is really, really effective. So as you know, Italy has driven a lot of the growth for us. And it turned in the back half of the year where North America was a significant contributor. And I guess a couple of observations when we look at performance for the year and we think about our plans for 2026. When we look at the first half of the year versus the second half, there was a clear acceleration throughout the year in core sales. The first half of the year, as we know, was challenged as a result of the impact of really low jackpot activity and then the calculation around the LMA at the back half of the fiscal year, just the way the math worked out, unfortunately. In the second half of the year, though, we saw meaningful acceleration. We had strong same-store sales growth, and that came largely in North America. We had better multistate jackpot performance, which was more in line with the historical averages. And, again, continued double-digit iLottery gains in both the US and in Italy in our LMA jurisdictions. Showed a clear recovery as well. We had mentioned on previous conference calls that we had put some initiatives in place that we were hopeful would have an impact. And New Jersey was up, I think, in the 6% range or so for the back half of the year, which was driven by a long-standing effort by our government relations team to work with the lottery commission in the state to increase the payouts, as well as an incremental drawing. And in Indiana, we had some good game launches, and we also talked in previous quarters about the installation of our automated vending machine just to create more frictionless points of sale in the market. That seems to be having an impact as Indiana was up, I think, close to 7% in the second half of the year. And so I would say those things all bode really well going into 2026. On the Italy front, as you pointed out, the fourth quarter same-store sales normalized was just a little, had very low growth. But we had good iLottery growth. We did not have the product launches that we wanted. We are going to have those going. We have a pretty robust plan going into 2026. And then the rest of the world contributes less certainly, but the fourth quarter same-store sales in rest of the world were up about 5% driven by Poland and Belgium. So overall, I would say, despite a more challenging start to the year, we did have a strong second half of the year. And it just comes from different places depending on the timing of product launches, etcetera. When we look ahead to 2026, you know, we have seen we have been up around 1% or so in same-store sales versus the prior year. And that has been very similar to the way we exited 2025 in that it has been led by the US and the rest of the world. Italy is flattish. And we have some new product launches coming up and as well as we expect certainly in the back half of the year more significant contribution from the Italy B2C digital launch that we discussed. As well as we are increasing our network expansion and working with our customers on their development plans. So we think all those things have the capability to deliver growth especially as the year progresses. That is great. Thanks for all that color, Vince. And then maybe just one on, there was a note in the release. So, Max, you are stepping away from the Board. It sounds like to focus a little bit more on some strategic opportunities and M&A, focusing more on the M&A side of that equation. What sort of assets do you see as strategically additive to the business? What is the market like currently for assets being shopped around and how much of a priority here should we think about M&A being, call it, relative to executing on that multiyear outlook that you laid out for us last quarter? Massimiliano Chiara: Yes. So first of all, I would like to give a little bit of rationale behind the decision on not seeking reelection to the Board after a six-year tenure. This has been taken in conjunction with the conclusion of the Brightstar Lottery strategic portfolio transformation that has again just been completed with the sale of the IGT Gaming business, and then also as part of a deliberate governance evolution to strengthen the separation between management leadership and nonexecutive oversight at Board level. In this respect, I will continue to operate in close partnership with our Executive Chairman, Marco Sala, and with Vince on my CFO duties, as well as, as you said, on the additional responsibilities attributed to me in the areas of strategy and M&A. Speaking specifically on M&A, I would like to remind everyone that we have a very compelling plan with a significant step up in our growth rate to 5% organic. That plan, obviously, was drafted during the transition period on the gaming sale and entails significant strategic initiatives, primarily to develop that and favor that growth through various individual engine initiatives. So, fundamentally, our plan is commensurate with a significant portfolio of organic growth. But definitely, we continue to remain opportunistic on M&A, particularly if opportunities were to arise in the market in areas where we have opportunity to enhance our growth faster and accelerate our plan. Vincent Sadusky: Yes. I would just add to that. You know, when you think about the unique space that Brightstar Lottery operates in and where it has significant right to win and significant strengths, it is in the area of digital, in the area of iLottery, this B2C expansion in Italy, our willingness to potentially partner with other joint venture partners internationally, as we have done in Italy and Sao Paulo, and, you know, we are currently looking in other parts of the world. So when you think about where we would potentially look to enhance what we believe is a strong opportunity for, like, you know, let us call it organic growth, but it is really product and geographical expansion that is built into our plan, which requires a significant amount of investment, and we expect a superior ROI, it would be in those particular areas. Jeffrey Stantial: That is great. Thank you both for all the color. If I could just squeeze in one more here on capital allocation. In case, Vince or Max, whoever wants to take this, how opportunistic do you plan to be this year with that remaining $200,000,000 or so left on the repurchase authorization? It seems, at least to us, that the market is pricing in a degree of cyclicality here that is pretty dislocated from the historical fundamentals that we witnessed for lottery. So just curious how you are approaching this pullback from stock relative to the capacity left of the authorization. Thanks. Massimiliano Chiara: Yes. So, as I said during my prepared remarks, we have significantly accelerated shareholder returns during this six-month period. We have achieved so far about 60% of our authorization on the buyback. But we have also increased the ordinary dividend and we paid the special dividend in July. So this represents more than 30% capital returns over 2025. And, again, the current yield, just on the ordinary dividends, is getting towards 7% at this point with the stock price of the last few days. Having said that, we continue to be disciplined in our evaluation of the opportunities going forward to continue to devolve and return cash to shareholders, both in dividends and buyback. We also obviously want to be mindful of the fact that we have significant commitments with respect to Lotto and other contracts that we need to take care of during the next few quarters. Thank you. Vincent Sadusky: You know, I would just tie on to the buyback question. My sales pitch that I included in my script. You know, I think it is pretty incredible that there is such a meaningful disconnect between our intrinsic value and where our stock trades today. I know a lot of CEOs say that, but again, by every investor metric, whether it is EBITDA multiple, free cash flow yield, DCF, our valuation is below both direct lottery peers and comparable businesses, whether it is in gaming, travel, leisure, infrastructure-like businesses. We increased our dividend, and now that is, at the current trading levels, more than 6% yield, which is far above levels typically associated with companies that have our level of stability and multiyear contract visibility and the resiliency of the business. So, you know, we have engaged actively in share buybacks, and to Max’s point, we continue to think through the allocation on a go-forward basis and we and our Board certainly take a long-term view towards value creation for this business. Jeffrey Stantial: That is great. Thank you both. I will pass it on. James Hurley: Operator, the next question, please. Operator: Apologies for that. Your next question comes from the line of Barry Jonas of Truist. Barry, your line is open. Please go ahead. Barry Jonas: Hey, guys. Good morning. Wanted to start with Brazil. Can you maybe talk a little bit more about the opportunity and how we should be thinking about both near-term and longer-term implications. Thanks. Vincent Sadusky: Yes. So the Brazil opportunity is significant. We had to invest a significant amount upfront in order to obtain the license. It was a deal that is, as I mentioned, pretty rare. There is not a lot of meaningful greenfield opportunities left around the world. Brazil has been a challenging place politically. It certainly had its ups and downs. We were confident that it met our risk profile after spending a lot of time doing the analysis and the work to understand the stability and the potential and the potential competitive threats in that market. Sao Paulo is the crown jewel of Brazil economically. People can afford to buy lottery tickets. It has got a terrific amount of activity. The population really enjoys gaming and wagering. And this is, I think, an area that the government is very focused on and has done the right way, and has spent a lot of time in crafting the RFP and the potential bidder and bidder support. In fact, they already have the funds allocated for several hospitals in the area. So they have got a direct utilization of funds. And I think the public sees the direct benefit. In order to derisk both the financial commitment as well as the significant amount of operating start-up capital as well as intellectual property knowledge, we partnered up with Scientific Games on this venture. And between the two of us, this is going to be an incredible effort, an incredible entrepreneurial effort to start this lottery from scratch. The points of sale have got to be built out. The implementation and installation of all of the machines across the state has an iLottery component. Both of us will be printing tickets and contributing tickets to the venture for scratch tickets and game development. And it is a very long-term contract as well. So we are excited about it. It will, as usual, we have got plenty of experience with this, as usual, it will take some time to generate meaningful cash flow, but we do think this can generate meaningful cash flow. Because it is a fifty-fifty joint venture, we are excited about the cash flow potential. But, you know, this will be an entity that we will not consolidate. Barry Jonas: Got it. That is helpful. And then just wanted to follow-up on the M&A angle. There has clearly been increasing deals across the global lottery space. You have addressed your M&A strategy. But how should we be thinking about implications from all the competitive M&A that has been out there for Brightstar Lottery, whether that is in a competitive operating or a bidding environment. And I would just note that one competitor is acquiring a company in the US doing prediction markets. So curious to get your thoughts on that deal. Thanks. Vincent Sadusky: Yes. That would be All-In acquiring PrizePicks. So, I think each company in the lottery space, there is not that many of us, have their own strategic imperative and strategic direction. And, of course, everybody thinks it is the right one. We think ours is right, given our many years of experience being a leader in the digital gaming space with our PlayDigital segment, as well as being a leader in the land-based gaming area with IGT. We decided over many, many years that those businesses did not have significant synergies and did not help us win any more lottery contracts, and were not leverageable into incremental consumer sales. So we obviously reached a very different strategic conclusion from some of our competitors that have been active and more active in the M&A market and actually have been acquiring companies that are involved in the iGaming space, the iCasino space, the prediction markets. And we believe that is a completely different business. Now, they have their own strategic goals. Maybe that is a way to enhance growth even though it is not a good strategic fit. And then you also have the issue of geography, meaning many of these acquisitions that competitors made and the acquisition targets that are currently available do not overlap very well with our geographies. So we just do not believe that the smart thing to do is to go out and pay very high multiples for a business that potentially could grow with the potential of higher growth than lottery, but is not a good strategic fit. Again, as I mentioned earlier, if you see us interested in anything, it would be in the area of enhancing our iLottery game development, enhancing our platform. We are now in the B2C business, specifically in Italy, and so that is interesting to us if there is a good overlap with a strong provider of games and consumers in Italy. But we believe very strongly that the greatest value creation comes organically. And the fact is, we have built out an outstanding team in Italy to develop and deploy our iCasino and sports betting. We actually just on a limited basis started sports betting this week. We have had iCasino for a couple of months. We believe in the leverageable opportunity from the Lotto license in Italy that we can grow and build that business. We have been in that business before. We have been hard at work for many, many years on building out the best iLottery platform. Our games are now top performers in the world, in our game development studio for iLottery. So it is, I guess, a long-winded answer to we are not interested in overpaying for things just to potentially enhance our growth that are not a good strategic fit. It would have to be a very strong strategic fit for us. Thank you. Operator: As a reminder to everyone who is dialed in, if you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. Please limit yourself to one question and one follow-up. Our next question is from Domenico Ghilotti of Equita. Domenico, your line is open. Please go ahead. Domenico Ghilotti: Good morning. A few questions, first of all, on the Italian market. I am interested in your first thoughts on your iGaming launch you were commenting just a second ago. And, in general, I am also interested in having your thoughts on the potential launch of the tender for instant tickets in Italy in 2027. We are hearing about this. I want to understand your idea on that. And the last, if you could be interested, in case of, say, tender for retail concessions also on this kind of opportunity in Italy. And then more broadly, some color on the 5% organic growth that you are targeting for 2026. If you can give us a feeling on the contribution from the two key geographies. Vincent Sadusky: Okay. I will get started, and then I will hand it over to Max to help with the building blocks of growth. So on the Italy digital opportunity, we are primarily administering the B2C experience through our My Lotteries app. We have made really good progress with very little marketing. We have been putting together our marketing channels and opportunities. The great opportunity, of course, is the folks that we touch, roughly a million consumers a month, or we have over a million interactions a month in Italy with people checking their lottery tickets winnings, etcetera. So, you know, we have not begun a significant marketing effort so far through that channel and with our retailers. But clearly, that is the opportunity. That all gets launched early this year. We recently hired a seasoned digital gaming executive, Victor Kukorian, to lead the business. You know, Victor has got great experience. We spent a lot of time together. You know, he has been with Flutter and Fortuna Entertainment Group and understands the opportunity to attract consumers and what it takes to have a competitive offering. So today, early days, it is possible you can play Lotto, you can play scratch and win games, you can play iCasino and skill games on our app, even though it has not been optimized. You will see a product that is every bit as good as the established leaders in the market as the year progresses. But having said that, in fiscal year 2025, our iLottery wagers in Italy were up over 20% as a result of, I think, continued really good game delivery in the portfolio. Our active users have increased significantly, and, again, early days, but we have gained three incremental points of My Lotteries market share since we launched the My Lotteries app, this kind of first iteration of the app, back in early January with limited marketing. So, yes, we are pretty excited about the long-term prospect and the opportunity for us to gain a reasonable share of the iCasino and sports betting market, which could, in our plan, result over the years in, I think, a meaningful contribution to our cash flow and profitability in Italy, and it naturally leverages our strength in operating the two largest lotteries in Italy. On the scratch and win front, we anticipate the process for scratch and win will be similar to Lotto where you have the law come out, then the RFP will be issued. Could happen at the end of this year. We are closely monitoring it, and we will see how things play out. And, yes, obviously, we are very excited about the opportunity to extend our relationship with the state. Massimiliano Chiara: In terms of the building blocks of the 2026 growth rate, I would say that we have the expectation for a couple of points coming from the core same-store sales, both in the retail lottery business. Probably a 1% on top coming from iLottery. Also, LMA, we expect LMA to be positive in the year, primarily in the first half. And then we have an initial contribution from the Italy B2C that is probably going to be in the range of 1% as well. Keep in mind, we have to complete the full circle of the UK transition started in August. That is going to be a headwind, obviously, on our top line. And then we have a little bit of product sales increases as back loaded into Q4. We typically season out the product sales in the last quarter of the year. So, again, all growth engines are expected to start cranking up on the 5%, the three-year 5% CAGR that we have laid out with our 2028 plan already in 2026. Vincent Sadusky: The last comment I know you are focused on Italy. I would make, Domenico, is around the performance of Italy in 2025. So again, so much of the quarter-to-quarter performance is based on the timing and the cadence of new game launches in each jurisdiction. If you step back and you look at the full year 2025, same-store sales in Italy were up about 2%. And when you normalize it for the number of draws and selling days, the real organic growth that we view was 3%. So we feel very comfortable with the continued growth potential of the Italian market. Domenico Ghilotti: Thank you. If I may follow up on the guidance that you gave on operating cash flow, just to be sure. So if I take out the Lotto payment, you are guiding for $750,000,000. If I look at your EBITDA guidance, if I am not wrong, there is something like more than $400,000,000 cash leakage from, I presume, financial charges, cash taxes, or working capital. Can you give us a sense of what you expect on these items? Massimiliano Chiara: Correct. Yes. So the $750 is perfectly comparable to the $730 that we achieved this year. Obviously, you have to take a little bit of after-tax EBITDA improvement into consideration. When we talk about interest and taxes, interest we have been able to optimize the interest expense with the $2,000,000,000 debt repayment. And we do not see a big increase coming yet in 2026 despite the fact that we will have to make the $1,000,000,000 payment in the second quarter. There is going to be a little bit of increase, but not significant. And then instead, we expect cash taxes to come down significantly. That is really our focus going forward, is on the cash taxes. We paid more than $200,000,000 last year and expect to pay something in the range of $150,000,000 this year. There was some timing on Italy payments, about $20,000,000. And then, obviously, the incremental amortization upfront fee will depress a little bit earnings. And so that will be a positive for lower tax payment into 2026. And then we have a couple of other optimizations underway that will allow us to optimize that cash tax payment in that $150,000,000 range. Operator: Your next question comes from Chad Beynon of Macquarie Capital. Chad, your line is open. Please go ahead. Chad Beynon: Hi. Thank you. Vince, Max, good morning. Thanks for taking my question. Two-parter on iLottery. Focusing more on North America. I guess, what have you seen so far from a legislation standpoint as states are looking to expand products or bring in tax revenues for their state? Are you seeing movement there? And then secondly, on iLottery, thinking about it from an AI standpoint, I would assume maybe some of the content could become potentially cheaper just because it might be easier for some of these games to be created. Wondering if there could be margin improvements on iLottery as AI continues to be a bigger part of that development. Vincent Sadusky: Thank you. Yes. So I would say on the expansion, US has been averaging one or two jurisdictions a year. This year, Massachusetts, part of the RFP that we won in Missouri, Kansas, Missouri, which our estimates are somewhere around 2026, will be implementing that iLottery system. You know, we have implemented iLottery on the draw side in Connecticut. We have implemented it in Tennessee recently. New Jersey is a state that will also go to iLottery draw from what I recall. We will be executing that as well. As far as new jurisdictions, it is difficult to tell. We did not see anything explicit in this legislative session across the US. But we anticipate perhaps Colorado will be a state that will look to bid out its iLottery. So there is not a lot on the horizon, but I think at this continued pace of one or two a year, that seems directionally where it is going. For Brightstar Lottery in particular, you know, we have got a strong platform. I believe we have got more platforms deployed than any other iLottery company in the business. So we continue to refine and strengthen our game recommendation engine, which has a lot of nifty AI tools incorporated in that, and we continue to work to improve and enhance things like game recommendations or, you know, what we used to call machine learning, but now AI-driven opportunities. And then certainly have talked in the past around game development. So we have been, with this current pace in North America of new jurisdictions putting out RFPs at this rate of one to two a year, focused a lot of attention on our content engine. We know that content from our PlayDigital iCasino experience is the area that builds credibility and reputation with our ultimate customers. So we have had a lot of focus in that area. And we have had really good success for some of the markets where we do not operate the platform. We have had really good uptake of our games because our games perform. So the team, I would say, has done a really good job in the last year and a half or so of focusing on and delivering top-performing games that are desired in the iLottery markets by states where we do not have the platform. We think that is an exciting opportunity to continue to grow, in addition to continuing to pursue the platform opportunities. And then finally, we have also talked in the past about the AI opportunity in game development. You know, when you find mechanics that work, and oftentimes the mechanics are, you know, there is a lot of work that goes into things like progressive games in particular that consumers really, really seem to enjoy. When you get a formula that works, to be able to leverage that into reskinning and slightly different look and feel of games allows you to increase the throughput and certainly bring down the cost. We have had some games that have performed so well, we have essentially translated them into other languages and changed the odds and tweaked with the math necessary for compliance in various jurisdictions. But it is by and large the same game. So our focus has been very, very heavy in the iLottery space on continuing to make advancements to arguably have the best platform, have the best games. And then over time, we have been able to free up resources to be able to continue to develop better games across the world. And I think over time, we do not see that we have hit the maturity stage for iLottery. Fortunately, it continues to grow at a significant pace. You know, over time, as you start to see the numbers get bigger, and the percentage growth slows down, I think we will have a more significant focus on taking out costs and reducing costs in the business. But right now, when we talk about investment in growth opportunities, clearly, iLottery is one of our top areas. Massimiliano Chiara: And just to top up the conversation on the margin expansion, as Vince mentioned, cost and investment in growth initiatives that we expect to entertain this year are obviously going to be a little bit of a drag overall. But again, the iLottery business, you have to look at the business as a staggering growing business as we add new contracts on top of existing contracts. As those contracts get to maturity phase, then the margin obviously goes up because it is at the end of the day scaling of an existing infrastructure that can be really deployed and benefited from as you grow the business down the road. So, as we are in this heavy growth mode, we will continue to add contracts. And so the margin will gradually improve, but the full margin deployment will happen over time. Chad Beynon: Great. Thank you. And then lastly, just wanted to revisit the topic of the $5 Mega Millions increase which I believe happened in April. So it is eight or nine months ago. Good to see a bigger jackpot hit recently. I know that was something that we were all trying to figure out the evolution of play and customer adoption on that. Does it feel like 2026, based on what you are giving in your guidance and what you are seeing with activity, that 2026 could lead to more jackpots or higher jackpots driven by this Mega Millions increase so we are finally starting to see maybe a little bit more of a tipping point? Thank you. James Hurley: Operator, we are in the middle of answering a question from Chad. Operator: Apologize for that. Yep. Vincent Sadusky: So just commenting first on Powerball. So the year-end run-up of Powerball was really great. The final jackpot ended up having the highest sales of any drawing since the first $2-plus billion jackpot all the way back in 2022. And the sales for the