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Operator: Thank you for standing by, and welcome to the Adore Beauty Group H1 FY '26 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Sacha Laing, CEO. Please go ahead. Sacha Laing: Thank you. Good morning, everybody. My name is Sacha Laing, CEO of Adore Beauty Group. I'm joined today by our new CFO, Marcus Crowe. Thank you for joining us today as we present Adore Beauty's results for the 26 weeks to the ending 28th of December 2025, and we look forward to meeting many of you over the next few days. The group has had a strong start to FY '26 with our maturing omnichannel strategy delivering customer revenue and profit growth in a challenging retail environment. Record underlying profit was driven by operating leverage, disciplined cost management and growing owned brands. Highlights of our half 1 FY '26 results include record underlying EBITDA of $4.1 million on a pre-AASB 16 basis, up 14.5% over the previous year at a margin of 3.7%. This is equivalent to 5.5% under the previous reporting methodology and was in line with our guidance. Marcus will provide more detail on the change in EBITDA reporting methodology later on. Revenue of $111.9 million was up 8.7% compared to the prior corresponding period, and we saw accelerated new customer growth, up 21.8% on the prior year. Gross margin of 35% reflected a strong Black Friday and November, December trading period as we continue to reset our promotional calendar and focus on quality of earnings throughout the balance of the trading period. Turning to our half-year achievements on Slide 3. Alongside improved profitability, we stepped up our omnichannel rollout in half 1 FY '26, opening 10 retail stores across the group. We have 2 further stores opening in half 2 and sites secured and confirmed for a further 4 stores opening in the second half of 2026. Marketing efficiency materially improved as we profitably acquired new customers at the top of the funnel and in-store. In the first half of FY '26, customer acquisition costs more than halved as new customers grew at the fastest rate in over 4 years. Our higher-margin iKOU brand continues to perform well with strong revenue growth and profit growth across all channels and continues to support our long-term profitability targets. We invested in long-term infrastructure to improve our operational efficiency and support our growth ambitions. We've secured a long-term lease for a new semi-automated national fulfillment center, which will be rolling out in the first quarter of FY '27. Through the course of this half, we'll continue with our ERP replacement, which will be live in Q4. And we're developing a custom AI platform to elevate customer experience and internal operational analysis. Slide 4 highlights the group's strong performance across key financial metrics. Our growing retail network, successful promotional events, and the strong performance of our iKOU brand delivered a step-up in revenue. Record earnings reflect operating leverage combined with growing retail media, higher contribution from sales of our own brands, in particular, iKOU, and disciplined cost management. The group achieved a strong profit uplift despite margin pressures arriving from the overperformance and share performance of the Black Friday and Cyber Monday promotional period. The group continues to focus on improved quality of earnings, leveraging growing customer loyalty and app adoption to offset our reduction in broader promotional activity. As shown on Slide 5, Adore Beauty's engaged and loyal customer base is an enduring strength of the business. In the first half of FY '26, members in our Adore Rewards loyalty program contributed 78% of all sales, up from 65% in the prior year, and we have multiple initiatives underway to increase order frequency and share of wallet. Our total active customer base increased by 4.7% over the last year to 850,000 active customers, benefiting from new channels, strong new customer growth, and a targeted customer acquisition strategy. At the same time, we're also growing our contactable database, up more than 14% over the prior year to 1.35 million. This database of qualified potential customers enables us to cost-effectively target and grow our active customer base, supporting marketing efficiency and our FY '27 target of more than 1.25 million active members. Turning to marketing on Slide 6. Profitable new customer growth was a standout for the first half of FY '26, delivering our strongest uplift in new customers in 4 years while significantly reducing marketing spend. New customer growth reflects the success of our retail stores and our refined marketing strategy in introducing Adore Beauty to new customers. New customers increased 21.8% over the prior year as customer acquisition costs more than halved to $33 per customer. As our retail network continues to grow and mature, we expect improved brand awareness and in-store customer acquisition to deliver even further new customer growth as we continue to cycle out unprofitable promotions and therefore, refine our approach to which customers were focusing our acquisition during particularly those high-end promotional periods. I'll now hand over to Marcus to take you through the financials. Marcus Crowe: Thank you, Sacha. It's a pleasure to be here today as the CFO of Adore Beauty Group, and I look forward to meeting with many of you over the coming days. Before I take you through the P&L, I'd like to quickly explain the change in how we're reporting profit. Given our growing retail footprint and the requirements of AASB 16, we've commenced reporting EBITDA on an underlying and pre-AASB 16 basis. This measure takes account of rental costs and best reflects the underlying performance of an omnichannel business. Adore Beauty Group delivered a solid financial result for the first half of FY '26 with record underlying and statutory EBITDA of $4.1 million and $4.9 million, respectively. Profit growth was driven by higher revenue, combined with increased contribution from margin-accretive owned brands and retail media as well as disciplined cost management. Material marketing efficiency improvements reduced marketing costs by almost 30% with marketing as a percentage of sales down 520 basis points over the prior period to 8.6% of sales. Alongside our store rollout, we're continuing to invest in long-term infrastructure projects that lay the foundations of future operational efficiencies, including a new national fulfillment center, generational ERP update, and in-house AI capability. Turning to our balance sheet on Slide 9. The group is generating positive operating cash flows and has a closing cash balance of $8.2 million as at 28 December, reflecting in part the group's investment in its store network during the period. Capital management remains a focus for the business, and we're exploring funding options to support our growth strategy. Higher inventory reflects typical supply closures over Christmas as well as in-store stock. Happy to take questions at the end of the presentation. But for now, I'll hand back to Sacha. Sacha Laing: Thanks, Marcus, and great to have you on board. Slide 11 demonstrates the early success of our omnichannel strategy. Our e-commerce business remains a growth driver for the group with the Adore Beauty app and loyalty program continuing to resonate with customers. In the first half of FY '26, the app represented 35% of online sales, up from 25% mix last year, while our Adore Rewards spend and save -- spend and earn loyalty program grew to 509,000 members. These members contributed 77% of all sales in the first half of FY '26, up from 65% in the same period last year. Our retail network is performing well with significantly higher conversion than the e-com business at 11.1% and just under our target of 12% in the long term, with new customers accounting for almost 30% of in-store transactions. More than 670,000 customers have been through the doors of our stores so far, cost-effectively introducing the Adore brand to a substantially broader customer base, improving brand awareness and enabling us to close the customer journey for existing customers. Importantly, store support improved quality of earnings with customers shopping in this channel typically less promotionally driven, and we see that in the margin of this channel. While early days, we have a growing customer base of omni customers shopping both channels, and this valuable cohort contributed to more than 5% of our revenue in the first half. On Slide 12, we see the growing network of our store channel. We continue to deliver against our strategy