jackpot were nearly two times the sales of the last jackpot this size since October 2023. So we were very excited. It really confirmed our thesis when we look at the data over several decades that when there are multiple hits on the jackpot, you do indeed, from time to time, hit this jackpot fatigue syndrome. And then when there is not a lot of jackpots for a while, the interest from the general public, once the jackpot gets up to a significant number, really picks up. So that to us was really reassuring to confirm the sustained appeal of the game. With regard to Mega Millions specifically, the build has been slower than anticipated with the changes that have been made. As you pointed out, the game just got changed less than a year ago. And the jackpot hit four times, which is way more than statistically expected. So it is difficult to make any inferences around the play level. We did see a jackpot near $1,000,000,000 finally. And that jackpot did indeed grow slower than the $2 game, and we did not see a significant benefit from the occasional players that oftentimes come into the market and help to drive those jackpots once the jackpot becomes significant. So we continue to monitor it. And, you know, certainly, the committee that administers and is in charge of Mega Millions is very focused on it. And we feel like we need some time. We need to see where this run goes. Hopefully, knock on wood, this one continues to build. And, you know, I know the committee, with our helping where we can around research, etcetera, is taking a look at an assessment of the performance to make a determination as to whether or not there are some recommended changes and tweaking to the jackpot funding. So I think we will see those things play out in 2026 as we have a larger body of knowledge from which to draw upon. Operator: Your final question now comes from the line of Joe Stauff of Susquehanna. Joe, your line is open. Please go ahead. Joe Stauff: Thanks. Good morning, Vince. Good morning, Max. I wanted to come back to the Italian digital product offering. At least we think it is pretty significant sort of proof point for the stock, and just wondering, Vince, as you think about, say, the opportunity here, I assume, correct me if I am wrong, that the biggest opportunity is to certainly convert what is a retail sales lottery into a digital and therefore higher volume, and then two, iCasino. I guess, number one, is that, are those the most important inputs as you thought about the return and what you paid for the lottery renewal? That is the first question. And then the second question is, how do we think about when you are really starting to gain traction in that digital channel, maybe on those components? Is that something in terms of KPIs or any information that you will be releasing going forward? Thank you. Vincent Sadusky: Great. Thanks for the question. And Joe, I would agree with you. I do think a lot of the enhanced growth profile of the business and the valuation has to do with growth, and a significant growth lever or enhancer is the Italy digital opportunity. It will take some time to build up the unique consumers and both convert players who are primarily retail players. I think that is one of the greatest opportunities as we have built an incredible relationship and a lot of touch points through those retail players. And some of those retail players have digital activity. But it is fairly limited to things like checking tickets and scanning tickets from their phone. So we think we have the ability to help promote and support movement of those people into more of a digital environment where they are actually purchasing iLottery tickets and, to a lesser extent, get them interested in playing iCasino games. The whole thought process around the iCasino games and to a lesser extent sports betting was to provide a fulsome entertainment experience for consumers in Italy. So they already love us for the lottery. They have built a relationship. I think our digital offering on iLottery, as witnessed by the share increase, is much improved and will continue to improve. And our goal is to provide a digital platform that is best in class and frictionless and a really nice, fun experience. We are not there yet. That development is taking place in 2026. And then also, why allow the consumer to, or why give the consumer a reason to leave that app and have a second app to engage in iCasino games, and, again, to a lesser extent, sports betting? Why not provide all those games altogether in one app? So, yes, your assessment is right in terms of the iLottery as the driver, and then we feel like we can pick up a decent amount of iCasino play, certainly nowhere near the leaders in the marketplace who are long established that have multiple brands. We do not have to in order to fulfill our long-range plan. And the same thinking around sports betting, like, why not also offer that in one place as well? We certainly will not be the leading sports betting platform. You know, that is a unique business. We do not have desires to, but again, really to offer players the convenience once they have established their wallets. So if they choose to, they can do everything through the My Lotteries app. And I will hand it over to Max to talk about the KPIs. Massimiliano Chiara: KPIs. So, again, the KPI opportunity is interesting because, obviously, we have to time and create the sort of leading indications of the successes of this venture. And we think that the first step is in growing market share in the iLottery space. And we have seen already in 2025 a very good development without significant investments on our end, with a three percentage point increase in market share. We have now turned on the eInstant as the second provider in the market. Operator: There are no further questions at this time. I will now turn the call back to Vincent Sadusky, CEO of Brightstar Lottery, for closing remarks. Vincent Sadusky: Yes. Thanks for joining us today, everyone. Brightstar Lottery’s core business is one of the stable and predictable models in gaming and entertainment, and it has demonstrated remarkable consistency through all these economic cycles. And we have talked about our growth initiatives that we think will enhance our long-term growth profile. Again, I make the pitch for our valuation discount no matter how you take a look at this and really appreciate your interest in Brightstar Lottery. We will see you in the next couple of weeks, many of you, and continue to update you throughout the year. Thank you. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Henry Schein, Inc.'s fourth quarter 2025 earnings conference call. At this time, participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please press the star key followed by one on your touch-tone phone if you would like to ask a question at the end of the call. If anyone should require assistance during the call, please press the star key followed by zero on your touch-tone phone. As a reminder, this call is being recorded. I would now like to introduce your host for today's call, Graham Stanley, Henry Schein, Inc.'s Vice President of Investor Relations and Strategic Financial Project Officer. Please go ahead, ma’am. Graham Stanley: Thank you, Operator, and thanks to each of you for joining us today to discuss Henry Schein, Inc.'s financial results for 2025. With me on today's call are Stanley Bergman, Chairman of the Board and Chief Executive Officer of Henry Schein, Inc.; Fred Lowry, Chief Executive Officer designate of Henry Schein, Inc.; and Ronald South, Senior Vice President and Chief Financial Officer. Before we begin, I would like to state that certain comments made during this call include information that is forward-looking. Risks and uncertainties involved in the company's business may affect the matters referred to in forward-looking statements, and the company's performance may materially differ from those expressed in or indicated by such statements. These forward-looking statements are qualified in their entirety by the cautionary statements contained in Henry Schein, Inc.'s filings with the Securities and Exchange Commission and included in the Risk Factors section of those filings. In addition, all comments about the markets we serve, including end-market growth rates and market share, are based upon the company's internal analyses and estimates. Today's remarks will include both GAAP and non-GAAP financial results. We believe the non-GAAP financial measures provide useful supplemental information about the financial performance of our business, enable the comparison of financial results between periods where certain items may vary independently of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement of the corresponding GAAP measures. Reconciliations between GAAP and non-GAAP measures included in Exhibit B of today's press release can be found in the Financials and Filings section of our Investor Relations website under the Supplemental Information heading and in our quarterly earnings presentation also posted on our Investor Relations website. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 2026. Henry Schein, Inc. undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call. Lastly, during today's Q&A session, please limit yourself to a single question so that we can accommodate questions from as many of you as possible. I will now turn the call over to Stanley Bergman. Thank you. Stanley Bergman: Good morning, everyone, and thank you for joining us. Graham Stanley: I want to particularly welcome Fred Lowry to our call today and believe he is exceptionally well suited for the role. He is joining us from Thermo Fisher Scientific where he spent 20 years scaling large businesses through acquisitions and organic growth, managing both national and owned brand products sold through Thermo Fisher's distribution channels and advancing value-added services. Fred also brings a strong customer focus. Beyond Fred's extensive leadership experience, Fred has a philosophy that aligns with the principles that have long defined Henry Schein, Inc. Understands the critical role we have in supporting dental and medical practitioners, and he is very well equipped to lead Henry Schein, Inc. into its next phase of growth. Fred has already connected with many in our leadership team and I am highly confident that the transition to Fred's leadership will be smooth and that he will drive Henry Schein, Inc. to even greater success. Fred, could you please make a few remarks? Thank you. Fred Lowry: Thank you, Stan. I am excited to be here today, and I am looking forward to getting started next week and working with this high-performance team and leading this exceptional company into its next phase of growth. I also look forward to engaging with our five constituents: our Team Schein members, customers, suppliers, investors, and the communities which we serve. I have an enormous amount of respect for what Stan and Team Schein have built and I am committed to building upon these achievements going forward. As I have gotten to know the Henry Schein, Inc. team and the company over the past couple of months, I have been impressed with the values, the culture, and the significant growth opportunities for the future. The fourth quarter results demonstrate that I am joining a company that is successfully managing through transformation, which is exactly the kind of experience I have led effectively in prior roles. So to you, Stan, thank you. And to the entire leadership team, thank you for warmly welcoming me over the past few months. It is yet another indication of the company's unique culture. Henry Schein, Inc. is a great company, and I look forward to leading the team as we accelerate the implementation of our strategies. Stanley Bergman: Thank you, Fred, for your thoughtful comments, which in my mind reiterates why we have great confidence that you will lead Henry Schein, Inc. to even greater success. Now for the fourth quarter results. Our fourth quarter sales reflect continuing momentum resulting in the highest sales growth in 15 quarters. We are pleased with the sales results across all our businesses, particularly our global equipment, specialty products, and technology businesses. This drove our strong fourth quarter earnings which exceeded the increased 2025 financial guidance provided in our third quarter earnings release. The growth we have achieved, especially over the second half of 2025, demonstrates the effective execution of our 2025 to 2027 BOLD+1 strategic plan and positions us well for the future. Let me highlight some of the initiatives that have advanced our BOLD+1 strategic plan in this particular quarter. First, 2025 non-GAAP operating income from high-growth, high-margin businesses is approaching 50% of our total operating income. We are on track to exceed our goal of over 50% by the end of our strategic planning cycle in 2027. This does not include income from our corporate brands which we estimate to be more than 10% of our total operating income. Second, implementation is underway across multiple value creation projects, and we are pleased with the progress made to date. Third, we have made substantial progress rolling out our global e-commerce platform now known as henryschein.com, and expect to complete the rollout to U.S. dental and Canadian customers in the first quarter of this year and to U.S. medical customers shortly thereafter. We will then continue with global implementation of henryschein.com. We have also launched a number of innovative solutions that provide our customers with the tools to enhance patient care and to operate a more efficient practice, including exclusive distribution in the U.S. and the U.K. of Novartis' Curaden product, a unique solution for detection and treatment of early-stage caries, and we also now have a very strong partnership with Amazon Web Services for both generative and agentic AI integration with Henry Schein One. These are both key achievements and indicative of the marketplace's view of Henry Schein, Inc., our ability to help practitioners, and, of course, drive in the end shareholder value. We recently completed a survey—this is very important—of the U.S. dental market to assess customers' financial and operational needs and opportunities for us to add value in this arena. The survey indicated that practices' focus includes driving revenue growth and improving operational efficiency by adding new customers, reducing appointment cancellations, rescheduling, or delayed treatments. These findings reinforce our confidence in our strategies contained in the BOLD+1 strategy to support our customers' elevated clinical care, improve patient outcomes, generate higher practice performance, and integrate efficient proprietary workflows. So this survey is very clear. Of course, patient outcomes are critical to our customers, but generating high practice performance and integrating efficient proprietary workflows that we offer are also critical to the future of the practice as viewed by dentists and, as I said, contained in our BOLD+1 strategic plan. We believe that customers recognize the value we bring and that these benefits are reflected in our sales results as we continue with the momentum on the sales side. Turning now to a review of our businesses. Let me start with the Global Distribution and Value Added Services Group, where we delivered solid fourth quarter sales results and good growth driven by continued momentum from the prior few quarters. We estimate approximately half of U.S. medical distribution merchandise sales growth was driven by higher volume. Data derived from our Henry Schein One eClaims activity also indicates signs of modest procedure growth in the U.S. We believe that, in general, patient traffic remains stable and probably leaning positively in the quarter. I think that is really the direction of where dentistry is heading in the U.S. for the short term, maybe medium term. U.S. dental merchandise sales growth reflected continued market share gains versus last year. Our January U.S. dental merchandise sales this January reflected good momentum going into 2026, and we continue to see benefits from increased sales performance through our data-driven marketing programs. We have invested heavily in this data-driven marketing arena for the last couple of years, and I think, of course, this is gaining momentum, and I think it will gain even further momentum as Henry Schein One is adopted in the marketplace as the key digital ordering and engagement platform for those interested in dental merchandise. Our global dental equipment sales hit a record this quarter and sales growth was the highest since the post-COVID recovery of 2021. We believe we are gaining market share in equipment resulting from outstanding execution of our long-term strategy of investing in this area, both on the sales side with our suppliers, of course, in that connection, but also on the equipment installation and service side through our global distribution network. On the equipment side, we believe that we provide our customers with the broadest product offering of equipment and the largest and best-trained technical support capabilities in the industry on a global basis as well. U.S. dental equipment sales were excellent, delivering double-digit growth. Traditional equipment sales drove much of this growth, bolstered by some exclusive supplier-sponsored promotions, and we are pleased that we are able to provide above-market growth for those suppliers that are on our platform and work closely with us. We have good order intake, which continues, by the way, into the first quarter, as our customers remain confident in investing in their practices and investing in their practices through Henry Schein, Inc. Digital equipment sales increased in the low single digits. We saw good unit growth across 2D/3D imaging, mills, 3D printers, and intraoral scanners. Intraoral scanners' average selling prices continue to modestly decrease due to lower prices of new market entrants, but I hasten to add these new market entrants are also attracting new customers into the space, advancing the interest in the practitioner community to advance from manual impressions to digital impressions. This movement continues, although I might also add that there is still lots of room for converting dentists from manual impressions to digital impressions. Parts and technical service sales remained solid contributors with mid-single-digit sales growth during the quarter. We are encouraged by the underlying demand trends in the U.S. dental equipment market, and in particular as it relates to customers viewing us as their supplier. We expect growth in 2026. Turning to our U.S. medical business, sales growth reflected steady demand for medical products and pharmaceuticals along with continued strong performance in the home solutions portion of our medical business. This was partially offset by lower comparative demand in the respiratory product category, which we see continue into the first quarter. The demand for tests and general respiratory visits has gone down, but the rest of the business has great momentum. During the fourth quarter, our U.S. medical business signed and launched an exclusive agreement with CytoChip Inc. to distribute its flagship system, CytoCBC, a unique cartridge-based complete blood count analyzer providing lab-quality results in approximately eight minutes. We expect the system to expand access to lab-quality testing at the point of care. While revenue with this product is not expected to be material to the overall medical distribution business, this agreement reflects our strategy of bringing innovative products to our customers in partnership with suppliers that value the effectiveness of our distribution system. International dental merchandise sales grew well in constant currencies and experienced solid growth across most markets. Overall, growth benefited from a weaker U.S. dollar. International dental equipment sales growth was the strongest in many years and also grew well in constant currencies. Growth was broad-based across many countries and across equipment categories. This was pretty broad-based globally, and the general equipment categories, the major ones, all did quite well on an international basis. International equipment sales growth benefited from currency exchange rates, too. On the value-added services side, sales growth was driven by our international business and by acquisitions to some extent. Also, the general consulting part of the business is doing well. Now to the Global Specialty Products Group. Fourth quarter sales continued to benefit from strong performance in implants and biomaterials, and we believe we continue to gain share across most markets. Growth was driven primarily by BioHorizons Camlog in Germany, SIN in Brazil, and Biotech Dental in France, which each delivered double-digit growth. Overall, international implant sales reflect solid underlying patient demand, reliable brands, and excellent product support and education programs. In the U.S., BioHorizons Camlog implants and biomaterials also grew at a rate consistent with prior quarters. The SIN value implant system from our Brazilian subsidiary was introduced into the U.S. market in the fourth quarter, and we expect this implant system to contribute to U.S. growth this year in 2026. Endodontics continues to benefit from expanded commercial reach. We are distributing more of the endodontic products through our U.S. distribution team, also some of the distribution channels outside of the U.S., so that is helping advance our endodontic business. Orthodontics, which remains a small part of our specialty products business, also started to recently sell through our U.S. dental distribution channel and has stabilized that business. The orthopedic business also performed well. Overall, we remain encouraged by the sales results across our specialty portfolio. Now let us turn to the Global Technologies sales and that group in general. The performance was driven by core practice management solutions and the various full-practice solutions products. We also had growth in our revenue cycle management solutions resulting from enhanced functionality including electronic claims and electronic billing. These were all quite good in the quarter. This quarter, our cloud-based customers increased by more than 20% year over year, primarily from new accounts, and now we have more than 11,000 Dentrix Ascend subscribers. Of course, the largest installed base in the world. We have also aligned our subscription offerings to provide more comprehensive integrated solutions. The standard Dentrix Ascend subscription now covers basic practice management, revenue cycle management, imaging, and patient experience solutions. As a result of both the expanding customer base and product integration, we are driving growth in annual recurring SaaS subscription revenue as well as growing our transactional services business. This ecosystem is doing well for our smaller customers, our mid-sized customers, and the very large DSOs, and in turn, driving profitability for the Henry Schein One business and therefore profitability for the company in general. We made meaningful progress on AI initiatives through our new partnership with Amazon Web Services, integrating its generative AI technology into Dentrix Ascend, Dentrix, and Dentally. This includes our real-time documentation assistant, Voice Notes, which uses AI to capture and summarize patient interactions, as well as voice-activated charting, scheduling, and communications tools. These are projects that have been worked on over the last year or so and actually are now functioning very well in our customers' offices. In addition, we launched ImageVerify at last week's Chicago Midwinter show. This is an AI-powered quality assessment tool that evaluates clinical images at the moment of capture, thereby helping reduce claims denials. Claims denials, as those familiar with the dental profession know, are a real issue in the dental practice. This alone would attract customers to our system. During the quarter, we launched a new forms workflow that captures insurance information from a simple photograph of a patient's card, making patient record entry faster and more accurate. In addition, we continue to enhance Eligibility Pro through faster response times and expanded payer connections. We expect these ongoing developments to help customers drive incremental revenue and increase productivity across their practice, and therefore allow the practitioner to focus on quality of care rather than administrative functions which our system is increasingly taking care of in a very user-friendly way. I will now turn the call over to Ronald South to review our fourth quarter financial results and discuss our 2026 financial guidance. Thank you, everyone, for calling in and listening. And Ron, now over to you. Ronald South: Thank you, Stanley, and good morning, everyone. Today, I will review the financial highlights for the quarter and would like to remind investors that on our Investor Relations website, we have also included a financial presentation containing additional detailed financial information, including certain reportable segment information. Starting with our fourth quarter sales results, global sales were $3.4 billion, with sales growth of 7.7% compared with 2024, reflecting constant currency sales growth of 5.8% and a 1.9% increase resulting from foreign currency exchange. Acquisitions contributed 0.9% sales growth to the quarter. Our GAAP operating margin for 2025 was 4.76%, a decrease of 10 basis points compared to the prior year GAAP operating margin. On a non-GAAP basis, the operating margin for the fourth quarter was 7.42%, relatively flat compared to the prior year despite lower gross margins, primarily a result of product mix within the Global Distribution and Global Specialty Products groups. Turning to taxes, our effective tax rate for 2025 on a non-GAAP basis was 22.7%. This compares with an effective tax rate of 22% for the fourth quarter 2024. For the full year, our non-GAAP effective tax rate was 23.7%. Fourth quarter 2025 GAAP net income was $101 million, or $0.85 per diluted share. This compares with prior year GAAP net income of $94 million, or $0.74 per diluted share. Our fourth quarter 2025 non-GAAP net income was $160 million, or $1.34 per diluted share. This compares with prior year non-GAAP net income of $149 million, or $1.19 per diluted share. Foreign currency exchange favorably impacted our fourth quarter diluted EPS by approximately $0.02 versus the prior year. Adjusted EBITDA for 2025 was $191 million. Turning to our sales results, the components of sales growth for the fourth quarter are included in Exhibit A in this morning's earnings release. I will now provide the primary highlights of the main sales drivers for each reporting segment starting with Global Distribution and Value Added Services. Global Distribution and Value Added Services Group sales grew by 7%. Looking at the drivers of that growth, U.S. dental merchandise sales grew 3.6%, including good volume growth driven by the sales initiatives we introduced earlier in the year. U.S. dental equipment sales grew 10.6%, led by double-digit growth in traditional equipment. Overall demand for equipment remains strong. U.S. medical distribution sales grew 4.9%, reflecting underlying growth in the business with strong growth in home solutions. International dental merchandise sales grew 9.2%, or 3.8% in constant currencies, driven by sales growth across Southern and Eastern Europe, Germany, Brazil, and Canada. International dental equipment sales grew 13.9%, with constant currency growth of 7.5%, with solid growth in both traditional and digital equipment. Equipment sales growth was especially good in Germany, Brazil, Canada, and Australia. Finally, Global Value Added Services sales grew 9.6%, or 8.5% in constant currency, driven by International Business Solutions. Turning to the Global Specialty Products Group. Sales grew 14.6%, or 11.1% in constant currency. Our implant and biomaterial business experienced solid growth in the fourth quarter, including double-digit growth in our value implants and mid-single-digit growth in our premium implants. That sales mix of premium and value implants resulted in a lower gross margin compared to the prior year. We also had strong results in the Global Technology Group, with total sales growth of 8.4%, or 7.6% in constant currency. In the U.S., sales growth was driven by practice management software, with double-digit growth in Dentrix Ascend. Internationally, sales growth was driven by our Dentally cloud-based practice management software product. From the restructuring program announced in August 2024, the company recorded restructuring expenses of $23 million, or $0.12 per diluted share, during 2025. For the full year, restructuring expenses were approximately $105 million, or $0.59 per diluted share. Regarding the value creation initiatives announced last quarter, we continue to expect to deliver over $200 million of operating income improvement over the next few years through both cost savings and capturing incremental gross margin opportunities. These projects include gross profit optimizations such as pricing and accelerating corporate brand sales, as well as initiatives to lower our cost to serve while further enhancing satisfaction. We plan to centralize certain support services, implement process automation and AI tools, and further leverage our scale to reduce indirect procurement costs. We expect these initiatives to achieve annual run-rate operating income improvement of over $125 million by 2026. During 2025, the company repurchased approximately 2.8 million shares of common stock at an average price of $71.10 per share, a total of $200 million. At fiscal year-end, we had approximately $780 million authorized and available for future stock repurchases. Turning to our cash flow, we generated operating cash flow of $381 million in the fourth quarter 2025. This compares with operating cash flow of $204 million in 2024 and was driven by working capital management. Turning to our 2026 financial guidance. At this time, we are not able to provide, without unreasonable effort, an estimate of restructuring costs related to ongoing value creation initiatives; therefore, we are not providing GAAP guidance. Our 2026 guidance is for continuing operations and does not include the impact of restructuring expenses and related costs and other items described in our press release. Guidance assumes stable dental and medical end markets during the year and is supported by initiatives outlined in our strategic plan. We expect these initiatives will support our long-term financial goals. Our guidance also assumes that foreign currency exchange rates will remain generally consistent with current levels and that the effects of tariffs can be mitigated. Our 2026 sales growth is expected to be 3% to 5% over 2025. For 2026, we expect non-GAAP diluted EPS attributable to Henry Schein, Inc. to be in the range of $5.23 to $5.37, reflecting growth of 5% to 8% compared to 2025 non-GAAP diluted EPS of $4.97. Guidance assumes lower remeasurement gains in 2026 than in 2025. We are assuming an estimated non-GAAP effective tax rate of approximately 24%. Given the implementation schedule for the value creation initiatives, we expect earnings growth to be more heavily weighted towards the second half of the year. Our 2026 adjusted EBITDA is expected to grow in the mid-single digits versus 2025 adjusted EBITDA of $1.1 billion. With that, I will now turn the call back to Stanley. Stanley Bergman: Thank you, Ron. We are, of course, ready, Operator, to answer questions from investors. So please go ahead, Operator. Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from the line of Jeff Johnson with Baird. Please proceed with your question. Jeffrey D. Johnson: Good morning, guys. Stanley, I am sure you are growing tired of the accolades, so I will just say, congratulations on a fantastic career, and we will miss hearing you on the calls every quarter. I was hoping I could maybe start, Ron, on guidance if possible. And sorry to start there, Stanley, as opposed to throwing it to you for a high-level question. But a couple of things. Just on the operating income improvement plan, the $125 million run rate that you are talking about, Ron, exiting 2026, should we gate that, kind of build that in a sequential basis, kind of on steady state, growing it consistently throughout the year by quarter? And then from a year-over-year perspective, in 2027, how much of that do you think could flow through to the bottom line? Ronald South: Sure, Jeff. I think that, as you can appreciate, these initiatives are still somewhat in the early stages, and that is why what I said on the guidance that we expect the earnings growth to be more heavily weighted to the back half of the year is a reflection as well of the benefits that we ultimately get from value creation. So I think it is by no means linear. I do think that as we make investments in the first half of the year, continue to make some investments over the course of the year, that will be reflected in our results. But we have taken that into consideration with the guidance. In terms of the $125 million, and how that impacts 2027, that remains to be seen at this point in time. We will have to see just where we are on the initiatives, what else is happening with the business in terms of where we need to make investments, and how much of that will flow through in 2027. We will be able to address that. Operator: Thank you. The next question is from the line of Allen Charles Lutz with Bank of America. Please proceed with your question. Allen Charles Lutz: One for Ron here on the really strong growth in Specialty. Value implants, as you mentioned, up double digits, but also premium implants were up mid-single digits, which I think is an acceleration over the past couple of quarters. Can you talk a little bit about what you are seeing there in terms of pricing both on the value and the premium side? Is that evolving at all? And how to think about price growth as a contribution or lever within this business in 2026? Thanks. Ronald South: Certainly. We were especially pleased with the growth we saw in Europe. We had good growth at Biotech, we had good growth in Germany, and the value implants are becoming a bigger part of the portfolio for us. From a pricing perspective, I do not think there is anything there that is unusual from a pricing perspective. I would say that we are very well priced within the market, and I do not believe there was anything that I would consider to be unusual in terms of price increases or price benefit within the category. Stanley Bergman: The issue is that there has been a movement, a mix within our portfolio towards the brands that Ron just identified. The Camlog brand in Germany, for example, which is our largest market for that product, has stable pricing, yet we continue to gain market share. So I do not think there is particular pressure on our main premium brands, which do sell a little bit less than some of the other major brands, and this is all a mix shift towards faster growth by these companies we have invested in in the last couple of years that are all doing well. Operator: The next question is from the line of Jason M. Bednar with Piper Sandler. Please proceed with your question. Jason M. Bednar: Congrats on the close here to 2025. I am going to ask a multipart question here. A big picture in the dental market, Stan. It just really seems like the market took a step forward in fourth quarter. I think we are all seeing that results are looking better across the board, for you and your partners. Can you speak to the durability of that performance? Sounds like it continued into January, but you are often a step closer to the customer. You are interacting with them on a more frequent regular basis than even your manufacturing partners are. Just do you sense the market is getting its footing back in terms of the patient traffic through offices, consumer spending on the higher-end categories, dentists on equipment? I guess, are you seeing in your backlog—just, I guess, the genesis of the question—is there anything unique in the fourth quarter that would suggest the better revenue growth would not persist throughout 2026 here? Stanley Bergman: So thanks for that question, Jason. It is a very important question. I would say the markets are stable, certainly in the U.S., we have data from our Henry Schein One claims processing. So essentially, it is a stable market leaning, I would say, positively. There is good feeling amongst dentists that investing in newer technology, whether it is scanners or AI, or simply upgrading their practice management systems and connecting those practice management systems to hardware—chairs, units, lights, imaging, etcetera—that whole trend is there, and I think it is good. The market is good in the U.S. International is mixed, but I think a lot of this has to do with Henry Schein, Inc. as well. We were hunkered down a little bit—a lot actually—on the cyber recovery. Our people were internally focused; customers were not going out aggressively. In the second quarter, we felt very good that we dealt with the past, and we started being aggressive going out, adding resources to our sales organization, bringing online further digital offerings. So I think it is a combination of dentists feeling good about their practices, patient traffic being okay, meaning slightly positive in the U.S., and our sales organization having the ability to go and explain to dentists why investing in these various newer technologies is good for their practice. So to some extent, we are expanding the market within our own customer base. But generally, it is a positive feeling. For those that were in Chicago—if you walked on the floor, people were smiling; you went to the Schein booth, they were particularly smiling. So I think things are stabilized. I hope not to use the word cybersecurity. I hope our team does not use that again, because that incident is way behind us. And the team is very positive, very excited. We are winning in the marketplace, a marketplace that is stable to leaning positively, and many of the markets abroad are also similar. Look at Brazil, for example; the German market is a lot more positive. On the equipment side, Canada. So folks, it is a positive environment from a market point of view. But I think most of our success is from our team's excitement in winning in the marketplace and being back to where we were before October 2023 when we had the cyber incident. Operator: The next question comes from the line of John Paul Stansel with JPMorgan. Please proceed with your question. John Paul Stansel: Great. Thanks for taking my question. Just wanted to hone in on the cadence through the year, particularly around the $125 million run-rate contribution from the value creation initiatives. On what I think I heard from you, Ron, was that there would be implementation costs in the first half of the year or early in the year. Is the right way to think about this that this is actually potentially a bit of a headwind early on, and if that is right, is it still fair to say that it is a net benefit? You know, you get some improvement in the back half. Netting all that out, could it still be a benefit for the full year? Ronald South: Yeah, John. The expectation for the full year is clearly there will be a net benefit from the initiatives. Within the quarters, you could get some lumpiness depending on the timing of some of the investment, but we are confident, and we would be disappointed if we did not have a net benefit over the course of the year from these. But that benefit will be more heavily weighted to the second half of the year. Operator: Our next question comes from the line of Kevin Caliendo with UBS. Please proceed with your question. Kevin Caliendo: Thanks for taking my question, guys. Good morning. Just two quick ones. The lower remeasurement in 2026, you described it as lower. Is it materially lower? Like, just from a modeling perspective, how should we think about versus the $0.23? And then the second one is more about the equipment. You called out that there was a benefit from promotions. Obviously, traditional equipment was up double digit in 4Q. Is that an assumed run rate now? Or was that sort of a one-time benefit? Can you talk about what happened, how meaningful it was, and how we should think about traditional equipment growth in 2026? Thanks, guys. Ronald South: Yeah. I will start with the commentary on the remeasurement gain, Kevin, and then Stanley can talk a little more about equipment. But as you are aware, the portfolio approach to growth has included taking a minority stake in certain companies and in some cases extending that investment to a controlling interest when we believe there is a strategic reason to do so. And there are a couple of situations where we are contemplating transactions that could result in a range of remeasurement gain outcomes in 2026, and we have taken this range into consideration when setting our guidance. But what we said is the EPS guidance assumes remeasurement gains will be lower in 2026 than they were in 2025. As you can appreciate, it is difficult to gauge sometimes what the benefit of these will be, but we do expect—we are pretty confident—it will be less than what we had in 2025. Stanley, if you want to address the equipment question. Stanley Bergman: Thank you, Ron. I think that is great. On the equipment side, I just want to be careful not to indicate that we had massive promotions. We did not. It was a normal year-end. Of course, the fourth quarter is a quarter where dentists are investing in their practice for tax reasons, so the whole year, they have been thinking about buying a piece of equipment or maybe addressing an expanded room or operatory, and, of course, our salespeople encourage them to close on that and have it installed before the year-end. This is tax beneficial. I will say that there are a few manufacturers of equipment that excited our organization. A couple of them maybe had higher-priced products per unit and had extra features, maybe viewed by dentists as better products—better to invest in those products. And I would say we had promotions of that kind, where manufacturers, their field organization, and our organization worked very well together on promotions specific to a product or category or to a manufacturer. But these were not promotions that pull from one quarter to the other. Going into the first quarter, I think we mentioned in our last call that our backlog was good. It remains good. The momentum is good. And, again, it goes back to our salespeople—both the generalists, the specialists, the equipment people—just feeling good that we are back in the market, attacking the markets, gaining market share, in an environment where dentists are feeling pretty good. And so I think it is just the dynamics, and we are very pleased with the dynamics, and view this as an ongoing opportunity for Henry Schein, Inc. Operator: Our next question comes from the line of Jon Block with Stifel. Please proceed with your question. Joe Federico: Hey, everyone. Joe Federico on for Jon. Thanks for the questions. Maybe just to move back to the impressive specialties growth in the quarter, seemingly driven by global double-digit percent implant sales. How do you view the sustainability of that implant performance? I know it is likely not double-digit every quarter, but should we just view that segment, the specialty segment, as kind of a high-single-digit growth profile going forward for the near future? And also, any specific color on U.S. implant performance would be helpful as well. Stanley Bergman: So Ron can address the math because we gave a range at our investor day, and I think the market is not growing as well as we thought at our Investor Day a few years ago. But Ron will address the math. Yeah. We had a very good quarter. Our European, particularly our German business, is doing well. It has been doing well for a long time. I think we are now the number one provider of dental implants, certainly by unit, in Germany, and that market has very good momentum. No one can say that we will have great particular quarters, but I think it is a solid business. We have a great product offering, new introductions of products, and a great team. The various discount lines, if you will, or value lines, depending on how you want to view it—of SIN, of Biotech, German product, Magenta, and even within BioHorizons the value line—are all doing very well. I think the implant market is stable, leaning positively, more stable in the U.S. than it has been in a while. Henry Schein, Inc. does not really operate in the very expensive implant category in the U.S. Of course, BioHorizons has a product offering, but we are more focused on the practice that is dealing with middle-income DSOs. And so we did not have the significant decrease that maybe some others did. But generally, it is a pretty stable market. The U.S. is not as robust as other parts of the world. We are focused on our new product introduction this year, and I think we will be more aggressive next year. But I do not think we can give you specific thoughts on the high end of growth in 2026, but Ron will give you specifics on the range that we are talking about. Ronald South: Certainly. So, Joe, I think you can kind of dissect the implant market a couple of different ways. If you look at the outside U.S. versus inside U.S. market, we did see better growth outside the U.S., and we mentioned that in the prepared remarks that our subsidiary in France, Biotech, and Camlog both had very good growth, and I really attribute that to good management execution, just doing a very good job of getting some additional market share there. Our assumption has always been that specialty markets should grow in that 5% to 8% range. I do not think they are right now. Perhaps there are some pockets of the world where they are growing 5% to 8%, but inside the U.S., I do not think it is at 5%. We are seeing still something probably less than—definitely less than—5% in terms of market growth in the U.S. And then if you also dissect it by looking at premium versus value in the U.S., we mentioned on the call that we did launch the SIN U.S. value implant in the fourth quarter, and we have a lot of optimism in terms of the contribution we could get from that product in terms of improving our growth in the U.S. going forward in 2026. So, like Stanley said, it is difficult to determine where that high end is—where this growth could be—but we do like the momentum we have coming out of 2025 into 2026 with the broad category. Stanley Bergman: Thank you, Ronald. So the endo business is quite stable. Not that the market per se is growing, but we are doing quite well, getting some market share. The orthopedic business has also got certain momentum that is very nice. And orthodontics—very small—but we are moving that product through our distribution channel, not investing a huge amount in specialty salespeople, but offering an alternative of traditional orthodontic products at reasonable price, a value product. And so we were losing money in that field. We had a bit of a challenge with computers during the cyber incident, and overall, the specialty business is doing well. And also that is on our owned brands—specialty products—but also on our private brand, our corporate brand products, where we have products OEM-manufactured for us. That business is growing at a more rapid rate than our core national brand business. Of course, we work very well with certain national brand manufacturers. There are many products where the product line is really a generic today, and in those cases where we can provide value to our customers, we are, and that is growing at a much faster rate. Operator: Our next question is from the line of Elizabeth Hammell Anderson with Evercore ISI. Please proceed with your question. Elizabeth Hammell Anderson: Hi, guys. Congrats, Stanley. I am looking forward to working with Fred going forward. Maybe a combo short-term, long-term question. Just to confirm, as per usual, none of the future repo with the authorization is included in the guidance range you just gave? And then secondarily, can you talk a little bit more on the gross margin? I think you guys called out pricing and private label as opportunities, I am assuming for 2026 and going forward. So how do you think about what the 2026 opportunities are there versus longer term? Thank you very much. Ronald South: Yeah. Regarding the repurchases, Elizabeth, our guidance assumes a relatively stable stock count during the year. But, as you can appreciate, we will be assessing the stock repurchase opportunities as the year progresses, and if it has a material impact, we will be sure to communicate that. In terms of the margin and the contribution from private label, private label continues to grow at a pace faster than our branded merchandise, so we are getting some contribution—favorable contribution—to the margin from that. Still, you get some pricing pressure in certain categories. We have talked about gloves in the past and other areas, but, broadly speaking, the private label does provide us with some margin expansion, and we do believe—and part of our value creation initiative is—how can we expand those margins potentially even through accelerating the growth of some of those private label categories. Stanley Bergman: But to be clear, Elizabeth, we are working very well today with many of our national brand suppliers who understand the value Henry Schein, Inc. brings, understand we did have some challenges because of the cyber incident, and we are back in the market. So they are working with us. On the other hand, there are many items—I would not call them commodities because some of them are better than commodities—and even if we are sensitive to the Henry Schein brand, it is simply another brand, but it is a high-quality brand and attracts customers because of the quality but also because of the price, the whole value proposition. And that is doing very well. It is a stated goal of ours, and we are doing quite well in that regard. And it, of course, carries a higher margin—a lower price, but a higher margin with absolute dollars addition to the bottom line. Operator: The next question comes from the line of Michael Cherny with Leerink Partners. Proceed with your question. Michael Cherny: Good morning. Thanks for taking the question. Maybe if we can dig in a little bit more on implied margins relative to what you recognized in the quarter. Fully understand there are a lot of moving pieces. Fully understand the operational improvements that you expect to ramp over the course of the year. But what are you seeing relative to your underlying business on the margin side—there have been some questions on price, and there is obviously a dynamic on mix. But how are we thinking about the core underlying margins for the business before you layer on the remeasurement dynamics, the operational benefits, other moving pieces to the P&L? Ronald South: Hi, Michael. I think that there are a lot of moving parts when you are talking about our margins because, when you look at the business as a whole, we are experiencing some product mix dynamics, for example, within the specialty group. We mentioned earlier that value implants are growing faster than premium implants, for example. They do get a slightly lower gross margin, and that will put a little bit of pressure in terms of gross margin percentage. But it does create gross profit dollar growth for us, which is very important for us. I think within the broader distribution, there is always going to be customer mix. We have a very strong portfolio of DSO customers. DSO customers do get a slightly better margin, but we can deliver to them more efficiently. So that is an important part of the portfolio and an important part of the business, and growth from those DSOs benefits us as well. While we want to stay focused on gross margin percentage improvements—and that is a very important value creation initiative for us—growing gross profit dollars is equally important. And so, to the extent that we can expand sales and grow gross profit dollars as well, that is always going to be a priority for us. In terms of what then falls out for operating margin, hence the G&A expense initiatives that we have in place to deliver product more efficiently, to support the business more efficiently. And we believe that those benefits will begin to show up towards the back half of the year and ultimately should see some acceleration and improvements in operating margin. Stanley Bergman: It is a matter of mix, and at the end of the day, our BOLD+1 strategic plan is what drives us, and the idea is to move towards high-growth, high-margin businesses—higher gross profit, higher operating income—and we stated early on in the call that the direction of the business, the whole area of high-growth, high-margin businesses, the specialty areas, the value-added services, are growing quite nicely as well as the private brands. So it is hard to get the exact number, predict the exact number in a quarter, but directionally, the business is moving towards higher-growth, higher-margin mix businesses. Operator: Okay. Thank you. We have time for one last question, which is coming from the line of Brandon Vazquez with William Blair. Please proceed with your question. Brandon Vazquez: Everyone, thanks for taking the questions. I will maybe ask two brief ones to close us out here, maybe a little macro. First, on the medical side, there is a lot of chatter in the medtech world, especially about procedure volumes through the first quarter and then through 2026. Since you guys are kind of tied to the end-market volumes, I would just be curious on how things are progressing so far in early 2026 in terms of volumes. People are a little worried about ACA subsidies going away, and that might lower procedure volumes. There are some storms, there is flu season, things like that. That is the first one, and I will just ask the second one here as well. I think in the commentary or the prepared remarks, you mentioned that you can mitigate tariffs. Just give us any incremental details on how you see the tariff world right now? Given the recent AIB/A ruling, what you are kind of baking into guidance and how you can mitigate those tariffs? Thanks a lot. Stanley Bergman: Thank you for that question. On the medical side, we participate primarily in the alternate care site for delivery where delivery of