at pace. We opened 9 stores during the period as well as an additional store in early January. This brings our national network of stores to 18 across the Adore Beauty and iKOU brands, including our first stores in Queensland and South Australia and more than half of these stores opened in the final months of the reporting period. We'll no doubt see a meaningful contribution of these stores as we move into the half 2 and into FY '27. A further 2 stores are opening in the second half of FY '26 with an additional 4 stores secured for later in the calendar year. We are well on track to achieve our targeted network of 25-plus stores by the end of FY '27. Our national retail network broadly -- materially broadens our addressable market to capture the 87% of transactions that occur in a physical retail store, unlocking material revenue growth and potential for the group. Our Adore Beauty store format product and service offering has evolved since our first store opened in Southland just on a year ago. Slide 13 outlines our evolution, growing from an offering of 60 brands at Southland, our first store to now over 120 brands in every store across the country with dedicated treatment spaces and on-staff dermal therapists. To ensure in-store customers have the same access to product knowledge that Adore Beauty is known and famous for, we've invested extensively in product education for our in-store staff. We've also continued to refine the processes that sit behind efficiently run stores from setup and replenishment through to systems automation, IT integration, and operational support. Stores are expected to reach a level of maturity in the first 12 to 18 months as brand awareness improves, and we learn more about the nuances of individual centers. We expect stores to contribute meaningfully from year 2. And of course, omni customers are already providing us to be an incredibly valued cohort with a lifetime value of spend 20% higher than a single channel customer. We're already seeing the benefit of our retail network on the e-com business with an online halo emerging across all store catchments with the strongest improvement in areas where Adore Beauty's existing customer base was underpenetrated. Moving to our iKOU brand on Slide 14. iKOU continues to strengthen under Adore's ownership, delivering strong revenue growth across all channels. Growth was driven by greater availability, new brand positioning, and investment in infrastructure and customer service. We opened our sixth iKOU store in the Victorian seaside town of Sorrento in November and have plans to open a further 2 to 3 stores through the balance of this calendar year. We're leveraging our group expertise and know-how to grow and mature the brand with significant operational progress achieved in the first half of FY '26. This includes the rollout of a new e-commerce platform, upgrades to e-mail customer flows, implementing a 7-day customer service experience team, and implementing a platform integration across all channels. Our higher-margin own brands, including iKOU, Viviology, and AB LAB are expected to account for more than 6% of total group revenue for FY '26. On Slide 15, we're continuing to invest in our core online business with technology projects that enhance customer experience and operational efficiency. As shown, our recent platform refresh has improved on-site personalization, search functionality, and recommendations. We're also integrating in-house developed AI across our business from product and customer support through to internal workflow automation and business analysis. These projects are designed to streamline our operations, enhancing customer experience and enabling a much more engaged experience for our teams and for our customers. On Slide 16, efficiency gains further reduce cost of doing business. Our disciplined cost management across marketing, inventory, and operations continue across the business. As I mentioned earlier, marketing costs reduced by almost 30% even as we grew new customers, increased sessions, and invested in above-the-line advertising. Reduced promotional activity is delivering a higher quality of underlying earnings. Inventory health continues to be a focus with a record level of inventory efficiency. More than 60% of our inventory is now within a 60-day window, and our stock turn grew 11.7% on the same period last year. Operationally, we partnered with a new group freight provider from October. We're leveraging AI to improve picking processes and reduce labor costs, and we've laid the foundation for the launch of a new ERP system in Q4 to further improve operational efficiencies. Turning to Slide 17. As part of our investment in infrastructure that drives operational efficiency, we've secured a long-term lease for a larger national fulfillment center in the Melbourne suburb of Broadmeadows. The 6,300 square meter facility is expected to be operational from Q1 FY '27 and will include automated picking and replenishment, unlocking significant operational efficiencies and supporting long-term growth plans. Initial capital outlay of approximately $8 million is predominantly funded by a CBA-backed project-based facility with an expected payback in under 4 years. Turning to our outlook on Slide 19. Our solid half 1 FY '26 performance as we ensured we are on track to deliver our targets moving forward as our strategic initiatives continue to drive customer revenue and profit growth. In FY '26, we expect to deliver underlying group EBITDA of 3% to 4% on a pre-AASB 16 basis. This is equivalent to 5% to 6% under the previous reporting methodology and in line with our guidance. Own brands representing more than 6% of group revenue, new and active customer growth to support our FY '27 target of 1.25 million active customers. Loyalty member and app growth continues to be a focus to offset the reduction in promotional intensity, a national retail network of 20 stores by the end of this half, and we'll launch our new ERP and we'll progress our transition to the new national fulfillment center as well as continuing to implement AI deeply across the business. We entered the remainder of FY '26 with strong momentum, and I look forward to updating you on our progress at the full year. I'll now hand back to our operator to open the call for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Leo Armati from Bell Potter Securities. Leo Armati: Just firstly, on gross margin. You've had a history of growing this year-on-year, but obviously, it was down around 120 basis points this half just following that November, December trading period. Just wondering how we view this going into the second half and even further forward just in terms of the need to promote to get that sale. Sacha Laing: Thanks, Leo. Thanks for your question. So I think we've also provided, obviously, that step-up on FY '24 from a margin perspective of 150 basis points as noted in the investor deck. And that's an important frame of reference. Obviously, there isn't the equivalent of a Black Friday promotional period that has that significant spike that we see in half 1 doesn't exist in half 2. So a much more measured and tempered approach to margin management, obviously, in half 2. We're continuing to see loyalty and our app adoption be a fundamental driver of margin improvement as well as our store network, which is predominantly a full price channel. So we'll continue through half 2 to rebase and remove promotions that were unprofitable in the prior year and focus our energy on our loyalty members and on our store network in driving the improvement of full price revenue throughout the half. That's how you should be thinking about this moving forward. And as I said, the Black Friday promotional period only happens once a year. Leo Armati: Great. And then just secondly on stores. So I think your Western Australian stores were outperforming the broader network. Is there anything specific as to why that market outperforms? And will you aim to sort of weight those further openings to that market? Sacha Laing: I'll answer that question in 2 parts. Firstly, from a national footprint perspective, we'll continue to roll out stores in all states. And each state has key targeted centers that we're focused on, and there is a couple more in the West for sure, over time. The West as well as geographic areas outside of sort of the core Victorian metropolitan and New South Wales metropolitan areas where we have really strong penetration today from existing customers online represents significant opportunity for us. And so when we talk about those stores in the West outperforming the balance of the portfolio, which, by the way, continues to meet our expectations, it's really about those markets where there's been an under-indexed penetration of Adore online previously. And those customers are really enjoying the brand in the physical experience sense. So that very much talks to our original methodology, which was -- and strategy, which was to bring the brand to customers to introduce the brand to new customers that haven't experienced the brand before. And certainly, in the West, that's what we're seeing. Operator: [Operator Instructions] Your next question comes from [ Kristina Chareva from Jarden ]. Unknown Analyst: Can you just share how you're seeing more recent trading environment and how your sales performed in January and February and maybe more broadly in second quarter versus first? Sacha Laing: Yes. So you saw from our results today that we haven't provided a trading update, and that's consistent with our approach over the last 2 years or so. We'll obviously lean in detail to performance on a half-by-half basis. In terms of the result for half 1 and how the Black Friday or quarter 2 traded versus quarter 1, again, we don't break up that level of detail for you. But obviously, based on the overperformance of what is a particularly important trading period through the Black Friday, Cyber Monday period, we did see half 2 overperform relative to half 1 in a total revenue sense. But of course, that continues to be a focus for us as we rebalance our promotional activity moving forward. Unknown Analyst: And secondly, how are you seeing change in competitive dynamics? And do you believe you're still holding market share? Sacha Laing: I think more importantly, if I think about our growth at 8.7% relative to the prior period last year, in a market that sees category growth circa 4-odd percent year-on-year compound growth in the beauty industry, our view is that we took meaningful share in the first half at almost a 2x market growth rate. Operator: There are no further phone questions at this time. We'll now move on to address your webcast question. Your first webcast question asks, what -- what's the expected payback on each store? Sacha Laing: So we've previously provided guidance on payback in the 1- to 2-year period. And of course, that's dependent on when the store opens in the calendar year. So a store opening closer to, obviously, the Christmas quarter has typically delivered stronger payback is our expectation, and those opening earlier in the year have a longer payback period. But that's been our market provided guidance before -- between 1 to 2 years. Operator: Your next webcast question asks, is the company on track to achieve its 5% EBIT target in 2027? Sacha Laing: Thanks for that question. So we haven't updated guidance for 2027. So our existing guidance remains in -- at our last provided guidance. We've introduced a number of meaningful new initiatives over the last 12 months, including our national distribution center, our changes in our relationship with our freight providers as well as introducing new operational processes supporting our ERP. So a number of those initiatives sit as an overlay to our existing 3-year plan, and we'll provide at our full year results an extended view on guidance beyond '27. But for now, we have no update on our existing guidance. Operator: Your next question asks, can you please walk us through the cash flow statement? Sacha Laing: Can I ask who the question was from? Operator: It was a question from [ Eduardo Riquelme ], a private investor. Marcus Crowe: Yes, no problem. So look, in terms of the presentation deck, we didn't provide a cash flow statement. So there is a cash flow statement in the Appendix 4D, which follows the usual protocols in accordance with the accounting standards. So cash flows from operating activities are presented, which were $2.4 million for H1 2026. You will see that there was some movement in interest period-on-period as we utilize debt during the first half of the year. I think probably the material change that you'll see period-on-period relates to the lease liabilities and the interest component related to those lease liabilities under AASB 16 as we took on an additional 10 stores during the year. Indeed, to contextualize that, I think the rental cost in H1 FY '25 was circa $665,000. It was approximately $2 million in FY '26. So you'll see that impact through the cash flow. Additionally, you'll see material uplift for payments for property, plant, and equipment as we've invested into that store network. Our investment into intangibles, our website app was measured and pretty consistent with the prior year. Operator: Your next question asks, how is cash going to behave after the iKOU payment, but now with investments in [ VL ] and new store demand? Sacha Laing: Yes. I mean the iKOU payment was obviously due as contracted in the January end period, which has been complete. And we continue to run the business as planned. So that was certainly expected, planned for and no impact to the way we're running the business. So thanks for the question. Operator: There are no further questions at this time. I'll now hand back to Mr. Laing for closing remarks. Sacha Laing: Thanks very much. Thank you, everybody, for joining the call today, and we look forward to meeting many of you with you over the next few days ahead. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the ACV Q4 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Fox, Vice President of Investor Relations. Thank you. You may begin. Timothy Fox: Good afternoon, and thank you for joining ACV's conference call to discuss our fourth quarter and full year 2025 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill Zerella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, both of which can be found on our Investor Relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website. And with that, let me turn the call over to George. George Chamoun: Thanks, Tim. Good afternoon, everyone, and thank you for joining us today. We are pleased with the ACV team's execution in Q4, delivering revenue at the high end of guidance and adjusted EBITDA above the high end. Our performance was driven by solid execution in our dealer wholesale business despite challenging market conditions as we continue to gain market share, expand our dealer partner network and drive adoption of our value-added dealer solutions. And again, ACV Transport and Capital delivered strong revenue performance. We also executed on our product road map to further differentiate ACV's marketplace experience, support our commercial wholesale strategy and expand our TAM. Turning to 2026. We are expecting revenue growth in the low double digits and adjusted EBITDA growth of approximately 28%, which includes additional growth investments to support our medium-term financial targets. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of our results on Slide 4. Q4 revenue was $184 million, growth of 15% year-over-year, and we sold 193,000 vehicles. For the full year, we delivered 19% revenue growth and grew units by over 86,000 or 12% year-over-year. And adjusted EBITDA grew by over 100%, demonstrating the scale in our model. Next on Slide 5, we'll again focus our discussion around the 3 pillars of our strategy to maximize long-term shareholder value: growth, innovation and scale. I'll begin with growth. On Slide 7, we highlight how ACV is leveraging AI to attract new buyers and sellers, increase penetration and wallet share and gain traction with large dealer groups. Let's begin with our marketplace. Our highly accurate condition-adjusted pricing guidance enables sellers to set more informed reserve prices. Flexible auction durations and scheduling allow dealers to customize their marketplace experience. Given the challenging market conditions in Q4, dealers increasingly leaned into ACV's technology. For buyers in our marketplace, we tailor their experience across buyer personas and optimize the bidding process by providing AI-enabled recommendations informed by dealer preferences and current market factors. These investments and our leading marketplace experience were key to growing our dealer network in 2025, with 15,000 unique sellers and over 22,000 unique buyers transacting with ACV. Our franchise rooftop penetration achieved a new milestone, reaching 35% during the year. And our major account team delivered impressive results with a 300 basis point increase in rooftop penetration. Next, on Slide 8, I'll provide some highlights on our data services. Market traction for ClearCar remains strong, especially for ClearCar service that enables dealers