care takes place. Of course, the weather will impact as it often does in the first quarter. We have not analyzed exactly how the number of procedures will be down this year versus last year. But it is going to be down a little bit. I do not think our customers are really impacted in any material way by any of this legislation or any particular trend going on other than, of course, people not being diagnosed, going for diagnosis, as much as they did during the COVID period. First of all, COVID is not rampant. And second, if people have colds, they are not worried about it, or strep throat or whatever, as much as they were during the COVID period. So there is a lot less on the respiratory side. Vaccinations are probably down. Although it used to be material for Henry Schein, Inc. at one point, it is not a material category, but it is a category that our medical people are active in. So I think you can see some challenges on the medical side. I do not think it is going to impact the $13 billion Henry Schein, Inc. enterprise in any material way. The home care business is doing well. I do not think that is impacted by any legislation or regulation at this particular time. So I would say our medical business is quite stable. And the decreasing price of gloves is not what it was. It has also stabilized, and we are back to 2019 levels there—maybe a little bit of higher price. The medical business is relatively stable, with, as I said, some challenges from the respiratory side. On the tariffs, I think in the prepared remarks, we said we anticipate passing on any tariff increases, if there are any that we need to make, to our customers. We have to pay more. But on the other side, we are doing a good job in alternative sourcing, so from different countries. Now, I do not know what this flat 15% means, but we should be able to deal with that, at least in the short term. If it is a long-term issue, we will let you know. But I think, within the context of Henry Schein, Inc. as a $13 billion company, we should be able to deal with this as we have dealt with tariffs. Generally, one part of the business is paying more; another part of the business is mitigating it through other ways. But generally, I think we will be okay. Graham, on the—Okay. Okay. So—Okay. So thank you very much. I appreciate everyone calling in, the questions. I did not anticipate to do 121 investor calls. But I think the fact that Fred is sitting here will be evidence that I will not be doing a 122 of these. So thank you for your support. Thank you for your interest. Henry Schein, Inc. as a company is, I think, in a great place. Momentum is good. The strategies are working. Of course, in any businesses, there are challenges in one part of the business versus another. This team is well prepared, I think, to deal with the challenges that we know of today and that may even come our way in the future. The team is well organized. The morale, I think, in the company is quite good. And the markets are relatively stable. So to conclude today's call, firstly, thank you again for all the support over the years. To the analysts that are covering the space, I know the space has been a bit rough over the last few years, but I think it is a good place for investors to invest. The whole healthcare dental space and the healthcare alternate care space are all good areas, and I appreciate those analysts that stuck with the ups and downs, and those that have done the detailed work. So thank you very much. So in conclusion, the business is in good shape and maybe Fred will end the call. Thank you. Fred Lowry: Stan, no. Thank you very much, and I am looking forward to digging in next week. I have got a 100-day plan that includes a listening tour. I am going to get out and meet some Team Schein members, some customers, and suppliers. Of course, I am looking forward to meeting all of you and spending some time with you and learning—getting your perspectives on the business. And then, also, I am going to dig in on the initiatives that are in place and validate the assumptions and looking forward to accelerating and driving more value creation for our shareholders. So thank you very much. Thank you for your interest in Henry Schein, Inc. And I am looking forward to working with all of you. Stanley Bergman: Graham? Graham Stanley: So next call will be in May. Okay. Stanley Bergman: Thank you, everyone. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Super Group (SGHC) Limited Earnings Call – Q4 and Full Year 2025 Nkem Ojougboh: Hello, everyone, and thank you for joining the Super Group (SGHC) Limited fourth quarter and full year 2025 earnings webcast and conference call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by. It is now my pleasure to hand over to your host, Nkem Ojougboh, Head of Investor Relations, to begin. Please go ahead. Good morning, everyone. And thank you for joining us today to discuss Super Group (SGHC) Limited's results for the fourth quarter and full year 2025. During this call, Super Group (SGHC) Limited may make comments of a forward-looking nature that is subject to risk, uncertainties, and other factors discussed further in its SEC filings that would cause its actual results to differ materially from historical results, or from the company's forecast. Super Group (SGHC) Limited assumes no responsibility to update forward-looking statements other than as required by law. On today's call, Super Group (SGHC) Limited may refer to certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. Super Group (SGHC) Limited has provided a reconciliation of the non-GAAP financial measures to the most comparable GAAP figures in the press release issued yesterday and available in the Investor Relations page of Super Group (SGHC) Limited's website. Super Group (SGHC) Limited recommends that investors refer to its supplementary presentation posted to the company's website. Today, I am joined by Neal Menashe, Chief Executive Officer, and Alinda Van Wyk, Chief Financial Officer. After our prepared remarks, we will open the call up for questions. I will now turn the call over to Neal. Neal Menashe: Thank you, Nkem. Nkem Ojougboh: Good morning, everyone. 2025 was a standout year for Super Group (SGHC) Limited. We refined our portfolio by exiting US iGaming, Neal Menashe: allowing us to focus on markets where we expect clear durable advantages and where we believe we can win decisively. Concentrating resources in our core regions in this manner has paved the way for the record growth and operating leverage that we continue to see today. Despite some unfavorable sports outcomes late in the year, Q4 was another record-breaking period. Monthly active customers exceeded 6,000,000, a new record, and deposits also reached new highs. In preparation for a strong 2026, we successfully launched ZAR Supercoin in South Africa, the first step in our broader digital payment infrastructure. We are also pleased that we have received the final regulatory approval of the Apricot transaction, which strengthens our Sportsbook technology platform and begins the process of real-life cost savings. Turning to operational performance, we closed the year with significant momentum across priority markets. Europe saw strong revenue growth this quarter, up 23% year over year, led by a 37% increase in the UK. In Spain, revenue grew 5% on the back of strong retention and product improvements. In Germany, we remain encouraged by the upcoming H1 slots launch and the operational efficiencies we continue to implement across the market. Africa grew 27% for the full year against 2024, with Botswana outperforming since launch and South Africa delivering strong wagering growth and record casino volumes. Compared to fourth quarter 2024, Africa was up 7%. This was a very solid result given last year's robust sports margin and this year's customer-friendly outcomes. The underlying strength of our Africa business is highlighted by 31% growth in sports wagers and 52% growth in casino wagers year over year. Overall, Africa remains a powerful growth engine supported by continued customer momentum and high brand loyalty across the region. And we continue to assess our strategy in Nigeria. In North America, Canada ex-Ontario increased 15%, supported by strong customer retention and acquisition coupled with improved product rollout. In Ontario, product improvements also drove record engagement and deposits. Alberta continues to show solid growth, and we are preparing for regulation in Q2. Overall, North America, excluding the US, grew 10%. APAC revenue rose 6% year over year despite New Zealand's 5% dip, reflecting our disciplined wait on the sidelines ahead of the long-anticipated local regulations framework. We continue to undertake product innovations in support of future growth. During the quarter, we improved sports promotional mechanics for Betway x Africa, leading to a 400 basis points sequential increase in the Sportsbook parlay wager mix. In Africa, in the beginning of this year, we completed the technology migration in all our markets. We are now implementing AI-driven hyper-personalized bet pricing to translate real-time liability analysis, market data, and customer behavior insights into dynamic odds. We are confident that this will improve our trading efficiency and help to mitigate volatility. These upgrades are all part of our broader focus on improving customer engagement, optimizing the efficiency of our promotional mechanics, and building scalable features that support long-term margin quality. In South Africa, ZAR Supercoin has two significant catalysts expected in the coming months. First, the launch of the Supercoin wallet, which will give customers a seamless way to acquire, hold, and redeem directly within our ecosystem. We expect this to increase engagement. Second, we are preparing additional exchange listings to broaden access, deepen liquidity, and expand distribution. We believe that together, these developments will position us well for this year. With that, I will turn it over to Alinda. Alinda Van Wyk: Thank you, Neal. 2025 was truly exceptional. Our total revenue for the year reached $2,200,000,000, reflecting a 22% increase compared to the previous year. Adjusted EBITDA saw an increase of 57% year over year, amounting to $560,000,000. This represents an impressive margin of around 25%, compared with 19% in the prior year. Despite the challenging year-over-year benchmark, total revenue grew 8% to $578,000,000 during the fourth quarter, with adjusted EBITDA up 11% to $139,000,000. Record deposits were driven by casino momentum and an active sports calendar. Total wagering activity remained robust with an increase of 20% for sports and 17% for casino compared to last year. In addition, average monthly active customers reached an all-time high of 6,100,000 for the quarter, a 16% jump from the same period in 2024. Our results demonstrate a commitment to cost discipline, and we maintained operational and marketing efficiencies. This is supported by further AI-enabled improvements. Enhancements in customer support, product customization, and sports trading are ongoing. The consistent strength of our business lies in our effective conversion of EBITDA to free cash flow, as shown by this year's impressive 72% conversion rate. We closed the year with $513,000,000 in cash, up 32% year over year, an increase that underscores the resilience and durability of our business model. Our capital allocation strategy includes a commitment to rewarding our shareholders. Over the course of 2025, we returned $156,000,000 to shareholders, including $20,000,000 in Q4, with an additional special dividend of $125,000,000 by this month. Our robust cash generation allows us to maintain this discipline while funding organic growth. Turning to guidance, 2026 is off to a strong start, aided by impressive active customer numbers even higher than last quarter. After an unusually high performance in January, sports hold has returned to levels in line with our trailing twelve-month average of last year. For 2026, we are guiding to total revenue of at least $2,550,000,000 and adjusted EBITDA of more than $680,000,000. This reflects purely organic growth, continued customer engagement, and a FIFA World Cup uplift. Notably, this guidance assumes ongoing marketing discipline at roughly 22% of revenue, UK tax increases taking effect from April, Alberta regulating locally from midyear, and continued operating leverage supported by a strong balance sheet. We are pleased to share that the board approved an increase of our minimum quarterly dividend target from $0.04 to $0.05 per share. The first payment will be made towards March, with the board reviewing this on a quarterly basis thereafter. To conclude, we expect to release full financial statements in April, consistent with prior periods. I will now hand back to Neal for closing remarks. Neal Menashe: Thanks, Alinda. Looking ahead, we are excited to continue scaling our strongest markets, exploring expansion into new African territories, and we believe that our teams are well prepared for upcoming regulation. The expanded World Cup schedule offers a driver for global engagement, setting the stage for a strong 2026. To our employees, thank you for an exceptional year. And to our shareholders, thank you for your ongoing support. I will now hand over to the operator to open the call up for questions. Nkem Ojougboh: Operator? Thank you. Operator: To ask a question, please press star followed by 1 on your telephone keypad now. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Ryan Sigdahl of Craig-Hallum Capital Group. Your line is now open. Please go ahead. Ryan Ronald Sigdahl: Neal, Alinda, good day. Congrats on the strong business trends. I want to start with the customer-friendly outcomes in December. Curious how much that impacted results, if you can quantify that. And then secondly, how that has translated into potentially greater recycling of profits in play as you look at January and February, and if there are any notable trend differences to call out between sports and casino as we start the new year? Neal Menashe: Okay. So hi, Ryan. Great job. So the quarter started off really great, but obviously in December sports outcomes were made more customer friendly. Obviously, in Africa, a couple of Nations, Champions League, and the English Premier League. You recall Q4 2024, we had a hard comp of 16%, and we ended the quarter with sports at 11.4. December was meaningful, given that we estimated it was probably about a $20,000,000 EBITDA impact from these outcomes. But obviously, it did flow through on our side in January. As Alinda said, we really had a fantastic January. But again, you know, it is all about the favorites and drawing or losing, but this is what we sell. We sell that the favorite obviously sometimes can win all the time. And we see lots of activity in our casino. If you compare casino Q4 2025 to the prior period, it is up significantly. Ryan Ronald Sigdahl: Great. Just given the strength of the business, and some recent news, I guess, can you explain what the company is doing from a charitable standpoint with Betway Cares, reinvestment in the community? I saw Mr. Beast yesterday. Certainly seems like a lot of good things you guys are working on. It has been spun a little bit negatively by certain people. So curious just to level set what you guys are doing with your communities and reinvestment. And then secondly, Alinda, if you can just explain at a high level how those expenses and the spending flow through the income statement. Perfect. Nkem Ojougboh: Before I hand it to Alinda on the accounting, let me give some context of Betway Cares. At a high level, Betway Cares is our charitable trust in South Africa dedicated to community initiatives, clean drinking water, sports development, art, cultural access, and with the goal of driving long-term impact. So we do vast amounts of charities across the spectrum. Alinda can now talk to how that flows through our income statement. Alinda Van Wyk: Yes. Thanks, Ryan. On the accounting side, IFRS requires us to consolidate 100% of the earnings of the South African entity, as well as 100% of the expenses of the minority, which is Betway Cares. And the operating expenses of Betway Cares are expensed as general and administrative expenses, and what we spend is shown as restricted cash on the balance sheet. Ryan Ronald Sigdahl: Great. Nkem Ojougboh: Thanks, guys. Good luck. Ryan Ronald Sigdahl: Bye. Nkem Ojougboh: Thank you. Operator: The next question comes from Jordan Bender of Citi. Your line is now open. Please go ahead. Good morning, everyone. Thanks for the questions. Two for me. One on South Africa, we saw potential flare up in tax changes towards the end of last year. Are you able to help us just better understand what you are hearing and seeing on the ground and maybe the outlook for that? And then the second question, so we have 2026 guidance. You guys gave us your 2028 targets at your Investor Day a couple months ago, or back in September. From what the guidance range maybe tells us is you can potentially get to the low end of your 2028 targets by this year. So are you able to just help us understand what you are seeing might be running better than expected when you gave that outlook back in September? Thank you. Neal Menashe: Okay. So I will start with South Africa. There is obviously no new update. All the operators in South Africa expect to submit their responses in February to the government paper, and then go through different committees. So we will see how that goes. From our perspective, when it comes to all these countries, it is all about operating efficiently, right? And that is what you will see in our guidance and our margin. So it is all about that operating leverage that we keep talking about in this business. Also that extra revenue coming in at almost 50% to 60% to our bottom line. So from the guidance for next year at $680,000,000, we hope by 2027–2028, we will increase that as the operating leverage kicks in and our marketing efficiencies across the world start playing out. Alinda Van Wyk: Maybe just to add to that, we made specific reference to long-term goals more than guidance. And what we had to embed this quarter for the guidance of 2026, and when we put it all together, it is just to keep in mind the effect of the UK tax that is in effect in April of 2026 as well as the change over to a regulation in Alberta, which we embedded in the guidance of 2026 halfway through the year. The interesting thing as well is we build our guidance on our continued customer momentum. I think we spoke a lot about our cohorts, and that is even though we have a lot of confidence in what already exists within our business, we remain quite conservative in how we roll it out in the next couple of years. Jordan Maxwell Bender: Understood. Thank you very much. Operator: The next question comes from Bernie McTernan of Needham & Company. Your line is now open. Please go ahead. Bernard Jerome McTernan: Great. Thanks for taking the questions. Maybe just to start, I have two. Just wanted to ask on Nigeria. So the slide deck mentioned assessing a new plan in Nigeria. So just wanted to get a sense in terms of what is contemplated in the guide, and what is the timeline of the rollout of that new plan. And then also discussion on the final regulatory approval for Apricot. So I just wanted to make sure, was Apricot always treated at arm's length since the original deal announcement, I think a couple years ago at this point? And more importantly, what will you be able to do now with that final regulatory approval that you were not able to before? Neal Menashe: Okay. So just obviously in Africa, we continue to operationalize in all the countries within Africa. And we are still refining our strategy in Nigeria. We expect low single-digit World Cup tailwind there. Right? So Nigeria is more to decide what we are doing, which part of the market we are setting, and we have one or two other African countries we are looking at there. But we see lots of low-hanging fruit in all our other African markets. Operationalize it in the same way we have operationalized the other markets across the world. When it comes to Apricot, as you know, we purchased the Sportsbook technology, bringing it in-house. Just to explain that Sportsbook technology is for Betway outside of Africa. We now have full control over it. So it means that all the staff, etc., come into our organization and then we can even do more product enhancements with the software because now we own that part of the product. Alinda Van Wyk: Yeah. And maybe just to add to that, even though the transaction was reported on and detailed, explained in the 20-F that we previously published last year, we only could complete the transaction now when we had regulatory approval to operate this product in different jurisdictions. Bernard Jerome McTernan: Got it. Thank you both. Operator: The next question comes from Jason Tilchen of Canaccord. Your line is now open. Please go ahead. Jason Ross Tilchen: Good afternoon where you guys are. Good morning from here in New York. Just wanted to start with a question. You obviously provided some extra balance sheet flexibility. Wondering if you could just remind us a little bit of what some of the key, as you contemplate potential M&A opportunities, are? What would be the type of acquisition you would be focused on here in the near term? Is there any sort of country or region in particular you feel you could be strengthened via M&A? Neal Menashe: Okay. So as you know, when it comes to M&A, we always are highly selective. We do not really need M&A to hit our plans. And obviously, if they are bolt-on, improve tech, our products, or market position with attractive returns, we will engage. But I think the real key for us is we are not overpaying. We have seen lots of our competitors overpay, and that is not what we do. It has to make strategic sense for us. And the businesses we acquire have to either be standalone or, if they are coming into our world, we can then take them to another level. So that has always been how we look to it. Alinda Van Wyk: And yes, Jason, you made reference to a nice amount of cash on the balance sheet. So how we deploy that is discipline first and flexibility next. Organic growth has always been important to us with a clear eye on return on investment. And then you have noticed we pay regular and special dividends. So, and as Neal said, we will only select bolt-on opportunities that strengthen our core. Jason Ross Tilchen: Very helpful. And then just one quick follow-up. I am wondering if you could share a little bit more on the strategy in Alberta, and how you are taking learnings from the Ontario transition and applying them to improve performance here this time around? Neal Menashe: Okay. So as we know, Alberta is expected to regulate in Q2 2026. I mean, I will say this, we are ready. We have learned our lessons from Ontario of how to migrate the customers from our .com product to now Alberta. We have also enhanced our rest of Canada product and Ontario products, so all those features will now come into the Alberta product. I think we saw lots of heavy marketing activity early on in Ontario. I am not sure that all the competitors can keep spending as they have been spending. So we think that will be a more rational competitive environment. And as you know, we have already got the revenue. So we spend X percentage of our marketing on revenue, we already have that revenue, so we are ready to see it as soon as all the regs come and we are ready to go. We go for— Jason Ross Tilchen: helpful. Thanks very much. Nkem Ojougboh: The next question comes from Clark Lampen of BTIG. Operator: Your line is now open. Please go ahead. Clark Lampen: Thank you. Good morning, everyone. I wanted to follow up on Bernie's question before around Nigeria, but maybe in a broader context. I think back to what you laid out for us in September, I think there were up to four markets that were targeted potentially for expansion. Are any of those encompassed in the plan for 2026 or embedded in guidance? Or, yes or no, maybe you could give us an update on which of them seem most addressable or, I guess, most actionable near term. Alinda Van Wyk: Yes. Thank you for your question. The only market in expansion into Africa that is included in the guidance is Namibia at this point in time. We did call out one or two other markets as well in Investor Day like you have mentioned. But we also remain disciplined to have a strategic roll-up plan and make sure that how we operate in Africa is 100% effective and we also obtain that operating leverage there. Neal Menashe: And I will just add to that is, remember, the charge of that one country, we are obviously rolling out our Jackpot City brand as a pure-play casino in more African markets. And we have got a few of them coming online. And then at the same time, operationalize the existing products and teams that we have got in those regions. Clark Lampen: Understood. And a very quick follow-up, if I may. Neal, I think you called out a low single-digit benefit in Nigeria from the World Cup. Would it be possible to quantify how big the tournament could be for your sports business in 2026 from a handle standpoint— Nkem Ojougboh: Yep. Go ahead. Sorry. Yeah. Neal Menashe: Okay. So what we said is generally in our budget, we have got low single-digit World Cup tailwinds across. I mean, just to put it in perspective, 40% of the countries we operate in are participating in the World Cup. So the World Cup is obviously in expanded format. So what it can mean in the beginning part of the World Cup, you will have really good teams against not such good teams. That might mean we have more favorites winning in this World Cup, but it is a longer tournament with a lot more games. So we believe the engagement over time is going to be really good. And obviously, the World Cup is at a time when we normally would not have many sporting events. So that is really going to fill the calendar for us from a net perspective. Clark Lampen: Thank you very much. Operator: Thank you. The next question comes from Mike Hickey of StoneX. Your line is now open. Please go ahead. Mike Hickey: Hey, Neal, Alinda, Nkem. Great job, guys, on a stellar 2025. Just a few questions from us. First on Apricot. I think, Alinda, you were sort of penciling out $35,000,000 in EBITDA savings from the deal and integration. Is that still the number you are thinking about in 2026? And how much have you baked into your guidance now that you have completed or have the official approval to complete this deal? Alinda Van Wyk: Yes. Thanks, Mike. During Investor Day, we called out $35,000,000. This is not a day-one saving. This is an annualized saving projection. And these savings will come from reduced royalty fees, infrastructure enhancements, and most importantly, bringing staff closer to Super Group (SGHC) Limited. So we are starting to bring the team together. The savings definitely already started, but this is the annualized number that we called out. And we will update you on progress as we continue and execute according to our plans. Mike Hickey: Alinda, just to confirm, you have put the presumed savings now into your guide, correct? Alinda Van Wyk: That is correct. The savings that we are realizing in 2026 is in the guide. Correct. Mike Hickey: Okay. Awesome. I guess next, just to stay on the guide, Alinda, did you also bake in presumed savings on the Supercoin initiative as well? Or is that something that you would look to just earn as you continue to roll out the product? I guess the next big step would be the wallet. Neal Menashe: So obviously, the last two of the launch in South Africa and obviously it is a step towards broader payment and engagement. It will take us time. Obviously, you cannot just switch the lights on and it just happens. Customers have to test it. So one is we have the customer base. Two is we have the product that our African customers love. So we are going to start as soon as the wallet comes in in the first half of this year, be able to incentivize to that. But it is already helping us save on other banking fees from the different suppliers we use. So we are already seeing a benefit. So some of that is obviously into our guidance. Okay. Last question. On the World Cup, I mean, it is pretty obvious to see how strong of a catalyst that is going to be for you guys. Onboarding players here and the cross-sell to iGaming is significant. I think you said 60-plus percent. Just, I guess, reflecting on the Africa Cup and the pressure on hold that you experienced at the beginning of that event. Given that the World Cup this year has expanded significantly, how do you assess early tournament risk on hold and what you would do to mitigate that if that is a factor that we should be thinking about? Neal Menashe: Yeah. So listen. I think it is better that there are more teams. In all the past World Cups, we have always found in early rounds some of the favorites do not win, either win or draw. Sometimes they do not even qualify for the next round. What we have done and will do is that we are all over our incentives and our boosts that we give the customers in the tournament, especially in the early rounds. So this is all a massive exercise of working out where the volatility lies. And as you can imagine, especially from Africa Cup of Nations, we have learned some clever lessons there. Also, what does happen is you saw what happened in December, and then it all flowed through in January where the sports results went the other way. So then you get nirvana. You get brilliant sports margin, and you get your constant casino. So together, that helps us. And also, we have got all the new AI pricing, new initiatives we are embedding from our traders, etc. So we are all over this. And the World Cup, I think, is going to be a real catalyst. It is all about the customer engagement. Remember, it is not about the customer just in the first week or two of the World Cup. It is keeping his or her engagement going forward. And that is what our whole business is about. And then the cohort analysis that Spencer kept on showing on our Investor Day is how the cake is layering. This just helps layering the cake even more. And just to conclude, remember, our sport is 20% of our business. 