to seamlessly produce consumer appraisals and offers from their service lanes. ClearCar is also an effective lever to increase wholesale wallet share and attract new dealers to our marketplace. During 2025, existing dealers that launched ClearCar increased their wholesale volumes of ACV by over 50% after going live. We're also seeing early momentum with our strategy to bundle ACV Max with wholesale. A recent cohort of new ACV Max dealers increased their wholesale vehicle sales on our marketplace by an average of 40% within 1 quarter of launching Max. Our strategy to offer a broader set of value-added solutions is creating another growth lever for ACV. Again, this quarter, we're excited to share feedback from one of our dealer partners, the Hendrick Automotive Group, which is using ACV's full suite of offerings. We posted a video on our IR website, highlighting the significant value they're deriving from ACV solutions. Turning to Slide 9. From a geographic perspective, we continue to drive strong growth within our more established regions, where network effects are driving significant market share. At the same time, our footprint has expanded across the country as highlighted in these 4 regions, which delivered strong year-over-year unit growth in Q4. As we discussed in our Q3 call, there are certain emerging regions where we are increasing our territory manager and VCI footprint to drive accelerated growth. These efforts began in Q4 and will continue during 2026, and we are confident in the medium-term growth outlook for these markets. Turning to Slide 10. Let's review our marketplace service offering. Beginning with ACV transportation. The transport team had strong execution in Q4 with 20% revenue growth and 110,000 transports delivered. AI optimized pricing continues to drive strong growth and operating efficiency. Revenue margin has already achieved our midterm target in the low 20s. And our off-platform transportation service continues to gain traction from our dealer partners, creating additional growth opportunities. Last, I'll wrap up the growth section on Slide 11 with ACV capital highlights. ACV Capital delivered strong revenue performance, with 48% year-over-year growth in Q4 despite actively lowering our exposure to higher risk customer segments. The ACV Capital team implemented new growth strategies while driving process enhancements to mitigate portfolio risk. As such, we are confident that ACV Capital will remain an important value-added service for our dealers and a long-term growth opportunity. Next on Slide 12. I'll address the second element of our strategy to drive long-term shareholder value innovation. Turning to Slide 13. Let's go deeper into how we are leveraging ACV AI to drive growth and to deliver value to our dealer and commercial partners. Using machine learning, we combine inspection data and dynamic market data to provide real-time pricing for every vehicle within ACV's pricing platform. For example, we are leveraging our pricing platform to offer ACV guarantee to sellers and deliver no reserve auction to buyers. This offering remains the fastest-growing channel in our marketplace. We are pleased to see ACV guarantee mix increase to 19% in Q4. As a reminder, our guaranteed sale is highly differentiated offering that benefits buyers sellers and ACV by accelerating bidder engagement, increasing buyer satisfaction, removing seller market risk while delivering 100% conversion rate. We're confident our guarantee offering will be another key driver of market share gains. On Slide 14, we highlight how we are further differentiating ACV in the market with AI-driven next-gen products like Viper and Virtual Lift. We are extending our industry-leading inspection technology, vehicle data and pricing capabilities to dealers looking to unlock consumer vehicle acquisition at scale in their service line. At the recent NADA Industry Conference, we announced the next wave of availability for the Viper Early Access Program and dealer reception was tremendous. We're excited to kick off the commercial launch of Viper with select dealer partners, providing them with unique and scalable consumer sourcing platform. It will expand our TAM at a rooftop level by tapping into the large peer-to-peer segment and by leveraging pricing models that bundle Viper with wholesale we're creating a powerful new lever to drive wallet share expansion and unit growth. Wrapping up on innovation. Let's turn to our commercial wholesale strategy on Slide 15. We are pleased to see the initial range of capabilities developed over the past year, powering our first greenfield remarketing center in Houston. Our team has been in active conversations with commercial customers to deepen our understanding of their requirements for the next phase of our software build. We believe this new digital model and end-to-end experience will transform commercial vehicle remarketing, and we also look forward to launching an additional greenfield location in Chicago this year. With that, I'll hand over to Bill to take you through our financial results and how we're driving growth at scale. William Zerella: Thanks, George, and thank you for joining us today. We are pleased with our Q4 financial performance with revenue at the high end of our guidance range and adjusted EBITDA exceeding the range. On Slide 17, let's begin with a brief recap of our fourth quarter results. Revenue of $184 million, grew 15% year-over-year compared to very strong results in Q4 '24. Adjusted EBITDA of $8 million grew 36% year-over-year, reflecting strong expense discipline. Finally, non-GAAP net loss of $1 million was favorable relative to our guidance range. Next, on Slide 18, let's review additional revenue details. Auction assurance revenue was 55% of total revenue and grew 11% year-over-year against a very tough comparison of 40% growth in Q4 '24. This performance reflects 5% unit growth which also faced a tough comparison of 27% growth in Q4 '24. Auction and assurance ARPU of $528 grew 6% year-over-year and 4% quarter-over-quarter. Marketplace Services revenue was 39% of total revenue and grew 23% year-over-year, reflecting continued strong performance for ACV Transport and ACV Capital. Lastly, our SaaS and data services products comprised 5% of total revenue with year-over-year growth accelerating to 8%. Next, I'll review Q4 costs on Slide 19. Non-GAAP cost of revenue as a percentage of revenue increased approximately 400 basis points year-over-year. The increase was primarily driven by higher arbitration costs as expected within a specific cohort of customers. Recall that our Q4 guidance assumed arbitration costs would remain elevated in the quarter, but that trend would normalize in 2026 following mitigation steps we implemented. These steps are already showing positive returns in early 2026. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue decreased approximately 400 basis points year-over-year reflecting operating leverage in our model. Moving to Slide 20, I'll frame our investment strategy as we drive profitable growth. In 2026, we expect OpEx growth of approximately 9%, which is a decline from 12% in 2025. Note that 2026 OpEx includes approximately $11 million in additional go-to-market spending to support regional growth objectives. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 100 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 21. We ended Q4 with $270 million in cash and cash equivalents and $190 million of debt. Note that our cash balance includes $171 million of marketplace flow. In the figure on the right, we highlight our solid operating cash flow, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 22. First quarter revenue is expected to be $200 million to $204 million, growth of 9% to 12%. Adjusted EBITDA is expected to be $14 million to $16 million, reflecting a 7% to 8% margin. 