80% is casino. So we like to believe that the 80% casino being casino-focused gives us the ability to navigate the ups and downs of sports. Michael Joseph Hickey: Absolutely. Good luck, guys. Thank you. Neal Menashe: Thank you. Thanks, Mike. Operator: The next question comes from Jed Kelly of Oppenheimer. Your line is now open. Please go ahead. Jed Kelly: Great. And thanks for taking my question. Just looking into your guidance, can you just talk about, you know, some of the risks which would be returning with their aspect to direct—okay—there is a new—pedal around on—broke. You know, anything we should be. Thank you. Neal Menashe: So, Jed, you are just breaking up. We got some of it, not all of it. Do you want me to just—sorry. Just repeat that. Sorry. We heard every second word. Jed Kelly: Yeah. Could you just talk about some of the risk in terms of potentially the, you know, some of the risk in the guidance on why it could come in under your, you know, under— Nkem Ojougboh: expectations. Alinda Van Wyk: I think the risk around any guidance is usually the variance, and the variance would cut both ways. So over time, hopefully, like we just mentioned, the sports results will normalize, and we feel comfortable that that will even be the effect of our 2026 guide. And we have already started to see that because January was exceptional, more than we have ever seen, but it has already normalized to our trailing twelve-month average of the results in February. And we just have to make sure that we look at, like my reference is to launch more of the Jackpot City in different countries so we have that uplift in growth. Neal Menashe: And then I think to answer some of the questions I thought we got was in the guide, we have done a normalized sports—yes, sports margin is embedded into the guide. Nkem Ojougboh: Yeah. And maybe there is always that risk of sudden regulatory shift like taxes, but that we have been navigating for the last twenty years. So we take a conservative approach around including that in the guide. Jed Kelly: Great. Thanks. And then if you can hear me alright, I will sneak one more in. Any regions outside of Africa we should be watching that could potentially open up? Neal Menashe: The—listen. I mean, obviously, Brazil was last year or the year before. There is talk of UAE, etc., coming. So again, it is all about the numbers. It is all about what are the taxes, what you can do in those markets, what product, is it sports, is it casino? Nkem Ojougboh: So— Neal Menashe: from that perspective, that one. Most of the European countries, as you know, are all regulated today. And there are one or two African countries that are starting to regulate over time. So we are all over it. Nkem Ojougboh: Thank you. Good luck. Neal Menashe: Any more questions from anyone? Operator: We have no further questions. Neal Menashe: Okay. So again, thank you everyone for joining today's call. We are really, really super proud of our performance in 2025 and the start of the new year. We will speak to you again soon. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect your line.
Operator: To update any forward looking statements discussed today. For more information, please refer to our earnings release the risk factors discussed in our most recent Form 10 ks which will be filed with the SEC later today. Consistent with previous quarters, we will be discussing our Q4 and full year performance on a non GAAP adjusted basis. Which reflects constant currency growth rates and excludes items affecting comparability. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings materials. Here with us today to discuss our results are Keurig Dr Pepper Inc.'s chief executive officer, Tim Cofer chief financial officer, Anthony DiSalvestro and SVP of strategic finance and capital markets, Jane Gelfand. I'll now turn it over to Tim. Tim Cofer: Thanks, Chethan Mallela, and good morning, everyone. 2025 was a strong year for Keurig Dr Pepper Inc.. We delivered healthy results that achieved our annual guidance. We drove winning innovation and commercial performance, generating the fastest US retail sales growth among top food and beverage manufacturers. With market share gains across our portfolio. And we laid the groundwork through the announced acquisition for Keurig Dr Pepper Inc.'s transformational next chapter of JDE Peet's and planned separation into two leading pure play companies, Beverage Co and Global Coffee Co. Said differently, we navigated a dynamic operating environment with agility while strengthening our foundation. For the long term. And the same can be said for JDE Peet's, which earlier this morning issued 2025 results that demonstrated solid financial performance and strong progress. Advancing its refreshed strategy. In 2026, we will build upon our momentum with a focus on three objectives that should translate to shareholder value creation. First, delivering our low double digit full year EPS growth guidance in a high quality way. Second, closing and seamlessly integrating JDE Peet's And ultimately, establishing two advantaged stand alone businesses positioned for success. At our recent Investor Day, we outlined our milestone based approach to executing our transformation work streams. Let me share updates. On a few of these milestones. Starting with the JDE Peet's acquisition we have secured key regulatory approvals and launched the tender offer. Positioning us to close the acquisition in early April. We've already made significant progress on integration planning, including multiple active work streams spearheaded by leaders from both companies and capable advisers with deep and relevant experience. Our teams are collaborating well to establish joint ways of working and a unified operating philosophy, all while exhibiting strategic alignment, shared purpose, and a palpable excitement to build a global coffee leader. At the same time, we're taking steps to ensure operational readiness to separate by the end. Of 2026. We're ready to implement a combined Keurig Dr Pepper Inc. operating structure for the interim period between deal close and separation, which will facilitate near term performance while supporting a steady transition towards our future state as stand alones. We're also advancing work streams to deliver against key separation milestones including capturing initial deal related synergies, appointing independent leadership teams and boards, and establishing appropriate capital structures for the two pure play companies. Our precise separation timing will depend on a number of considerations, including market conditions, but we are progressing well. Against all elements within our control. Turning to our results. We are pleased with our 2025 enterprise performance. Net sales increased almost 9% driven by approximately five points of growth from our base business and a nearly four point ghost contribution. And EPS grew 7%. On a segment basis, US refreshment beverages was the standout performer, delivering double digit net sales growth and high single digit operating income growth. International was resilient in the face of dynamic macro trends growing on both a top and bottom line basis. And as expected, US coffee trends were softer in aggregate. But demonstrated underlying progress. Keurig Dr Pepper Inc.'s 2025 included multiple noteworthy commercial achievements to name just a few. We gained market share in Dr Pepper for the ninth consecutive year. Driven by the category leading Dr Pepper BlackBerry innovation our college football Fansville activation, as well as the brand's continued broad consumer resonance which was most recently demonstrated by the viral jingle Dr Pepper, baby, it's good and nice. That lit up social media and became a cultural moment. Our agile marketing team quickly incorporated this user generated creativity into a college football national championship ad spot. as the most engaged And Dr Pepper strengthened its position CSD brand on TikTok. We seamlessly integrated Ghost, and successfully transitioned it to our DSD network, accelerating the brand's market share as we expanded distribution and display while maintaining high on shelf productivity. We elevated our agile digitally led approach to marketing, leveraging data and technology to enable more powerful and more effective real time insights, more precise segmentation, marketing content across consumer and shopper media. As evident in emerging proof points that I will discuss shortly. And we significantly progressed the development of our disruptive Keurig Alta next generation coffee platform, completing a series of successful beta tests and building critical capabilities to support a targeted late 2026 launch. Collectively, these highlights not only mark substantial achievements for 2025, but also provide benefits that will carry forward into future years. Moving now to our Q4 results. Net sales grew 10%, led by mid single digit net price realization, including positive contributions from each segment. Volume mix grew against a difficult comparison driven by an incremental contribution from Ghost and modest base business growth. As we anticipated, profit flow through in the quarter was limited by cost pressures. And higher reinvestment spending. These factors along with modest below the line headwinds, more than offset strong productivity savings and continued overhead discipline. As a result, 42%. Diving into the segments, US refreshment beverages demonstrated continued top and bottom line momentum in the quarter. Net sales grew at a low double digit rate through both volume mix and net price realization. And operating income increased at a high single digit rate. We drove these results with a combination of healthy core portfolio trends and contributions from emerging growth areas. Starting with our core, the carbonated soft drink category remains strong despite the uneven consumer environment. As innovation, brand activity, and an attractive value proposition resonated. Our portfolio performed well within the category, driven by several factors. We had winning innovations. Not just for brand Dr Pepper, but also through offerings. Like 7UPs, Seasonal Shirley Temple, LTO, and BloomPop, in the prebiotic CSD space. We leveraged our newly enhanced precision marketing capabilities to apply personalization at scale for our largest campaign Fansville, generating more than 3,000 unique creative units driving optimized consumer conversion paths and attracting new brand buyers for the Dr Pepper franchise at a high ROI. And we managed a well executed transition of Dr Pepper to our DSD network in parts of California, Nevada, and the Midwest quickly and effectively putting resources in place to ensure high quality service and continuity. Customer feedback and support has been positive. The near term financial performance is tracking to our plans. And we will continue to unlock additional benefits from our enhanced scale in the future. We saw strong performances in some of our emerging growth areas. Beyond the core in Q4, Our multi branded energy platform of C4 Ghost, Bloom, and Black Rifle once again outperformed the category with market share increasing nearly 1.5 points. We are seeing momentum across brands. Supported by distribution gains, increased cold vault penetration, and healthy velocities and we remain on track to achieve our double digit market share goal in the coming years. Outside of energy, we drove continued robust growth for Electrolit. Which was the sports hydration category's largest And Vita Coco, Share gainer in Q4. the established leader in coconut water that nonetheless grew retail sales in excess of 20%. Emerging categories and brands already contribute meaningfully to our US refreshment beverages growth and we expect them to play an even larger role as they scale. We also intend to deploy our flexible build by partner model to expand into a additional white space areas over time, including through capital light structures. And this should further enhance our portfolio's growth potential. Moving now to US coffee. While Q4 was a softer quarter, let me contextualize our performance with three observations. First, segment revenue increased 4%, reflecting solid category and market share trends. Second, we are managing through cyclical cost pressures which is having a temporary but meaningful impact on profitability. And third, despite the cost backdrop, we are investing to position our business for long term success. I'll unpack each of these in turn. First, coffee category trends remain resilient despite some challenges. With the Keurig compatible pod category growing retail dollars at a mid single digit rate in Q4 while category growth admittedly remains pricing led, elasticities have been manageable, and consumers remain engaged. Both of which bode well for volumes once cost pressures normalize. Within the category, both owned and licensed brands and Keurig manufactured pods gained share in Q4, contributing to US coffee's solid top line results. However, our top line growth did not translate to Q4 operating income, which declined at a high single digit rate. This brings me to the second point, cost pressure. Our intention to offset inflation over the commodity cycle is unchanged. But there are always periods when the timing of costs and implemented mitigations do not align As expected, we saw this play out in Q4 when significant cost pressure flowed through our P&L without a proportionate offset. Weighing on profitability. As Anthony will discuss, we anticipate this temporary imbalance to persist in the 2026 before easing over the course of the year. Moving to my third point, we recognize our current pricing driven growth in coffee, is more cyclical in nature. And we are actively investing to position our business for sustainable long term volume and mix growth. Importantly, we have chosen to protect these investments even as we navigate an inflationary period, which is creating some additional near term profit pressure but should pay future dividends. Let me discuss a couple of our Q4 investment areas in more detail. During the quarter, we applied our enhanced marketing capabilities to launch a new Keurig brand equity campaign the first such activation in multiple years. This data driven Anthem campaign showcases the benefits of brewing coffee with the Keurig system and was delivered to consumers through targeted storytelling across thousands of ad permutations informed by their coffee purchase history and our rich insight into demand spaces. The campaign exceeded our targets, on key KPIs like brand attention and return on ad spend. And produced halo benefits that we are beginning to see across our entire coffee business. We intend to extend this marketing approach as we step up our brand building investment in 2026. We also advanced preparations for the upcoming launch of our next generation Keurig Alta platform. Including the development of our final brewer model and building out multiyear commercialization and go to market plans. Consumer testing has validated that this system delivers a great tasting, superior experience across an unmatched variety of coffee, and espresso based beverages. We see significant long term potential for this platform and have and will continue to invest ahead of scale to capture this opportunity. So to summarize the key themes resilient pod category and Keurig Dr Pepper Inc. top line trends, we saw for US coffee in Q4, elevated cost inflation, and continued investment to support long term initiatives. While the same factors are also likely to translate into subdued financial results, in 2026, particularly early in the year when cost headwinds peak and we manage through some retailer inventory adjustments, we have built our plans accordingly. While pursuing the right actions to secure healthy, longer term performance. Turning now to international. We delivered a very strong quarter. With mid teens constant currency net sales growth and 20% operating income growth, which was partly aided by timing. Momentum was led by our business in Mexico. Where our cold drinks continued to outperform as the economy began to find its footing after a challenging 2025. Strong brands and effective commercial execution including ongoing DSD expansion translated to share gains across the portfolio. Peñafiel aids and twist extensions and Dr Pepper All Grew Nicely. In Canada, performance was led by healthy coffee trends as our significant pricing actions in pods, and traditional coffee have so far translated into only minimal volume elasticity. In 2026, we will continue to invest in this growth segment, including building capabilities that will help the business scale well beyond the current year. Though we'll need to navigate continued input cost inflation, and new developments like an increased Mexico beverage tax early in the year, we remain focused on sustaining our relative strength in both Canada and Mexico. At the enterprise level, we have bold innovation plans for 2026 to power our continued portfolio momentum. In refreshment beverages, our slate is anchored by meaningful activity, in CSDs. We will welcome back a record setting Dr Pepper creamy coconut LTO. Extend our successful Canada Dry fruit splash line into a second flavor, strawberry. Expand our presence in prebiotics. With new BloomPop flavors, and activate other key brands with seasonal LTOs. In energy drinks, we are building off a very successful 2025 with exciting flavor innovation, for C4. Ghost Bloom, and Black Rifle. While also extending Ghost's portfolio into 8.4 ounce small cans, opening up new channels, and new occasions for the brand. In still beverages, we have big plans for some of our icons, including a Snapple brand refresh and a first ever zero sugar beverage offering from Mott's. And in our fast growing sports hydration segment, we have new flavors for our Electrolit partner brand. Moving to coffee, our innovation suite spans our full portfolio. In brewers, along with the disruptive Keurig Alta system, I mentioned earlier, we are launching a new version of our K Supreme which will have additional features and a refreshed design. And introducing K Mini Mate Plus, a new model. In our mini line. In pods, our big bet for 2026 is the Keurig Coffee Collective. Which marks the Keurig brand's first entry into coffee. This expertly crafted, premium offering has been enthusiastically embraced by retailers and early consumer sell through is encouraging. We also have significant product activity for The Original Donut Shop. Including a watermelon breeze variety of our popular refreshers line, and new innovation that extends the brand into matcha. A consumer preferred high growth white space. Finally, in ready to drink, we will build on our partnership momentum with La Colombe, through the introduction of great tasting, seasonal, draft latte flavors. We are partnering closely with retailers to help consumers find, engage with, and experience this great set of new products, including through incremental shelf space and compelling programming. In total, our innovation, in store activations, and marketing investments are not only important to supporting our 2026 results, but also ensuring our refreshment beverage and coffee portfolios are healthy and well positioned heading into separation. In closing, our 2025 performance was strong. As we delivered on our commitments. While laying the foundation for our exciting next chapter as two pure play companies. We intend to continue executing on this vision in 2026 while reinforcing our base business momentum with three key objectives for the year. Delivering on our low double digit EPS growth plans, unlocking initial combination benefits as we integrate JDE Peet's and executing critical milestones as we drive towards a successful separation into Beverage Co, and Global Coffee Co. Now before turning the call, to our new CFO, Anthony DiSalvestro, let me first formally introduce him. Anthony is a seasoned consumer sector executive with over forty years of industry experience, including in areas relevant to Keurig Dr Pepper Inc.'s current priorities, such as M&A integrations, cost saving programs, and balance sheet recapitalizations. He has hit the ground running in his first few months, quickly coming up to speed on our business and transformation work streams. And we are already benefiting from his financial leadership and acumen. I'm looking forward to continuing to partner closely with him as we guide Keurig Dr Pepper Inc. through an exciting and pivotal time. For our company. With that, I'll pass it on to Anthony. To walk through our financial performance and 2026 outlook before I return with closing thoughts. Anthony DiSilvestro: Thanks, Tim, and good morning, everyone. It's a pleasure to be here with you today. I was drawn to Keurig Dr Pepper Inc. by its iconic brand portfolio, a leadership team and strategy I believe in, and what I see as a unique value creation opportunity. Over the past three months since I joined, my conviction in the company's direction, people, and potential has only grown. I'm energized to partner with Tim and the entire executive team to position both Keurig Dr Pepper Inc. and the forthcoming separate companies for future success. I'll now review financial performance in more detail. Beginning with the full year. We delivered healthy results consistent with our 2025 guidance. On a constant currency basis, we grew net sales 8.6% operating income 4.9%, and EPS, 7.3%. All while navigating a challenging industry backdrop to shape Keurig Dr Pepper Inc.'s and beginning to execute our transformation agenda next chapter. Moving to the quarter. We finished the year with a solid Q4. Net sales increased 9.9% with growth in all three segments led by strong performances in US refreshment beverages, and international. Net price realization was a significant growth driver contributing six percentage points to the top line. Volume mix added 3.9 points, reflecting 3.6 points from the addition of Ghost as well as a modest increase on the base business. Gross margin contracted 150 basis points as elevated inflationary pressures were partly offset by net price realization and productivity savings. On the other hand, 80 basis points as a percent of sales primarily due to overhead efficiencies. All in, Q4 operating income grew 4.8% and incorporating headwinds from interest expense and a slightly higher tax rate EPS increased 1.7% to $0.60. Moving on to our segments. US refreshment beverages delivered a strong performance growing net sales 11.5%. Volume mix contributed seven points primarily driven by the addition of Ghost coupled with modest gains on the base business. Net pricing added 4.5 points led by CST increases taken earlier in the year. Segment operating income increased 8.7% driven by double digit net sales growth and productivity savings. Partly offset by cost inflation higher SG&A costs, and the impact of a lapping a C4 performance incentive in the prior year. Looking ahead, with continued momentum in both our core and quickly scaling growth platforms, we expect US refreshment beverages to deliver another year of strong top and bottom line growth in 2026. However, it is worth noting that our innovation cadence differs slightly from last year. Most notably, our Dr Pepper creamy coconut LTO will launch in Q2. Which compares to the Dr Pepper BlackBerry line extension that launched in Q1 2025. This timing difference could impact Dr Pepper's market share comparisons early the year but we expect good full year performance. In US coffee, net sales grew 3.9%. Net price realization added eight percentage points with inflation driven increases across both pods and brewers. Biomix was a partial offset declining 4.1 percentage points. Odd shipments, were down a modest 2.8%, demonstrating resiliency as pricing increased. Brewer shipments declined 16.8% reflecting higher price elasticity and reductions in retail inventory levels similar to the last few quarters. Segment operating income declined 8.8% as the impacts of cost inflation, and volume mix decline were only partly offset by net price realization and productivity savings. The elevated inflation in the quarter reflects the meaningful lag before coffee market price changes and tariffs affect our cost of goods sold. Given our hedging activity, and the time frame that inputs are held in inventory. Looking ahead, we expect profit to remain under some pressure for U. S. Coffee in 2026 largely reflecting two factors. First, year over year cost headwinds primarily due to increased coffee price and tariff impacts which should be most pronounced in Q1 before easing over the course of the year particularly in the back half. Second, we are also planning significant marketing and other investment spending in 2026 to support the growth initiatives Tim discussed earlier. Such as the Keurig coffee collective rollout, and the launch of 16% constant currency net sales increase. Growth was balanced with net price realization contributing 9.2 points and volume mix adding 6.8 points. Factoring in a favorable FX translation benefit, reported net sales increased 21%. Q4 segment operating income increased 20% driven by sales growth and productivity savings. Which more than offset continued inflationary pressures. These exceptional Q4 results reflected the combination of base business momentum as well as some timing benefits. For example, in Mexico, we saw some buying ahead of a significant beverage tax increase that took effect at the 2026. Though the reversal of these benefits will result in a softer start to this segment in Q1, Our full year plan for international incorporates healthy top and bottom line delivery. Moving to the balance sheet and cash flow. We remain committed to a strong balance sheet with investment grade ratings for total Keurig Dr Pepper Inc. and for the future beverage company and global coffee company upon separation. These objectives will first and foremost be underpinned by our ability to generate significant cash flow. In 2025, our free cash flow was $1,519,000,000 Notably, this included the unfavorable impact of onetime $225,000,000 gross distribution termination payments early in the year. We feel good about our underlying performance and expect standalone Keurig Dr Pepper Inc. free cash flow to increase in 2026 to approximately $2,000,000,000. We will update this target to include expected JDE Peet's free cash flow when we report next in April. The free cash flow of the combined businesses should enable swift deleveraging post deal close. As you saw in our announcement yesterday, we have also further refined the financing structure for the JDE Pete's acquisition to deliver and facilitate a timely separation First, based on strong demand, we have chosen to increase the size of our beverage company convertible preferred equity raise to 4,500,000,000.0 versus the previously announced $3,000,000,000 Second, we have finalized and are preparing to close our $4,000,000,000 global coffee company pod manufacturing JV. Third, we plan to fund the balance of the acquisition through debt. And fourth, we will continue to assess noncore asset divestitures to accelerate deleveraging. With the refined financing plans in place, we will no longer consider a partial IPO, a beverage company, in the future. Turning now to our 2026 P&L guidance, which we are providing inclusive of the JDE Peet's acquisition. Based on the expectation of an early April close and using current FX rates. We expect net sales in a range of 25.9 to $26,400,000,000 This outlook assumes continued momentum in US refreshment beverages, healthy trends in international as well as growth in US coffee. It also embeds an incremental contribution from JDE Peet beginning in Q2 which we expect to add approximately 8.5 to $8,700,000,000 to net sales. On the bottom line, we expect low double digit EPS growth in constant currency. This includes an anticipated six to seven percentage points contribution from JDE Peet on a three quarter basis. Consistent with our unchanged outlook for approximately 10% accretion in the first year after acquisition close. For stand alone Keurig Dr Pepper Inc., our outlook embeds 4% to 6% net sales growth and 4% to 6% EPS growth both in constant currency. Based on current rates, we anticipate that FX will represent an approximate one percentage point tailwind to stand alone Keurig Dr Pepper Inc. net sales and EPS growth. For the full year. To help with your below the line modeling, we expect the following for 2026. Interest expense of approximately 1.07 to $1,120,000,000 an effective tax rate of approximately 2223%, and approximately 1,370,000,000.00 diluted weighted average shares outstanding. Once the JDEEP's acquisition closes, we will also have two new impacts on the P&L to reflect the pod manufacturing JV and the convertible preferred security. Assuming an early April deal close, we expect the following impacts over the last March 2026. Approximately $190,000,000 in pretax coffee JV cost which will flow through the noncontrolling interest line and convertible preferred costs that will flow through below net income and will be calculated each quarter as the greater of the roughly $53,000,000 quarterly preferred dividend or the securities approximately 8% proportionate share of earnings. Pre separation, we expect the calculation to default to the proportionate share of earnings. Now let's discuss quarterly space. While we are planning for healthy EPS growth on a full year basis, we expect Q1 EPS to be in the range of $0.36 to $0.37 compared to $0.42 in the year ago quarter. This is due to three primary drivers. First, the unfavorable comparison of lapping a $0.02 per share lighter cocoa gain in Q1 2025. Second, a peak year over year cost headwind in Q1 driven by the impact of green coffee inflation and tariffs, on cost of goods sold. And third, anticipated retailer inventory adjustments that will negatively impact top and bottom line performance in US coffee. We expect these transitory EPS pressures to begin to ease after Q1 and in the case of coffee costs more meaningfully improve in the back half. As a result, we have good visibility that stand alone Keurig Dr Pepper Inc. EPS growth will be positive in Q2 and accelerate further in the second half. In addition, we will start to benefit from accretion once the JDEP deal closes in early Q2 further enhancing EPS growth for our combined company. In closing, 2025 was an important year for Keurig Dr Pepper Inc.. We extended market share gains in key areas, made strides on multiple strategic initiatives, and set the stage for a transformative next chapter all while delivering on our financial commitments. We will look to build on this performance in 2026 and are fully focused on executing with excellence to achieve our base business integration, and separation objectives. With that, I will turn the call back to Tim for closing remarks. Tim Cofer: Thank you, Anthony. As Keurig Dr Pepper Inc. transitions into a new chapter, and we prepare for our separation into two pure play companies, our board and governance are also evolving. At the end of Q1, Pamela Patsley, Steps off the board. our lead independent director will assume the role of board chair as Robert Gamgort's. Bob has been a core part of making Keurig Dr Pepper Inc. into the formidable company it is today and a mentor and partner to me for the last two and a half years. We are grateful to him for his many years of service and countless contributions to the company. At the same time, Pam is uniquely suited to step into the chair role. She knows Keurig Dr Pepper Inc. deeply. And has very strong board and executive experience. While I look forward to working with her in this new capacity, as we lead Keurig Dr Pepper Inc. through a transformative period, Pam has already been a great partner to me as chair of the nominating committee in director recruitment and board structure. In addition, as recently announced, we are pleased to add two new independent directors to our board in early March. Amy Teiner, Alphabet's corporate controller and chief accounting officer and Bill Newlands, Constellation Brands president and chief executive officer. Amy and Bill are both highly accomplished and experienced executives who will bring valuable capabilities and perspectives to our boardroom. Finally, we are separating our existing remuneration and nominating committee into newly created nominating and governance and compensation committees. Which will further align our governance with best practices Each of these steps will support the company's ongoing transformation and will help us to ultimately establish two world class boards for Beverage Co and Global Coffee Co with more announcements to come. Over time. So in closing, I'd like to thank our more than 30,000 Keurig Dr Pepper Inc. colleagues for their focus and adaptability through a period of significant change. And I look forward to welcoming our more than 21,000 new JDE teammates to the company in the coming months and to successfully executing on our shared vision in 2026 and beyond. With that, we're now happy to take your questions. Operator: We will now begin the question and answer session. To ask a question, you may press star then 1. On your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the key. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. We ask that you please limit yourself to one question. At this time, we will pause momentarily to assemble our roster. The first question today comes from Chris Carey with Wells Fargo. Please go ahead. Chris Carey: Hi. Good morning, everyone. Thanks so much for the question. I wanted to just start with some context on the top line performance for stand alone Keurig Dr Pepper Inc. specifically contribution from The US refreshment business. Relative to the rest of your your businesses. It it does seem to imply a pretty solid outlook for the top line in US refreshment. I wonder if you could just maybe help us understand pricing, contribution, of your partner assets, and then kind of base business performance within The US refreshment business specifically? And then just if I could add know, follow-up, it would be what are the assumptions that you're embedding for the JDEP business within this, you know, six to seven percentage point EPS contribution that you flagged when you think about 2026, whether top line or margins? Thank you. Anthony DiSilvestro: Thank you. I'll start on that one. Let me go back to the overall guide. We are expecting low double digit EPS growth, and we're doing this on a combined basis. So obviously, Keurig Dr Pepper Inc. base for twelve months and then adding three quarters of the incremental impact of the JDE Pizza acquisition that we expect to close in in early April. When you unpack that, the Keurig Dr Pepper Inc. stand alone guidance is four to 6% top line and four to 6% EPS growth all on a constant currency basis. And when you look at the top line, a combination of pricing and fall mix gains, with sales growth expected across each segment. The most significant driver is expected to be US refreshment beverage. We expect a strong top and bottom line performance following equal equally strong, results in 2025. And as Tim, you know, talked about, know, we're seeing a lot of innovation. You know, we've been gaining share in CSDs. Sports hydration, and energy. So those growth vectors together with our core business. Driven by innovation, and some pricing expected to continue to grow into 2026. The second part of your question was around the contribution from JD PEAT. And, you know, what we said in the guidance, is 8.5 to $8,700,000,000 of incremental revenue and, you know, the related operating income contribution. We have you know, this is all informed together with JDEP, and they're kinda baseline planning for, you know, 2026. We can't get too much into detail given that JDEPs is still a you know, a stand alone business. But net net, when you add the revenue, the operating income related to that, early gains on our synergy capture towards the $400,000,000 three year target when you incorporate, the incremental, you know, financing cost across the convertible preferred, the pod manufacturing joint venture, and the incremental debt that we've talked about, it all nets down to a six to seven point EPS benefit in 2026. Consistent with our previous outlook for 10% accretion on a a full year basis post acquisition. Operator: The next question comes from Steve Powers with Deutsche Bank. Please go ahead. Stephen Robert Powers: Great. And good morning, Dan. Good morning, Anthony. Question for each of you, if I could. The first one, Anthony, on, you know, the with the updated capital structure news from from overnight. I think a lot of the pieces are coming into into view. One thing that I am left questioning, is the existing Keurig Dr Pepper Inc. debt. And how that is to be allocated across future bev versus CoffeeCo. So any any thoughts on that would be very very helpful. And then, Tim, on on energy, you talked about you know, the strong momentum and and the confidence going forward, including including future space gains in '26. I guess I'm curious a bit of of kinda where that space is coming from. Is it really a function of the category gaining space? Are you gaining disproportionate share within category expansions? And is there any element of the energy gains that you're foreseeing that might come out of other aspects of your portfolio? Thank you. Anthony DiSilvestro: I'll take the first part of that question. And as you saw, we did announce an updated financing plan yesterday. It included a few elements. An upsize on the beverage company convertible preferred equity to 4,500,000,000.0 The finalization of the coffee pod manufacturing JV that's $4,000,000,000 and then $9,000,000,000 of debt which is a combination of senior debt, and we're gonna draw under the existing term loan facility, and that'll get repaid with junior subordinated notes at a future date. And then, also, you know, we'll be assuming $5,000,000,000 of the existing JDEP debt. Now that 9,000,000,000 incremental and the 5,000,000,000 rollover will stay with CopyCode. The existing Keurig Dr Pepper Inc. debt will stay with Beverage Company together with the 4 and a half billion convertible preferred Tim Cofer: Yes, Steve. I'll take your second question on energy. You you've heard us say before, we're big believers in this category. We like this category. It's why we did the Ghost acquisition and have assembled this portfolio of four great and quite distinct brands. I think this category overall has multiple structural growth drivers that will keep it fueled for growth for many years to come. I think there's continued distribution, expansion for energy in aggregate at a category. I think there's household penetration gains that we can still cap at a category and brand level. Occasion gains, price pack architecture, a channel distribution opportunities. We're seeing with a couple other brands in our Bloom brand, the incremental female consumer coming into the category. So we continue to like this. And that's why it's a you know, a $28,000,000,000 category that's growing in the teens You saw that in '25, and you see that continue into 2026. We like our portfolio, 1.5 share points last year and we believe we will continue to grow share this year. We've got a great innovation lineup across all four brands. Some really exciting new flavors, some some partner flavors. 8.4 ounce cans, which I think opens up a lot of new occasions and and formats. Regarding specifically your comment on shelf space, we've had a very good sell in for our energy portfolio. A across our customer base, both C store and larger format, and we are expecting significant incremental distribution points particularly in convenience. With expanded space there. Across our brand. So I think the punch line to your specific shelf space question is, I would expect both energy in aggregate as a category to gain shelf space relative to other LRBs. And Keurig Dr Pepper Inc. in particular to add shelf space. Do I think it is cannibalistic to the balance of our portfolio? No. I think you'll see that continue to grow and add to the Keurig Dr Pepper Inc. sales. Steve Powers: Great. Thank you both. Appreciate it. Operator: The next question comes from Filippo Falorni with Citi. Please go ahead. Filippo Falorni: Hi, good morning everyone. I wanted to ask more about the the coffee business. Tim and Anthony, both you guys mentioned that the first half of the year, there's gonna be more commodity headwinds given your hedging. But, obviously, the commodity has come in quite a bit from the peak. So when, based on your hedging, should we start to see some more relief, from the commodity? Is it really late in 2026? Or, could it come in a little bit early kinda, like, in Q3 time frame? And then on the pricing side, some of your competitors have talked about potentially giving back some of the commodity benefit in the form of lower prices. What are your pricing plans in coffee? Do you think you can hold the price, take more price? If you can give us a sense there, that will be helpful. Thank you. Anthony DiSilvestro: Yeah. I'll start on this one. As we look at the coffee business for 2026, we do expect some, you know, phasing as we go through. I would start by saying, you know, we expect you know, the year over year cost headwinds, both green coffee prices and tariffs to be most impactful in the first quarter of the year. And as part of the reason why we're guiding to what we are for the you know, the the first quarter. And it reflects a couple things. One is there is about a six to nine month time lag between market price changes and when you see it throw through our P&L. And that's a combination of two things. One, you know, the time that input costs sit in inventory. And second, our forward hedging activities. And, you know, so it will be probably the latter part of the second half before we see the current market prices come through. But should it Sequentially improve, right, there'll be a headwind in Q1. A lesser headwind in Q2 and flip in the second half And it's somewhat mechanical at this point because, obviously, we know the costs that are sitting in inventory. We know our forward hedging costs, and we can look to the forward market price for green coffee to see what'll impact our P&L in the latter part of the year. Tim Cofer: Yeah. Maybe I'll build on that, Filippo. Just to say, look. We're certainly well aware that pricing has been a big topic, a conversation across the industry. Our goal obviously is to drive sustainable volume and mix led growth. Across all of our categories. At the same time, it's important for us to offset inflation when it occurs to protect that ability to continue to reinvest in our business for the long term. And so if you think about US coffee, there's no doubt that the category and Keurig Dr Pepper Inc., we've taken some meaningful pricing. In recent years and in and in '25. And we passed through some significant inflation as C price hit unprecedented levels early last year and as tariffs were implemented. Despite this, you've seen the consumers remain highly engaged with the coffee category, We feel very good about our elasticity. It's tracking to our expectations, and it remains healthy. And so, you know, we don't believe the category is overpriced. And we expect year over year cost headwinds as Anthony just reinforced, to persist going into early twenty six given that hedge and inventory timing lags. But that will ease as the year goes on and I think put us in a good position to see the coffee category return to solid top line performance with volume and mix meaningfully contributing. Operator: The next question comes from Peter Grom with UBS. Please go ahead. Peter Grom: Great. Thank you. Good morning, everyone. Maybe two for me. Just first, on the phasing of the year, You provided some good color on what to expect in the first quarter from an earnings standpoint. But just given some of the retail inventory dynamics and some of the timing nuance you outlined in U. S. Beverages and international, curious how you see organic sales growth in the first quarter in the context of the full year guidance and relatively strong 4Q exit rate? And then just a second question, just on the partner brands and the broader strategy. It's obviously been a a strong driver of growth. I would love to get your perspective on this strategy as you go through this transition over the next, you know, several months I guess, asked another way, what's your willingness to add more brands as as you go through the separation? Thanks. Anthony DiSilvestro: Yeah. So, let me address the first part of the question and thinking about the gating of our top line. On a full year basis, the base KD KDP business, 4% to 6% top line growth. And I would say fairly stable, a little bit of pressure in Q1. Around retail inventory adjustments, particularly in coffee. And and pods. And it's you know, that impact is one of the three reasons that the bottom line will be under a little bit of pressure in Q1. Obviously, we're wrapping the Vita Cocoa $0.02 gain. Expect, you know, the cost headwinds in coffee in particular to be peaking in Q1 relative to the balance of the year. And secondly, there is some anticipated retail inventory adjustments in coffee, as I mentioned. Impact. So, obviously, that's a top line as well as a bottom line. That said, you know, we have very good visibility to EPS growth in Q2 and a further acceleration in in the back half. Obviously, the VITAL COCO issue is behind us. The cost headwinds, as I just mentioned, are going to moderate as we move through the year. The inventory adjustments will impact the first quarter to a lesser extent Q2 and then kind of get more in balance as we go into the to the second half. And we should also benefit you know, from the innovation and stepped up marketing activities that Tim mentioned in his remarks. Tim Cofer: Yeah, Peter. I'll I'll take your second question on partners. Look, first, I'd say it's important for us to have a healthy balance between core brand growth and partnerships. Both have featured well in the growth history of Keurig Dr Pepper Inc., and I expect both will continue to going forward. You saw that last year. When you look at the kind of decomp of our growth you saw a healthy base business growth in our core positions led by CSDs. And you saw contribution from partner brands. Think brands like Electrolit and Vita Coco and and some of the Nutrabolt brands. As you know, at Keurig Dr Pepper Inc., we really pride ourselves on a flexible buy build partner model as we think about capturing white space opportunities. And, you know, one of the reasons I love this beverage industry, is how dynamic it is. Consumer preferences will continue to evolve, and that will always create interesting growth spaces for us. And we've got a flexible model that allows us to capture those through buy, build, or partner. Think we also have a track record of creative and highly capital efficient ways to tap into that. A recent example that was you know, produced meaningful growth last year and will again this year is our Electrolene partnership. That is a a no capital partnership where we're the distribution partner of the the largest share gainer in sports hydration. One that we've got continued confidence will grow. So I think you'll see that flexibility going forward, and you'll see us continue to tap into white spaces. And you'll see us continue to put a premium on a balanced approach of base business. Growth and partnership growth. Peter Grom: Great. Thank you so much. Operator: The next question comes Lauren Lieberman with Barclays. Please go ahead. Lauren Lieberman: Great. Thanks so much. Two things I wanted to check-in on. One was just the comments both on 1Q then you're saying, yes, we'll get to growth in 2Q. Implies a very, very big ramp on EPS growth for underlying KVP in the back half. So just wanted to kind of confirm that, and it know, even with that, like, strong double digit, you'd have to do that in order to get to the low end of that four to six. So I just wanna make sure I'm thinking about that the right way. And then just any update on leadership search for coffee Co and kind of what it you know, who the board is is looking for profile wise, Is this an endeavor that underway and being led by the Keurig Dr Pepper Inc. board? I was just kinda curious on how that would fit. And then finally, sorry, last thing, is any thoughts on free cash flow? I know it's tough to kind of mush two companies together and comment on free cash before you're together. But just any thoughts on that for '26? Thanks. Anthony DiSilvestro: Okay. I'll I'll start. Mean, just confirming, yes, we do expect accelerating EPS growth on the base KD business as we go through the year. And the primary swing item, does relate, to, coffee cost and tariff impact on the P&L and the sequencing of those you know, through the year. And also, the addition of JDEP and the six to seven points of accretion, obviously, is quarters q Q2 through Q4. So obviously, that's a back half weighted impact. Before going back to Tim, I'll comment on free cash flow. First, you know, this is a important metric for us, a focus area. As we look to continue to delever post acquisition. Did 1,500,000,000.0 of free cash flow in 2025. And are forecasting $2,000,000,000 of free cash flow in 2026. So a significant improvement Part of that is we're lapping some distribution payments related to ghosts. But also growth in EBITDA better performance on working capital, particularly inventory will contribute to that. When we get to the next quarter, we'll be able to incorporate the JDE Peet's outlook. They had a very good year on free cash flow in 2025, exceeding €1,100,000,000 in terms of free cash flow generation. So both of these businesses are highly cash generative. Which gives it obviously a lot of strength and an ability to delever going forward and as well as post separation. Tim Cofer: second question. Yeah. I'll take the Lauren. Obviously, one of our top priorities And as we signaled back on Investor Day, one of our separation prerequisites is establishing strong leadership teams and boards of directors for each of our future pure play companies. Specific to the Global Coffee Co CEO, I tell you we're in the final stages of our internal and external search. And we will plan to have a public announcement by deal close. That process is being led by the Keurig Dr Pepper Inc. board specifically by Pamela Patsley. Our incoming chair and chair of the non gov committee, and me. And with involvement of the entire Keurig Dr Pepper Inc. board. And I am confident we will appoint a CEO with the right set of capabilities and background to position Global Coffee Co. For long term success. Operator: The next question comes from Peter Galbo with Bank of America. Please go ahead. Peter Galbo: Anthony, thanks for all the modeling detail. Tim, I wanted to maybe focus back on refreshment beverage and particularly just what's been happening through the start of the year on some of SNAP waiver adjustments in certain states. Obviously, there's a few big states that start to roll on. In the spring. So just any early reads on kind of what you have seen and and whether or not the guidance, at least on the CSD side, incorporates any sort of disruption as Texas and Florida kind of start to roll into that waiver program? Thanks very much. Tim Cofer: Yes, Peter. As you can imagine, we are looking at that dynamic very closely, including a state by state analysis that I actually review with our teams every other week. And, you know, when it comes to SNAP restrictions, I would say you know, kind of think about it in two two areas. One is you know, category eligibility of SNAP benefits, and the other is more broader across the board SNAP benefit changes in in magnitude. As it relates to first bucket, we see changes to categories eligible for SNAP as more likely to drive really shifts in the payment method versus necessarily resulting in in a meaningful change in consumption. So when you think about CSDs in particular, we know that CSDs have prominent kind of top five role in grocery bills for both SNAP recipients and non SNAP households. We also know that SNAP recipients fund their grocery bills through a combination of SNAP benefits and their own money. And so we've seen that there is a often a reallocation left pocket, right pocket as it relates to that. On the other hand, I think history would suggest that if there are meaningful changes in the magnitude of SNAP benefits in aggregate that can be more impactful on certain grocery purchasing power for consumers and and can merit some trade off decisions. So the way we're thinking about it is obviously closely monitoring the situation, including the five or six states that have already implemented that eligibility SNAP restrictions. We're monitoring that closely. I think it's too early to draw firm conclusions. We're seeing some mixed signals. Quite honestly, across the specific states. We've baked in some allowance into our 2026 plans, but I think the overall impact on the business is gonna be manageable, and you should expect us to respond as we learn more in a way that prioritizes, you know, delivering our plans, and effectively serving our consumers, which can include offering other price architecture and and affordability options, you know, mini cans, two liter value packs, certain promotions, etcetera. So we'll stay dynamic as we continue to monitor, but feel good that we've got our arms around this in the guide that we've shared today. Operator: This concludes our question and answer session. I would like to turn the conference back over for any closing remarks. Operator: Great. Just want to thank everybody for their time and attention this morning. And the IR team is around if you have any follow-up. Thanks so much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, everyone. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Inc. Fourth Quarter and Full Year 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. To ask a question, you may press star and then 1 on your touch-tone telephones. To withdraw your questions, you may press star and 2. Please also note today’s event is being recorded. At this time, I would like to turn the conference call over to Ray Nash, Corporate Finance Leader for Novanta Inc. Please go ahead. Ray Nash: Thank you very much. Good morning, and welcome to Novanta Inc.’s fourth quarter and full year 2025 earnings conference call. This is Ray Nash, Corporate Finance Leader for Novanta Inc. With me on today’s call is our Chair and Chief Executive Officer, Matthijs Glastra, and our Chief Financial Officer, Robert J. Buckley. If you have not received a copy of our earnings press release issued last night, you may obtain it from the Investor Relations section of our website at www.novanta.com. Please note this call is being webcast live and will be archived on our website shortly after the call. Before we begin, we need to remind everyone of the Safe Harbor for forward-looking statements that we have outlined in our earnings press release issued last night and also those in our SEC filings. We may make some comments today, both in our prepared remarks and in our responses to questions, that may include forward-looking statements. These involve inherent assumptions with known and unknown risks and other factors that could cause our future results to differ materially from our current expectations. Any forward-looking statements made today represent our views only as of this time. We disclaim any obligation to update forward-looking statements in the future, even if our estimates change. So you should not rely on any of these forward-looking statements as representing our views as of any time after this call. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent that we use non-GAAP financial measures during the call that are not reconciled to GAAP measures in the earnings press release, we will provide reconciliations promptly on the Investor Relations section of our website after this call. I am now pleased to introduce the Chair and Chief Executive Officer of Novanta Inc., Matthijs Glastra. Matthijs Glastra: Thank you, Ray. Good morning, everybody, and thanks for joining our call. We said we would return to organic growth and double-digit profit growth in the fourth quarter, and we delivered. Novanta Inc. posted record revenue in the fourth quarter with 9% reported growth, 2% organic growth, and 4% sequential growth. Bookings surged 25% year over year and 12% sequentially with a book-to-bill of 1.11. Every single business delivered double-digit bookings growth, and a positive book-to-bill in the same quarter. That is the first time that has happened since 2022. For the full year, we hit $981 million in revenue, our biggest year ever. Full year bookings grew 14%, 60% in the full year, including over 80% growth in the fourth quarter, exceeding our expectations as our commercial excellence and innovation investments are paying off. These results set us well for mid-single-digit organic growth in 2026. We also demonstrated strong double-digit year-over-year profit performance in the quarter with adjusted EBITDA growing by 17% and adjusted diluted EPS growing by 20%. While these are strong results, margins and cash flow came in below the expectations we set on our third quarter call. This came down to a single deliberate decision. As we moved through the quarter, we prioritized customer deliveries over the pace of our regional manufacturing transfers. That was the right call for our customers, and it created a temporary period of higher dual running cost and elevated inventory. We have already acted on this in January, and Robert will walk through the specifics and our confidence in the recovery. Given the very highly dynamic environment, I am very proud of our business performance and our team’s ability to stay resilient and deliver these strong results. Taking a step back, Novanta Inc.’s long-term growth strategy remains focused on winning in high-growth end markets with durable secular tailwinds: AI-driven robotics and automation, minimally invasive and robotic surgery, digital manufacturing, and precision medicine. We hold leading technology positions in these markets with exclusive design and product relationships that typically last up to a decade on our customers’ platforms. We have established these unique long-term collaborative partnerships with the leading OEM customers across the world by solving their most complex needs with proprietary technologies and solutions while leveraging the Novanta Growth System to deliver on-time, high-quality products at the lowest possible cost. While our products typically represent no more than 10% of our customers’ bill of materials, they enable differentiation and innovation in their systems for their customers, improving clinical outcome, throughput, yield, cost per procedure or part, or never-before-possible performance. We have made disciplined, focused investments in the areas we believe will drive the majority of our innovation-driven growth: next-generation insufflation and POPS, robotic surgery technologies, intelligent physical AI solutions for care, warehouse automation, humanoids, and precision robotics, and intelligent subsystems for laser beam steering and precision medicine. These growth platforms represent a $4 billion incremental market opportunity by 2030. Our strategic focus is to continue to expand our business mix and technology leadership in medical technologies, medical consumables, and embedded software, further strengthening a portfolio that delivers predictable, sustainable, and consistent revenue, profit, and cash flow growth. With customer destocking behind us, and accelerating new product and commercial excellence momentum, we are well on the path to get back to our long-term algorithm: mid to high single-digit organic growth, with less cyclicality, better resilience to geopolitical risks, more consistent performance regardless of the market conditions. Acquisitions are the second pillar of our growth strategy, driving double-digit reported revenue growth and compounding cash flows. The setup here has never been stronger. Our teams have built the largest acquisition pipeline in my tenure as CEO, focused on mid to larger opportunities in medical technologies, medical consumables, bioprocessing, and embedded software. In November, we raised more than $600 million specifically because of our confidence in this pipeline. With nearly $1.5 billion in total acquisition capacity and a proven track record of disciplined value creation, we are actively working opportunities and expect to deploy meaningful capital in 2026. Now here is what we are seeing across our end markets and businesses. Our sales into minimally invasive and robotic surgery have remained consistently strong with mid-teens double-digit growth in our advanced surgery business this past year. Our next-generation insufflators set the industry standard, improving patient safety, addressing smoke evacuation requirements, and optimizing surgical workflows. We are poised for another year of double-digit revenue growth in 2026, as our new product launches from 2025 continue to scale up and also with additional launches that are happening in 2026 itself. Long term, the business is on track to achieve approximately $400 million in revenue by 2030, driven by continued momentum in insufflation, expansion into robotic surgery and arthroscopy, and a rapidly scaling medical consumable business. Our robotics and automation business continues to see a sustainable growth outlook with three distinct GenAI-driven tailwinds. First, Novanta Inc.’s technology leadership in physical AI applications: unique capabilities that enable the perception and reaction of precision robotics in the physical world and to do so safely. In 2026, we are ramping several new product launches including content we recently won in the warehouse robotics space. Second, a recovering semiconductor wafer fab equipment market where we are seeing signs of an upcycle starting to take shape. And third, a highly specific and compelling opportunity in GPU drilling. Our air bearing spindles are currently the only qualified supplier for drilling AI-driven GPU boards, a direct beneficiary of the ongoing buildout of AI compute infrastructure, and this is growing at a strong double-digit rate. Together, these three drivers underpin our confidence in high single-digit growth for this business in 2026. Next, our precision manufacturing business has seen four consecutive quarters of double-digit bookings growth and accelerating sequential revenue momentum in 2025, driven by strong activity in our target markets. This gives us confidence in seeing mid-single-digit growth in the business in 2026. The long-term growth driver in this market is clear. Customers are digitizing and automating their manufacturing lines with ever-increasing demands for throughput, productivity, smaller form factors, and higher tolerances. This is a durable multiyear tailwind for Novanta Inc. What particularly excites me is our launches of intelligent laser beam steering subsystems with unique proprietary capabilities that we have been building for several years. We are hitting the market at exactly the right time as new digital and AI-enabled manufacturing capabilities are moving from early adoption into broader deployment. Finally, our precision medicine business experienced another quarter of sequential revenue growth in the fourth quarter. This business continues to gradually digest the lows. In 2026, we expect sales to be roughly flat in this business, with some shifts in demand between our different product categories. Our investments in intelligent RFID solutions and advanced vision technologies are helping to stabilize the outlook for the business this year, and have strong long-term growth prospects. In particular, we are pleased with the recent Keyon acquisition, which is already outperforming versus our early expectations and helping to offer both near and long-term growth opportunities for this business. Now let me give you a brief update on how we are building a stronger foundation for future growth as an organization. First, the Novanta Growth System continues to become a deeper and more permanent way of working across the company, our continuous improvement engine embedded in our Novanta Way culture. NGS is a competitive differentiator that drives customer success and operational efficiency simultaneously, and that combination is difficult to replicate. Here is what that looks like in practice. This very week we have over a dozen simultaneous Kaizen events happening across nine different global locations with over 150 employees participating, from senior leaders to frontline operators, working together on commercial excellence, innovation roadmaps, supply chain optimization, on-time delivery, and our site regionalization initiatives. On that last point, our regionalized manufacturing initiative is designed to solidify and expand our preferred supplier status with leading OEMs globally, helping our customers thrive in a deglobalizing world by manufacturing our products in the regions where they sell theirs. We are building manufacturing competence centers with better scale, stronger systems, and deeper talent with full in-region-for-region capability. The strategic logic is clear. The customer response is very positive, and the long-term benefits to profitability, cash flow, and resilience will be durable. To conclude, I am very proud of our team’s performance in 2025. As we look ahead, our top three priorities for 2026 are clear. First, drive mid-single-digit organic growth on the back of record bookings, new product launches, and commercial momentum. Second, acquisitions, deploying our $1.5 billion capacity into larger opportunities in our target markets. And third, completing our manufacturing foundation, finishing the regional transfers, scaling competence centers, and embedding the Novanta Growth System across the organization. I will now turn the call over to Robert to provide more details on our operations and financial performance. Robert? Robert J. Buckley: Thank you, Matthijs. I will start by reviewing some of the key performance metrics of the company. In the fourth quarter, Novanta Inc. bookings increased 25% year over year and 12% sequentially, with a book-to-bill of 1.11, indicating a stronger backlog and a positive outlook. All of Novanta Inc.’s businesses had double-digit bookings growth and all had a positive book-to-bill in the fourth quarter. As Matthijs mentioned, this has not happened in a single quarter since 2022, and is strong empirical evidence that our organic growth outlook for 2026 is demand-driven and not aspirational. For the full year, bookings increased 14% and the book-to-bill was 1.01. New product sales in the fourth quarter grew over 80% year over year, raising the vitality index to 24% of sales, and for the full year, new product sales grew over 60% versus the prior year, and the full year vitality index was 22%. Our design wins were also strong, with company-wide design wins for the full year up over 20% versus the prior year. For both the fourth quarter and full year, our sales to the medical end markets represented 53% of total sales, while sales in advanced industrial markets were 47%. Also, for the full year, our medical consumable sales were 15% of total company sales with this category growing at a strong double-digit rate versus the prior year, due to the high attachment rate we see in our next-generation insufflator product launches. Now moving on to the financial results. Our fourth quarter 2025 non-GAAP adjusted gross profit was $118 million or 45.5% adjusted gross margin compared to $112 million or 47% adjusted gross margin in 2024. Adjusted gross margins were down 150 basis points year over year and down sequentially by 100 basis points. Gross margins came in below our November guidance, a direct consequence of the decision Matthijs described. Prioritizing customer deliveries over transfer timing created higher dual running costs in the quarter, with more than a 100 basis point impact to gross margin and a 400 basis point increase to net working capital as a percent of sales. In January, we adjusted the cost structure without disrupting deliveries or revenue momentum. Gross margins are expected to step up sequentially in the first quarter and the transfer will be completed by the end of the second quarter. As a result, our full year 2026 gross margin expansion target of approximately 100 basis points of expansion versus 2025 is intact. For the full year of 2025, non-GAAP adjusted gross profit was $452 million or 46% adjusted gross margin compared to $442 million or 46.5% adjusted gross margin. Moving on to the fourth quarter, R&D expenses were $23 million or approximately 9% of sales. For the full year, R&D expenses were $95 million or approximately 10% of sales. Fourth quarter SG&A expenses, excluding certain adjustments, were $46 million or approximately 18% of sales. Full year SG&A expenses, excluding certain adjustments, were $181 million or approximately 18% of sales. Adjusted EBITDA was $61 million in the quarter, demonstrating strong growth of 17% year over year and achieving a 23.5% adjusted EBITDA margin. On the tax front, our non-GAAP tax rate in 2025 was 20.5% versus 24% in 2024. Our tax rate for the full year was 21% versus 20% in the prior year, and our tax rate increased year over year due to jurisdictional mix of pre-tax income. Our non-GAAP adjusted earnings per share were $0.91 in the fourth quarter, up 20% versus the prior year. This result was achieved despite adding 2.7 million incremental shares to our diluted share count from the November equity fundraise. For the full year 2025, our non-GAAP adjusted EPS was $3.29, an increase of 7% versus the prior year. Operating cash flow in the fourth quarter was $9 million compared to $62 million in 2024. For the full year, operating cash flow was $64 million. Cash flow was impacted by the same regional manufacturing dynamics, higher inventory builds, and temporary accounts receivable timing items, most of which have already been collected in January. As these site moves complete in the first half, we expect a significant inventory drawdown and strong cash rebound. Operating cash flow guidance for the full year is $145 million to $185 million, more than double our 2025 results. We ended the fourth quarter with gross debt of $260 million and a gross leverage ratio of 1.2 times. Our cash balance at year end was $381 million, and so our net debt was negative $121 million, giving us a net leverage ratio of negative 0.5 times, which means we are in a positive net cash position for the first time in over a decade. Our debt balance was significantly reduced during the fourth quarter as we used the proceeds from the November fundraise to pay down over $300 million of our revolving credit facility, giving us near-term savings in interest expense. Partly offsetting this revolver paydown is the addition of the amortizing notes that were issued as part of the November offering, which added approximately $111 million in debt to our balance sheet. The remaining funds from the November offering are shown as an increase in the equity section of the balance sheet. In the fourth quarter, we repurchased $19 million worth of company stock, and for the full year, we repurchased nearly $40 million of shares. While acquisitions remain our top capital allocation priority, we will still repurchase shares under our approved repurchase program when the value of purchasing the stock gives us a greater cash return versus the intrinsic future value of Novanta Inc. I will now share some details on the operating expenses. In the fourth quarter, Automation Enabling Technologies segment revenue grew by 2% year over year, better than expected. The book-to-bill in this segment was 1.16, and bookings were up 33% year over year. For the full year, Automation Enabling Technologies grew sales by 2%, and bookings grew by 20%, and the full year book-to-bill was 1.02. Our precision manufacturing business, which mainly serves the industrial equipment market, saw year-over-year revenue decline of 3% in the fourth quarter. However, this business saw sequential revenue growth of 8% and double-digit growth in bookings in the quarter, and we continue to see momentum build in this business. Our robotics and automation business grew revenues 6% year over year in the fourth quarter, and 2% sequentially. We continue to see a healthy outlook in this business with solid demand for advanced robotic applications and increasing strength in some semiconductor applications benefiting from the investment in artificial intelligence. For the Automation Enabling Technologies segment, adjusted gross margins were 49%, up sequentially but down year over year, driven by the site regionalization dynamics as discussed. For the full year, adjusted gross margins were 49%, roughly flat year over year. New product revenue for the segment grew over 80% year over year in the quarter, and nearly 90% for the full year. Customer design wins for the full year grew over 30% on the back of both innovation and stronger commercial execution by our team. In addition, the vitality index was above 20% in the fourth quarter and high-teens percent for the full year. This is double last year’s performance. Moving on to Medical Solutions segment. Revenue in this segment grew 16% year over year. This segment saw a book-to-bill of 1.07 in the fourth quarter, and bookings were up 17% year over year. For the full year, Medical Solutions grew sales by 5%. Bookings grew by 8%, and the book-to-bill was 1.01. New product sales in the fourth quarter grew by nearly 80% year over year, and the vitality index in this segment was nearly 28% of sales. For the full year, new product sales grew by over 50% and the vitality index was 27% of sales. Our advanced surgery business experienced 15% growth year over year, driven by both strong patient procedural surgical growth rates and from our new product launches of our second-generation insufflators, which continue to see favorable demand from our OEM customers. These growth dynamics are expected to continue into 2026 and beyond. In our precision medicine business, which serves the life science and multiomics market, sales in the fourth quarter grew by 16% year over year and grew sequentially by 4%. The year-over-year growth in this business was largely driven by the Keyon acquisition, as well as some favorable year-over-year comparables. In the Medical Solutions segment, adjusted gross margins were approximately 43%, which is roughly flat year over year. The margin performance was impacted by the manufacturing site dynamics as discussed. Now turning to guidance. We see steady improvement in customer sentiment for capital equipment demand as OEMs and end users have largely adjusted to the current macroeconomic dynamics. As Matthijs covered in his remarks, we see a very favorable growth outlook for three of the four businesses in 2026. For the full year of 2026, we expect GAAP revenue to be approximately $1,030 million to $1,050 million, which represents 4% to 6% organic revenue growth. Within the full year range, we expect to see sequentially increasing momentum in our quarterly organic growth. In the first quarter, we expect to see organic growth in the positive 1% to positive 3% range, and in the second quarter, we expect to see organic growth in the positive 5% to positive 7%, with a similar level of organic growth in the back half of the year. This confidence in the faster pace of organic revenue growth in the second quarter and beyond is driven by the good visibility we have in the recent booking strength and a growing backlog. For adjusted gross margins for the full year, we expect to achieve approximately 47%, which is 100 basis points of expansion year over year. This expansion is coming from completing the regional manufacturing production moves in the second quarter. Based on progress made thus far in the quarter, we feel good about the momentum we have here. We expect R&D and SG&A expenses for the full year to be approximately $294 million to $298 million. This represents roughly 28% of sales. This guidance excludes expected costs associated with our manufacturing MRP system, which is being deployed to support our regional manufacturing initiative and to position Novanta Inc. for further site consolidations and reduced complexity. Depreciation expense will be approximately $17 million in the full year, and we expect this to be approximately evenly split in each quarter. Stock compensation expense will be nearly $38 million for the full year, but the quarterly amount will vary due to the specific timing of some of our equity awards, including the one-time award that was granted in mid-2025 to replace the normal employee cash bonus program for that year. In the first quarter, we expect approximately $12 million of stock expense. In the second quarter, we expect approximately $11 million of stock compensation expense, and then fall to approximately $8 million a quarter in 2026. For adjusted EBITDA in the full year 2026, we expect to be between $245 million and $250 million, representing a low double-digit increase year over year, and we expect to achieve approximately a 24% EBITDA margin. Interest expense, net of interest income, is expected to be roughly $8 million for the full year of 2026, excluding any material changes in debt balances. This includes the interest expense associated with the recently issued amortizing notes. We expect our non-GAAP tax rate to be around 21% for the full year of 2026, roughly in line with 2025. Diluted weighted average shares outstanding will be approximately 41 million shares in 2026. This includes an estimate for the dilutive effect of our equity offering. As explained in detail in our filings, the dilutive effect of the equity offering can vary based on the market price of Novanta Inc.’s common shares, and so this guidance only factors in an estimate for dilution based on our recent share price performance and does not anticipate material declines in our share price in the future. For the full year, we expect diluted earnings per share to be in the range of $3.50 and $3.65, representing growth of up to 11% year over year. Included in this guidance is the unfavorable impact from our equity fundraise in the range of $0.22 to $0.24, spread evenly through the first four quarters. This reflects the impact of the higher share count, partially offset by lower interest expense. Also included in the guidance is the temporary unfavorable impact due to the one-time 2025 all-employee equity grant, which I just discussed. This was a $0.14 impact in 2026 only. Cash flow conversion for the full year is expected to rebound versus 2025. Full year 2026 operating cash flow will be approximately $145 million to $185 million, with the bottom end of the range driven by higher inventory levels to mitigate risk of