2026 revenue is expected to be $845 million to $855 million, growth of 11% to 13%. Note that full year revenue guidance assumes that our go-to-market investments will drive slightly higher growth in the second half of the year. 2026 adjusted EBITDA is expected to be $73 million to $77 million, growth of approximately 28% year-over-year. We are expecting non-GAAP OpEx, excluding cost of revenue to grow approximately 9% year-over-year. Now with that, let me turn it back to George. George Chamoun: Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our Q4 execution while navigating through challenging market conditions. We continue addressing these market challenges by enhancing our technology and operating models ultimately making us even more resilient. We are attracting new dealer and commercial partners to our marketplace, and expanding our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map, powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving strong adjusted EBITDA growth and delivering on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A. Operator: [Operator Instructions] Our first question comes from the line of Andrew Boone with Citizens Bank. Andrew Boone: I would love to just double-click in terms of 4Q '25 units sold. We've seen this deceleration. Can you just help us understand whether that's competitive pressure, the market macro, anything you want to call out in terms of highlighting 4Q results? And then I'd love to ask about MAX. It sounds like you guys are seeing real results in terms of better integrating with dealers to just drive more volume. Can you help us understand what's the road map to drive better MAX adoption more broadly? George Chamoun: Yes. Andrew, when you look at Q4, first, we delivered, as you can see on our revenue expectations. I think we had a really -- we had a strong quarter from a revenue perspective. For the year, we grew units 12%. So that was solid. And when you look at the Q4 compare, it was a tougher compare. But what we're doing about creating more growth of things we've talked about. We're adding more inspectors out in the field. So we'll start to see that benefit throughout this year. That's one area we're adding. We also talked about investing in a few more of the regions where we are adding additional territory managers, Andrew, so we talked about that in the call. And then we also talked about our differentiation with our product like MAX that you brought up. But I do want to actually bring up the real the backdrop here on dealer wholesale is growing from the physical auction. Still 70% of the business out there is happening at physical auction. So the broader need is still just to bring more and more business being had at physical auctions over to digital, which between our differentiated offerings is starting to happen more and more. On your second question on MAX, we are really starting to scale that business where it's now being connected more to wholesale. For some of the rooftops, we added an additional offering that puts a guarantee on units. So not only are we providing pricing guidance, but we'll put a guarantee, and we're starting to scale that with additional rooftops. So we look forward to scaling MAX additionally throughout the year. Operator: Our next question comes from the line of Rajat Gupta with JPMorgan. Rajat Gupta: I had a question just following up on the previous one. It looks like your 2026 guidance, it does not assume much of a change in overall market share growth versus what you saw in recent quarters. despite your incremental margins moving lower versus where you were last year. I'm curious why that would be the case. And if there are like any onetime investments maybe Viper and other initiatives around commercial that might be causing the incremental margin to slow down? I mean, just helping it just seems a little counterintuitive to look at incremental margin driving versus market share not accelerating. If you could clarify that? And then I have a quick follow-up. George Chamoun: Yes. certainly, Rajat. Yes. So the -- I'll start and then Bill can chime in. Two of the investments we're making at least two, and Bill can chime in with the additional is what we made with the infield, which are additional inspectors. We're hiring some additional territory managers, as I mentioned a few minutes ago. So that's one area of additional expense and Bill could kind of go a little deeper. And second is, yes, we're starting to invest in the Viper rollout. So that's also part of the numbers. So we believe Rajat, as we're making these investments throughout the year, we'll start to see more of an impact towards the back half of the year because obviously it takes a little time to get these things going. But Bill, maybe you can chime in some more of this. William Zerella: Yes. So Rajat, just to go through the numbers again. So the incremental spend that we've baked into our guidance for this year in terms of those go-to-market investments is approximately $11 million. If you look at our incrementals, excluding that, they would have actually grown 500 bps year-on-year from 25% to 30%. So that's number one, just to ensure you got the right numbers, right? And as George said, at this point, it's early in the year, we're making these investments, obviously, with the objective of driving more share gains. But we're pretty conservative at this point in terms of what we're going to bake into our guidance until we start to see these investments pay off over time. Rajat Gupta: Understood. So the market share, essentially implying higher market share acceleration in the later in the year, assuming these investments bear some fruit, right? William Zerella: Yes. There's -- we're assuming a slight increase in the second half of the year versus the first half. But again, we're taking a more conservative perspective at this point until we start to see this play out over time. Rajat Gupta: Understood. And just a quick follow-up, a little more high-level question. Could you maybe comfort investors around just the risk of AI to the business. I mean, clearly, there seems to be a lot of interpretation around. Anything you can help just provide more clarity around that? What differentiates APV, what differentiates our business model. Is there a risk? Is there a benefit from AI? Maybe if you could just dig a little deeper into that and just how you're thinking about that? George Chamoun: Yes. I mean, the irony, Rajat, is we are that disruptor. We are the AI disruptor in this category. So we are that company that is aiming to change automotive for the better. We're the company who's trying to help a traditional retailer like a franchise dealer, as cars drive through a service drive, take pictures and videos and predict the retail price within a $38 that it's going to sell for and estimate wholesale value within $100 to a point where we'll guarantee it. We're the ones making predictions on what types of inventory they should be buying and selling. We're adding new capabilities throughout the year that we believe will help franchise dealers become more efficient and actually need less people. So we're huge fans of what you can do with AI. We are aiming to be that disruptor. We're aiming to be the one that helps really franchise dealers modernize their use of these tools. We're integrating with a lot of different vendors. So it's not like we're picking 1 widget or 1 thing. We're integrating with all the CRMs and all the DMS solutions regardless of what tech stack the dealer chooses. So yes, we should be 1 of the beneficiaries of the speed that you're hearing from investors is that all industries will change, AI will change every single industry. This will be one of them, and we should benefit from that. Rajat Gupta: I guess, the interpretation is that there might be a new start-up or a young company that can do what you're doing in a much easier fashion, in a much simpler fashion, maybe providing that inspection capability to the dealers directly or the pricing capabilities. Is there anything you can do to protect your position? Or do you even see that as something realistic or practical? George Chamoun: Yes. I think -- look, I think investors should do their homework. They should watch the video we posted regarding what we do for the largest private automotive company in the country, post in our Hendrick Automotive, watch that video, see what we're doing. They should do the research we're doing for some of the public automotive groups who speak very highly about the way ACV is doing for them. I think when you do your homework, you'll see we're not just predicting numbers. We're predicting them to the point where we can back them and guarantee them. So yes, there could be start-ups that emerge in this category, but I think they'd have to raise hundreds of millions of dollars, if not billions. So then have the balance sheet and the data which would be very difficult to do, where we've inspected over 1 million cars a year that we know all these scratches, all these dents. We've now earned the credibility to be part of the workflow for all these dealer groups. So I could see why in other industries that they would be concerned. But in this one, Rajat, we are that disruptor. Operator: Our next question comes from the line of Ron Josey with Citi. Ronald Josey: George, I wanted to ask about conversion rates. I'm just wondering if they return back to normal seasonality in the quarter after some sort of ups and downs last year and then thoughts on conversion rates in the '26. And then maybe bigger picture, when we look at the unit growth improvements across the Carolinas, South Florida, South California to East Texas, remind us what led to the outsized growth here and sort of what this means going forward? George Chamoun: Yes, certainly, Ron. On the first point, our conversion rate for Q4 was up year-over-year, where most of our competitors were flagged out. So we did see a year-over-year improvement in conversion rate. And we saw that, I think the overall improvement where our no reserve sale is doing this -- what we refer to our investors as the guarantee offering. We give the guarantee to the seller, the buyer gets a no reserve offering where they can bid without a reserve. It's really helping not only differentiate ACV, but delivering a better buying experience, a better seller experience. So we did see a conversion rate. Obviously, Q4 is always tougher on conversion rates, but we're executing well. And we actually do see our overall, our guarantee and no reserve offering continue to grow. This quarter, it started out we're already in the 20% range of our total units now selling, and we're seeing more and more of our customers start to adopt the product. So one, I would say conversion rate, I believe, we're starting to become some of the best in the industry. And we did also to help on conversion rates. We were harder on sellers who were giving us overpriced cars. We did get rid of a few sellers. We implemented more policies to make sure it's a better buyer experience. So we're being more and more prudent on not just chasing units, but making sure we're building the best experience. So we started to really sort of manage the marketplace with stricter rules. And that's really coming out. I think we're seeing higher buyer NPS as it relates to the sell-through at rate conversion rate, probably than I've seen in several years. So we're seeing some confidence from buyers coming back on conversion rate. So that was a long-winded conversion. William Zerella: Yes. And then, Ron, just to put a finer point on the numbers. So sell-through in Q4 was up 150 bps year-on-year, which, for us, as we think about our business and kind of the trends that we can hopefully drive going forward, that can, over time, become more and more material. George Chamoun: And then on your second question, what did we do differently? We brought -- I'd like to give you an example of Carolina is we took a very strong performer of ours that was in the New York metro area, who is a territory manager, we promoted him to a regional director down to Carolina. So we brought somebody that really do the ACV model. He then worked with the local territory managers. We also, I believe, added an additional territory manager in this region. We hired additional inspectors. And we really just doubled down. Strong execution. They really know how to present our differentiated offering. So yes, I would say that market, Carolinas took us a little bit longer than we would like to grow. But now it's growing. And we've got strong talent there. They've got great momentum, and we feel really good about it. The same story with South Florida. Our team down there is just a great team. they keep differentiating the ACV offering, whether it be the guaranteed sale. They're also 1 of the ones that are starting to leverage our inspector teammates to go out and help on the buying activity on the demand side, sort of leveraging our inspector base not only listings, but just getting out into the field more, both sellers and buyers. So that leader down there, I met with him last week, is doing a fantastic job of just building out South Florida. So yes, we're really showing that region by region. We got more work to do over here, but I'm really, really excited to see where we've got the right talent. We've got the right folks out there, we're starting to take share at healthy rates. Operator: Our next question comes from the line of Bob Labick with CJS Securities. Bob Labick: I wanted to ask about Viper, you talked about rolling out this year. You talked about a lot of dealer interest at recent shows and stuff. Have you said -- I guess, when will it be in the field? But more importantly, what are the keys you're watching for in your launch once you get it out there before you decide to do maybe a more widespread rollout. George Chamoun: Yes. Thanks, Bob. So we are -- our #1 priority with Viper in these initial rollouts is really to help ensure the dealers going to be able to leverage us to acquire more vehicles. We think about dealers -- when dealers optimizing their revenue is all about the top of the funnel, sourcing more cars. If they can source more cars, then they can optimize and decide which cars should they be retailing, which car should they wholesale. So these initial customers primarily have ACV MAX as their inventory management system. Our goal is to get them to buy more cars. So think a dealer buying 30, 40, 50, 70 plus cars, what they call off the curve or off street primarily from their service drive. So that's a key KPI is helping them buy more cars. Some of the dealers we're talking to have very large goals. Bill and I actually met with one of them last week, and the General Manager of that store was a dealer who said he'd like to buy 100 and what was the number. William Zerella: He wants to retail 100 more used cars a month which means he's probably going to buy more like 125 to 130. And retail the ones that he wants to keep. George Chamoun: So as the example, Bob, of here's a dealer who just got Viper, and those are the words of a specific dealer. And so we're site because here's a simple math, they buy more cars, they're going to wholesale more. The more they buy, they're going to keep the best 60% to 70% for retail. And then they'll end up wholesaling somewhere around 30% to 40% of these cars. And so think about it as TAM expansion for us at a rooftop level. So you'll see cars that either would have want peer-to-peer or cars that would have went to one of the large big-box type companies will now get purchased by that dealership. So said another way, we think some of the best-run dealerships in the country are going to be dealers that have Viper. And if we could turn that rooftop into one of the best-run dealerships in the country, right? Then there's a bigger -- even a bigger reason to be working with ACV in the ACV portfolio. Bob Labick: Okay. That's exciting. So I can't wait to watch that as it rolls out. And then you gave us a few stats on ACV price guarantee of 19% in the quarter and ticking up already for no reserve auctions and percent of volume. Is there a natural level or a goal for that or a level that it can't go above? Or how do you think about the progression in the no reserve auctions in the percent of volume that could be? George Chamoun: I think if we could see our no reserve sales being -- that won't -- I don't know what it will hit this year, but I think if it could hit mid-20-ish percent range this year, I'd be ecstatic, maybe higher, who knows. But it's really -- we're not saying every single car should run no reserve, right? If you look at some vehicles, like a frontline vehicle, a dealer just running it for 24 hours on our platform. We're not seeing every single car needs to run that way. But there is a halo that's happening on ACV's marketplace right now because the more cars that are running no reserve, buyers are showing up. We're still now -- I think I mentioned in a prior call that we've got 9.8 bidders per car, I think we're now at over 10 bidders per car. So that keeps climbing, where we've got tremendous bid activity. That's on average because there are some parts that might have 20 or more bidders per vehicle. So we've got great bid activity. It's allowing us to have our data science and predictions are getting better and better. Rajat asked the question earlier about AI. I mean when you think about the ultimate sort of machine learning, AI predictor is not just using third-party data out there in the Internet. But this is our data where we can put a number on a car, measure it of how well we execute. And then to have the bidirectional integration with the DMS, where we know what dealers are retailing the cars for. We're in a really unique spot. So we're really pleased with where we're at today with our guarantee offering and how it's producing these sort of no reserve opportunities for buyers. Operator: Our next question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: Just to -- I just want to understand -- I may