manufacturing moves and vendor disruptions, and the upper end of the range representing the successful mitigation of these risks. Turning to the first quarter of 2026, we expect GAAP revenues to be in a range of $250 million to $255 million, which represents a year-over-year organic growth of positive 1% to positive 3%, and reported revenue growth of positive 7% to positive 9%. Looking at growth in our segments in the first quarter, Automation Enabling Technologies segment is expected to achieve low to mid-single-digit growth versus the prior year, which represents an acceleration in growth rate versus the fourth quarter based on the building momentum we see in the businesses, bookings, and backlog. Medical Solutions segment is expected to achieve high single-digit to low double-digit reported growth in the quarter. On a sequential basis, the Medical Solutions segment is expected to see a normal decline in the first quarter versus the fourth quarter due to seasonality. However, this business will still see solid year-over-year growth in the first quarter, and as already mentioned, the full year outlook for this business is extremely strong. For adjusted gross margin, we expect to achieve approximately 46.5% in the first quarter. This is a sequential step up from the fourth quarter and roughly flat year over year, representing the progress we have already made in the regional manufacturing moves. And as indicated in our full year guide, we expect stronger year-over-year margin expansion in the second quarter and beyond. We expect R&D and SG&A expenses in the first quarter to be approximately $76 million to $77 million, which represents roughly 30% of sales. This is a higher percent of sales than the rest of the year will be based on two factors. First, we are aggressively deploying artificial intelligence tools and resources to our teams to deliver upside to our productivity goals for the year. We are seeing great progress in the adoption of these tools to help us with many different areas, including selling processes, R&D programs, regulatory programs, and back-office processes. Second, there is a higher impact from the stock compensation expense associated with the all-employee grant that only impacts the first half. Depreciation expense and stock compensation expense in the first quarter will be in line with what I covered in the full year guidance. For adjusted EBITDA for the first quarter, we expect a range of $56 million to $58 million, which represents plus 12% to plus 17% growth year over year, and an adjusted EBITDA margin roughly 100 basis points higher than the prior year. Interest expense will be approximately $2 million in the first quarter. We expect our non-GAAP tax rate to be between 19% and 20% in the first quarter, lower than the full year based on the timing of recognition of certain tax benefits. Diluted weighted average shares outstanding will be in line with what was covered in the full year guidance. For the first quarter, we expect adjusted diluted earnings per share to be in the range of $0.75 to $0.80, growing up 8% year over year. Again, this growth rate is impacted by both the share count increase from the equity issuance and the timing of stock compensation expense in the quarter. Cash flow conversion in the first quarter should improve versus the fourth quarter and should achieve our goal of hitting cash conversion of greater than 100% of GAAP net income. However, with regionalization site initiatives still underway, we see stronger cash flow materializing after these are completed in the second quarter. In summary, we remain confident in our long-term strategy and business model. We see growing momentum which will help us achieve mid-single-digit organic growth for the full year. We are excited about our customer wins, our bookings growth, and the continued momentum of our new product launches. We continue to make progress in high-growth markets, particularly in medical technology markets and physical AI robotic markets. And finally, with the successful fundraise we have nearly $1.5 billion in acquisition capacity. This fundraise has unlocked our ability to explore multiple large potential opportunities and we have a very robust acquisition pipeline. Combined with our track record and discipline of acquiring businesses that exceed our cost of capital within five years and are free cash flow accretive day one, we feel confident in our ability to deploy meaningful capital in 2026 that will drive strong long-term shareholder returns. This concludes our prepared remarks. We will now open the call up for questions. Operator: We will now begin the question and answer session. To ask a question, you may press star and then 1 on your touch-tone phones. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. Once again, that is star and then 1 to join the question queue. Our first question today comes from Lee M. Jagoda from CJS Securities. Please go ahead with your question. Lee M. Jagoda: Good morning. So looking at the Automation Enabling Technology segment first and just the sequential increase in bookings of about $30 million, can you go through sort of what businesses and what product categories are driving that increase? And how much of those bookings are longer lead time versus more book and ship within a quarter or two? Matthijs Glastra: Yeah, Lee. It is pretty broad-based. Right? We commented that all our businesses, so including also the Medical Solutions businesses, had double-digit bookings growth and a positive book-to-bill for the first time since 2022. And we also commented that, actually, particular momentum was building in the AET businesses where you see a continued strong momentum building in robotics and automation driven by the drivers that I mentioned. So we have precision robotics, where you need more perception and reaction for end of arm, which is both in automation, but also surgical robotics, as well as, you know, humanoids and kind of a larger segment of precision robotics. Secondly, we expect to see momentum in the semiconductor capital equipment market improving, and you see some bookings starting to come in. And third, we have, you know, we are the sole-source supplier for drilling in GPU boards for artificial intelligence, and that business is gaining strong momentum as well. So that is on the robotics and automation side. And on the precision manufacturing side, there is a combination of multiple drivers. That business has shown double-digit bookings growth for four consecutive quarters last year. And revenue started to sequentially build, really in the 8% sequential growth in Q4. Now that business is still modestly negative year over year in the fourth quarter, but we are very confident that business will turn to mid-single-digit growth in 2026 driven by a few dynamics. One is customer destocking, which has been a headwind for this business for the last two years, has subsided. So that is one. Secondly, this business has very strong design win performance, and these design wins are coming up to speed in 2026 with bookings starting to appear. And then third, this business has been working for multiple years on intelligent subsystems of laser beam steering, and these product launches that started to happen, you know, in the latter part of last year are starting to hit in 2026, which is primarily driven by a variety of, yeah, let us say, manufacturing, advanced manufacturing markets that need extreme precision and throughput, whether it is laser additive manufacturing, micromachining, actually supporting processes for GenAI infrastructure, but also you see some reshoring happening where the precision and throughput and productivity improvements are required to offset, let us say, productivity losses as a result of the reshoring. So we see multiple drivers in that business. We feel good about that business momentum building sequentially. And I think the core message is it is broad-based. It is not, you know, a single driver per se of a single business, and we feel good where we are. Robert J. Buckley: Hey, Lee. Let me give you a couple pieces of data that might help. So on the precision manufacturing business, the book-to-bill was 1.2. That represented nearly 50% growth in bookings at a backlog amount of about a little over $100 million. So you could see that backlog is about two times that of revenue. In the robotics and automation area of the business unit, the book-to-bill was 1.13. That was close to 25% growth in the quarter. And our backlog there is also roughly one and a half times our actual quarterly revenue. The advanced surgery business, which I might as well just go through that segment, had 1.12 book-to-bill. The backlog is roughly two times that of quarterly revenue. And that business had close to 15% quarterly growth on a year-over-year basis. And our precision medicine business had a book-to-bill of 1.01 with a backlog of nearly two times that of our quarterly revenue, and it had bookings growth of 22% year over year. Lee M. Jagoda: Got it. No, that is all very helpful. One more and I will just hop back in the queue. On the industrial robotics order you announced, is there any update there, any revenue expectations for 2026? And then any additional follow-through orders after you kind of disclose that order, either that customer or potentially other robotics customers? Matthijs Glastra: Yeah. I mean, we see that momentum building very steadily. And, you know, our remarks stay consistent with what we have said before, Lee. So it is a first phase of ramp, which will be modest this year, and then it will be sequentially building from there. I think the key takeaway is that it is just a testament to our technology leadership. In this area that leading players are selecting us and that then creates a halo effect for other opportunities. So I think what I am most excited about is just the broad-based precision robotics, end-of-arm, physical AI opportunity for this business, which is both in surgical robotics, warehouse automation, humanoids, as well as other precision robotics applications. So that is what we are seeing, which is why we are seeing the momentum of that business sequentially building. So it is just one part of multiple drivers. Robert J. Buckley: I will say that you saw a couple announcements last year around both our servo drives, which are a key enabler of precision motion control within automation, within warehouse robotics, and within humanoids. We are working with the industry as well as the ISO organizations to help set the standard around how robots operate safely in a manufacturing environment as well as the home. We are well-positioned with that technology and our force torque technology in humanoids and in warehouse automation. We feel it is really superior to anything out there from a competitive perspective. And you can see we are working with pretty much everybody out there when it comes to the humanoid markets and the leading players in warehouse automation. So we feel really good about that technology. As Matthijs said, it will take a little time to kind of fully materialize. And, of course, on the humanoid side, a little bit binary in the short term. But we could not be better positioned both industry-wise and customer-wise and hoping to grapple on to that opportunity. Lee M. Jagoda: Great. Thanks very much. Matthijs Glastra: Thanks, Lee. Operator: Our next question comes from Brian Paul Drab from William Blair. Please go ahead with your question. Brian Paul Drab: Thanks. I mean, so much momentum on the top line, the bookings, the orders, and, you know, backlog. Can you just again maybe this is for Robert, just bridge that momentum and kind of reconcile that with your expectation for, at the midpoint, I think it is about 9% EPS growth, and just maybe rank order the investments again that are happening this year that will kind of result in what might be perceived as a little bit of restrained earnings growth? Robert J. Buckley: Yeah, I would say, so the EPS growth, do not forget, we did the fundraise. Right? And so the fundraise generated $0.22 to $0.24 of a headwind. Obviously, we do not want that headwind to materialize. We would like to deploy the capital that we raised towards acquisitions. And so I would look at that as a temporary headwind with the likelihood that we deploy that capital and generate income through the acquisition of a new business. But roughly the fundraise itself is $0.22 to $0.24. And then there is the all-employee grant that went out to all employees other than the executive team, and that had about a $0.14 headwind that only impacts the first half of the year. So if you think about the EPS growth of roughly, you know, 10%, it is growing 10% year over year despite the dilution from the fundraise and despite the dilution from that equity grant. And so the organic element of that EPS growth is obviously much bigger. Brian Paul Drab: Right. Okay. And thanks for stepping through that. And then you mentioned a number of opportunities here, and one of them that stood out to me was the GPU boards opportunity. Is that something that kind of surprised you that has popped up that is new? Or I have not heard you talk about that one before, and it sounds like that could be a big deal and kind of revive that air bearing spindle business. Matthijs Glastra: Yeah. I mean, listen. We have not talked about this business for a little while. We are really, by far, the leader in this space in drilling really thick boards very precisely. And it so happens that the material set in GenAI and GPU boards are getting tougher and thicker. And the only way you can really do this with throughput at precision, it turns out, is with our spindles. And, of course, the visibility is starting to increase around that, you know, starting to increase in the second half of the year. Of course, these boards can be drilled in a variety of applications. But it became clear that the leader in GPUs, you know, had a personal interest in this in terms of scaling that. So that is why we are mentioning it. The business is really starting to be on a tear, and therefore, we felt it was good to start to mention it. We see a multiyear trajectory here that is exciting. And, nevertheless, of course, there are many other drivers in the company that we have been investing in. But this is a leadership position that we have always had. It is a really cool capability that we have had and it typically was applied in a more cyclical part of the semiconductor space. It so happens that it is also needed now to drill these really thick boards, and we are the only ones who can do it. So that is why we thought we would mention it. Brian Paul Drab: And are you finding that opportunity is coming from new customers or existing customers that are ramping up to meet the end market demand? Matthijs Glastra: Yeah. Let us say, end users. Let us put it this way. So the way to think about it is you have the OEMs, the equipment makers. That set of customers is similar. I mean, we have been working with those customers over decades. It is a strong relationship. And those customers have been approached to provide, you know, the support for drilling these boards. So these applications have been developed with us and together with our customers. But it is really the end users that, of course, are more geared towards that GPU space. So that is how to see it. Our customers are the same. But the application is, of course, rapidly evolving. Brian Paul Drab: And then just one last quick question. You said book-to-bill was positive across all of the businesses. Are, just to put a finer point on it, we are talking about the two segments or all four sub-segments or what do we mean by that? Robert J. Buckley: Yeah. So all four business units and then the two segments. So book-to-bill was positive. That was the numbers that I was giving Lee in the beginning. Yeah. So positive book-to-bill is every business line. And then obviously, as a consequence of aggregation, the two segments had a positive book-to-bill and then the entire company. Brian Paul Drab: Okay. So nice momentum, you know, building backlog, double-digit bookings in each of the business units. And then obviously, significant progress in new product revenues, significant progress in design wins. So the teams are really hitting their stride. Matthijs Glastra: Yeah. And the key takeaway, Brian, is that it just supports the sequential momentum that is building and that is broad-based, based on structural drivers that are not only, you know, some of it is market, but actually a lot of it is really innovation, commercial excellence, being at the right place, winning business with the right customers in the right market. Right? So that is the takeaway. Operator: Thank you. Our next question comes from Robert W. Mason from Baird. Please go ahead with your question. Robert W. Mason: Good morning, Matthijs, Robert. I think you made a comment, Matthijs, just around the robustness of the M&A pipeline and the capital raise kind of signaled that as well. You know, as you think about your areas of priority and, you know, it seems like your bias to medical. You have also talked about consumables, embedded software. Obviously, there is a lot of discussion around software, but embedded software seems to infer itself a high degree of stickiness. But could you just maybe elaborate on the filtering process you are going through to make sure anything along those lines has the right level of protection and moat around it? You know, how should we think about that? And, also, maybe just any comment on valuation fluidity there as well. Matthijs Glastra: Yeah. Yeah, Rob. Great question. So I think we have been pretty consistent in where the focus is and why, but let me kind of just go through that. You know, over the last decade under my tenure, we have really grown the medical exposure to now close to 55% of revenue, up from 10%. So that direction of travel is expected to continue, both organically and through M&A. So that is first and foremost, and we are working with all the key leading OEMs in both the life sciences as well as the med tech space. So we now have a competitive moat also around customer access and relationships. And the more and more products we can offer our customers and the more and more solutions or problems we can solve will be received very well by the executives of those OEMs because they need capable suppliers that solve more problems for them. Rather than educating individual niche suppliers, they are looking at suppliers like us that have the scale, that have the regulatory performance and sustainability to really work with them over the long term. So that is the context. Within that, of course, we have a very strong franchise with the advanced surgery business, and that splits into two. One is basically endoscopy and arthroscopy space, and we are starting to build category leadership around that, but that is only 10% of the minimally invasive surgery market. Right? So if you think about it, there is huge expansion potential in surrounding applications to the same customer. Right? So the same customer base. So that is one, and that will be received as very positive. The second piece is that I think we have now built a medical consumables business of 15% of revenue that is growing double digits. A very strong franchise where you need quality and regulatory and operations chops to deliver these products that, mind you, will be delivered in procedures. Right? So you cannot really falter on delivery performance because otherwise, patients will not get their surgeries. And so that requires a certain level of skill and competence that we feel we now have built. So that is the second pedestal. That is the competence area of medical consumables that we feel is a great jump-off point to add more competencies to that. Right? So that is a very logical evolutionary next step. And then there are some surrounding applications that we can further build around that. And then the third on your third question, on embedded software, yeah, I know there is a lot of chatter and concern around the whole software space. Think about it as our intelligent subsystems where you have embedded software and hardware into subsystems. So you combine just the next layer on top of the hardware. That is what we are talking about. Right? This is not the application layer. This is intrinsically combining hardware and software to create functionality. Thirty percent of our business and probably 80% of our product launches are linked to a combination of embedded software and algorithms that work on the hardware. Right? That is what we speak about. So there are certain businesses where we are very progressed around this, like the advanced surgery business where almost everything is intelligent subsystems. You heard me talk about the beam steering side where we are now entering the market with these new capabilities that, quite frankly, achieve never-before-possible capabilities that are three to five times better than what is out there in the market just by combining the different competencies together. So that is what we are talking about as more of an added competence on top of the hardware that we have that is a vertical integration that solves problems cheaper, better, faster for our customers. And we feel that it is very well protected. It requires some deep proprietary know-how of the application that is not public. And it really runs directly on the hardware and then the firmware. So for us, that is what we are talking about. And we feel it is a very protected area, and we are growing rapidly in that area as we speak. Robert J. Buckley: Rob, let me answer your question on the financial side. So, you know, first and foremost, a bolt-on transaction for us, we have been very consistent. It has to have a return on invested capital that exceeds our cost of capital by year two, and a larger one by year five. The metric of return on invested capital for us is after-tax cash flow has to exceed the investment from a ratio perspective. Right? So think of it as like free cash flow accretive and growing at a faster rate than Novanta Inc. So, at the very top level, we want businesses that are growing their top line faster than ours. We want gross margins that are non-dilutive, so therefore, you know, 50% and above type of gross margin, and that cash flow really growing at a faster rate. The other metric we tend to look at is the asset intensity of the business. So you can maximize your return multiple ways. The best way that we feel is doing that is acquiring a high cash conversion business, so a conversion ratio higher than Novanta Inc., meaning its cash earnings exceed its asset intensity, and grow at a faster rate than Novanta Inc. is. And then lastly, you know, we are not looking to overleverage the company, and so we try to keep that leverage ratio below three, three and a half. Obviously, we will bias it to things that are less cyclical than our portfolio and therefore generate stronger alpha with less beta. And we have been pretty consistent about that, but I think, you know, regardless of what type of deal we are looking at or the size of deal that we are looking at, you should think of us as being highly disciplined around those metrics. Matthijs Glastra: Yeah. And then maybe just to put a final point to this, if you look at our advanced surgery business that we can agree is doing extremely well, I mean, we follow exactly the same framework there. Right? And just by cross-selling to joint companies or to cross customers, sorry, further investing in innovation and further adding the Novanta Growth System to that business, that business has doubled and will double again in the remaining part of the decade. So we feel we can add something to those companies with those returns that Robert talked about so that longer term, we can really drive these strategic opportunities and make those businesses better. Robert W. Mason: Understood. That is very helpful. Maybe I will just ask a quick follow-up. You talked about how Keyon has kind of outperformed plan thus far. I know that is a project-oriented business to some degree and project pipeline has been pretty healthy there. But just what does the first quarter contribution look like in that business before it goes into the organic bucket? Robert J. Buckley: It does help if you are trying to get at, you know, what is, obviously, you could see the delta between the reported revenue and the organic revenue that we gave. That delta is driven pretty much all by the Keyon acquisition. A little bit of FX in there, but for the most part, the Keyon acquisition. You are right in this project business. Delivered about $9 million of incremental revenue. It had an element of project-based business, but it also has a recurring revenue stream associated with it as well. So each of the individual customers that we work at, we actually sell a software-type of solution package to them that is, for all intents and purposes, middleware. It is not an application. And so we, you know, control and own the data that we gather from those readers. And then that data gets sold on to the customer through a recurring revenue stream that they then go out and either mine themselves with artificial intelligence or buy some sort of packaged application solution that overlays onto it to give them the insights that they are looking for to maximize those stores. It is that concept and that strategic element of it that really got us attracted to the business and why we see the applicability in the hospital environment and why we are excited about that. I should mention, we did a very small, you will probably see it in the 10-K, minority investment into a similar business in Spain that has got frontline access to the hospital environment there to allow us to start beta testing our products in that environment and really understanding the best way to penetrate that market and deal with the regulatory hurdles around data privacy and then patient privacy and how best to package a solution to that marketplace. So we are making progress in the strategic core, which is around the medical field. We continue to feel that we are well-positioned to do that. Then simultaneously, the business is really strongly positioned in its base customers around retail. We continue to make design win progress, continue to win new products, new customers, and have that momentum. The growth driver around that, we expect it to exceed the deal model. Not only did it do that in 2025, it will exceed the deal model in 2026. We feel very good that that momentum has continued to be present. Robert W. Mason: Very good. Thank you. That is helpful. Operator: With that, everyone, we will be concluding today’s question and answer session. I would like to turn the floor back over to Matthijs for closing remarks. Matthijs Glastra: Thank you, operator, and thank you, everyone, for your questions. In closing, as always, I would like to thank our customers, our shareholders, and especially our dedicated employees for their ongoing support. We appreciate your interest in the company and your participation in today’s call. I look forward to joining all of you soon at our first quarter 2026 earnings call. Operator: And with that, everyone, we will conclude today’s conference call. We thank you for attending today’s presentation. You may now disconnect your lines.