not have the math right, but if I look at just pure auction recognized revenue per unit, it's in line with Q3. And on the prior call, you talked about incentivizing sellers, power sellers and people to try to price guarantee, should we -- and I know that incentivizing power cells has sort of been a longstanding industry dynamic. Should we think about that for you guys as something that's not temporary and that's sort of going to be sort of like the new normal as industry competitive levels change? Or like if I reading into something? I just want to get your thoughts on that. George Chamoun: Yes. I think that's a good point, Chris. We're -- revenue per unit in Q4 was healthy to your point. And I don't think you should think of it as temporary. We're not that worried about competition, where we think revenue per unit is going to like fall. Bill might be able to add little more color here. But I think that's a really good point. We're -- we did want to bring up to investors in the last earnings call that we didn't want our investors -- I'm mean analysts like significantly increasing ARPU over the next year to give us that ability, as you said, to reinvest. But having said that, you -- but I don't anticipate ARPU to go down meaningfully. But Bill, maybe there's more you can chime in here. William Zerella: Yes. So Chris, just to look at the numbers. So in Q3, our auction and insurance ARPU declined slightly from $5.23 in Q2 to $5.08. and then it bounced back up in Q4 to $5.28. So what's baked into our modeling going forward and incorporate into our guidance is an assumption that, that $528 pretty much is flat to maybe up very modestly in Q4 -- I'm sorry, in 2026. So that's kind of the modeling that we've baked into our financials in terms of what we're giving you guys for the year. So we'll see how it goes, but it's going to hold up probably slightly better than we previously were modeling on our last call. Christopher Pierce: Okay. And then just on competitive dynamics broadly, I can't speak for all investors, but I feel like there was a school of thought that if we look back 2 years ago, wholesale was going digital, and it was going to be a winner take most market. Would you push back that on maybe investor sentiment changing or the industry sentiment changing that wholesale is could go digital, but it will be a duopoly type market, and that will naturally be buffers for each other's growth and comps will play a role and things like that? Like I guess, when you look at the industry 3 to 5 years from now, do you have a different projection than you did maybe 18 months ago? George Chamoun: So I think at the end of the day, we're going to focus on being the leader. I believe we are still the dealer wholesale leader. We put on -- how many units last year I said in the call, 86,000 units. I don't believe anybody else put on 86,000 dealer wholesale units last year. And that -- and when you think about our differentiator, we're at -- we're not only in the wholesale category. We're helping dealers create their business better. I really recommend as folks are thinking about this like not only watching the video, but talking to our end customers. People were working with are happy with our wholesale results. What they're really saying is ACV is helping us run our business better. Go back to Rajat's question about AI changing industries like automotive. And I think investors should be worried that AI will change industries. I think that is a legitimate worry. We're doing that in this industry, we're helping dealers execute better. Now is there still a way to go where physical auctions are still the majority of the cars sold? Yes. And we will continue to grow. Now is there also some I would say, credit to also -- it may not winner take all. It could be a -- there could be a couple of winners in this category. I think there's truth of that too. So I think we're going to be the leader. I believe we're going to have the most differentiated offering. And I believe there's also room for others because at the end of the day, there's only 30-ish percent of the industry right now that's moved to digital. Operator: Our next question comes from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe two, if I could. Given some of the moves you made to expand footprint through 2025, how should we be thinking about investments to deepen that footprint reach in 2026 as a driver of growth? And how that fits into your broader strategic priorities? That would be number one. And any update on Project Viper. I don't think I saw anything in the prepared remarks or anything on the call so far. I just wanted to get a quick update on the technology side from Project Viper and how to think about that rollout as we get deeper into '26 as well? George Chamoun: Yes, certainly, Eric. So we are hiring away on the inspectors. I think between the next couple of months, we've got between this month, next month, I think we've got like 30 people in training right now. So we're hiring, we're training. We will hit our inspector number goals I'm hoping by Q3, which incorporates both the hiring and training to really get the national footprint I'd like in place right now. So you will see us just continually executing in that regard to increase our opportunity of going out and inspecting more cars and growing our footprint across the country. So it will take us several quarters to both get the hiring and training in place. But I'd like to get this national footprint, the way I would like it to be from the talent and inspecting more cars a day. My goal is to get most of this in place but, I would say, by the end of Q3. It's sort of my goal. It's an aggressive goal, but we're working hard. So that's on the -- like how to think about the talent and hiring and training because obviously, it's not just hiring, but it's also training and getting all the people in the right places. And then second, your question on Viper, we are just -- we're -- we've done 2 things. One is we're starting to implement somewhere around -- it's about 5 to 10 Vipers a month right now. We're in the early days, Eric, we're out putting somewhere, I think, around 5 to 10 a month over the next -- throughout the year. Think about these as the early dealers that are our dealers who are helping us not only integrate with the other third-party vendors. So think about like CRM companies, DMS, like the various vendors, but also helping us nail down a few of the other requirements. So our goal is to put somewhere north of 100 of these out in the field, maybe as close as 200, so think like 100 to 200 of these. We've got at least 200 hand-raisers, probably more than that of dealers saying they want it right now. I don't think we'll get them all out this year. We'll see. So that will be getting them all live, making sure the product is accomplishing objective number one, which is helping them buy more cars. Objective number two, helping them have retail photos faster on their websites, which helps them retail cars faster and objective #3, which is on their service revenue, helping them dealers, for example, we're predicting tire depth at a pretty incredible, like my team is saying 90% confidence, higher than 90% confidence on tire depth. So think about cars going through and the dealer can now upsell tires to consumers as they're coming through. And it's also a way to help value the vehicle. So whether it's selling more cars, buying more cars or their service revenue going up, those are the 3 key things we're watching. Our goal is to start scaling this early next year, where once we've proved our -- we feel really, really good. We just don't want to go build 100 of these a month right now or some significant number. And then we find out we wanted to speak something, we just wanted to change something. And so the thought is be prudent. As you know, we do move fast, but we are pretty prudent over here, make sure we feel like everything is going in the right direction. And then early in the year really start to scale this thing where throughout the year, we'll also start taking orders. William Zerella: Eric, it's Bill. So just -- again, just going through the math. So we already talked about the $11 million incremental investment on the go-to-market side. So the incremental investment on the Viper side that's primarily going to flow through our financials as CapEx since we capitalize these units and then amortize those costs over a subscription period. That's also another high single-digit NIMs. So call it approaching $20 million of incremental investment for those 2 initiatives combined. George Chamoun: And then more to come on the business model on future calls, but think subscription but also tying back to wholesale. And that will be an opportunity for us to both help the dealer achieve their objectives, but also us drive our wholesale, our wallet share and rooftops working with us. Operator: Our next question comes from the line of Naved Khan with B. Riley Securities. Naved Khan: So George, maybe just looking back at your commentary in November. I think when you're talk -- thinking about 2026 back then, you said it's prudent to probably assume that wholesale market stays flat in 2026. And now we are in Feb 2026, anything that might have changed in terms of your thinking about the market for this year versus maybe about 3 months ago? So that's my first question. And then the second question is around arbitration expense. And just wondering what are the kind of drivers here to get this thing down. Is this really more of a function of price volatility? And as that comes down, you expect it to come down? Or you did do some cleanups. So I was just trying to understand the drivers there. And any color there would be helpful. George Chamoun: Yes, certainly. On your first question on market. As of right now, we're not changing our perspective of dealer wholesale being flat for the year. But obviously, a very good question. In January, according to NAAA, dealer wholesale was down by 6.5%. So you saw January was -- the market was down. Obviously, there was a lot of weather February, there was also -- there's been some weather, obviously. So I think too early to say it will be down for the whole year. And I think there's enough things going on in the industry between what can happen with the tax refunds and look at when you generally think about the benefits right now of buying a used car from a tax perspective, there's benefit. There's going to be enough benefits on the used car side. There's going to be supply benefits of off-lease coming and dealers are going to buy a lot of these cars. So as of right now, even though I would say the year started out with dealer wholesale being down, I would -- we are still thinking that it will be a flattish year. And your second question arbitration, a very good question. We feel really good about where our arbitration is in Q1 and where we're going into the year. We did really -- we moved out some bad actors on the platform in this November and December of last year. And we started to really just covering the platform better. And that's really playing out well. I think it's also the ACV brand. We're not letting folks take advantage of this anymore, starting to get out there. And I wish I would have just done the sooner, but I think as leaders, you just -- you kind of -- as you're growing these businesses, you sometimes are just chasing a little bit. And I'm really proud of the team. Really, really proud of the team. We executed extremely well in Q4. We are going into the year, I'm seeing MPS, I'm seeing buyer satisfaction, I'm seeing on the seller side and the buyer side, more and more accountability. So yes -- and plus our technology is getting better. Another thing, Rajat mentioned about like using AI. We're starting to use AI to figure out what's going on with sellers and buyers and other types of things. So all in all, I'm proud of how the team is executing on arbitration. William Zerella: And one other item I would add to what George indicated is with all the inspectors that we're adding that we've already had and we'll continue this year, we're also going to leverage that increased inspector head count out there to also validate certain arbitration claims. So that will kind of give us another opportunity to ensure that we're paying out when it makes sense to pay out based on validated claims. George Chamoun: Yes. This is something we recently started piloting and having the additional headcount really helps because we right now send these cars to some type of local dealership. And we found really, it's been very helpful to go put our own eyes on the car. So yes, as Bill mentioned, it will be another positive way of us managing arbitration and allows us to handle these claims faster. It's not us only having -- it becomes for the good actors, a better process because now we can send our person out there to validate the arbitration. Operator: Our next question comes from the line of Jeff Lick with Stephens. Jeffrey Lick: I got kind of a series of questions around helping dealers run their business better. They're all kind of related. Firstly, could you maybe talk a little -- dig a little deeper on the usage, the early returns on using Viper to boost service attachment and upsell in the service lane? And then along with that, if you guys do a scan, do you own the data? Or does the dealer own the data? Or did you guys both have access to it? And then I was wondering if you also elaborate into -- I know you guys are doing some kind of private label auctions or intra-dealer auctions with different groups using your data. Just kind of wondering if you could talk about those things. George Chamoun: Yes. We've been starting to scale our service drive acquisition, both pre-Viper and now starting to leverage Viper as well. But we're -- Jeff, we've got roof taps buying, I would say, anywhere between 4 and 1 as high as 10% of all ROs, repair orders, service orders coming through their service drive. So these are unbelievable numbers. So I think on a rooftop basis, this could be anywhere between 40 and 100 cars a month. Bill and I met with one the other day that was already buying, what did you say 75... William Zerella: No, he's already you're already buying over 150 a month. George Chamoun: A month. So we're seeing some -- we're already starting to see, Jeff. Now we've got to scale it. I think like we got to go from like dozens of rooftops to like thousands, but where ACV is in place and where the dealer takes our best practices, our numbers are like off the chart. But we've got to get more rooftops doing it. And so ClearCar by itself meant the dealers left go around, they got to do the yes, no question, which, by the way, only takes a few minutes. So I would like to see more and more of them using it. And we now in parallel for a few rooftops, again, early stage, we'll actually put a guarantee on the cars. That's not helpful because one of the negatives we're finding is even with all of our tech, they still only go put offers on the ones they really want to buy, which is not good for them or us. So now that we -- and some pilots actually put a guarantee. Now they don't feel like they're taking a risk buying a car, they had no business buying. And so that's also being helpful. So we got to take this from dozens of rooftops to hundreds to thousands of rooftops. But great thing what I found in my entire career, I remember when we were selling a few hundred cars a month at ACV auctions, and we told the world we're going to go out there and disrupt dealer wholesale. Probably a lot of people thought we're crazy. And I'm sure those folks who are saying, you're going to do all this with AI, it sounds a little crazy. But once you could do it with dozens, you can do it with hundreds, you could do it with thousands. And I've seen that throughout my entire career. So that was your question one. Your question two on data at the dealers' data at the end of the day, and then we have the right to use the data in an aggregated methodology. I don't really want to speak any more to that on a public call like this, but it's a win-win on how we're respectful about their data, but then how we could use the data for doing the things we're talking about, like we're talking about today, pricing predictions, things like that. So we have a very senior team from a legal and data perspective here and doing it for 10 years. And so we've been able to do this in a way that's both positive for the dealers and us. Jeffrey Lick: Do you see eventually the ability to charge kind of non-volume contingent recurring revenue, maybe charge more for helping the dealer run their business better and not necessarily tying that to auction volume? George Chamoun: They will be both. So the way the model works and I was trying not to talk about the models today, that's really for middle of this year. But at a really high level, the way it will work is the dealer will pay several thousand bucks a month. I won't say the numbers just yet, just so no one is modeling it yet. And then there'll be a rebate. So if we don't get the wholesale volume that we'd like to get, then they'll just pay us a healthy number. Because by the way, that's still a win-win. So if they end up just being a high, high SaaS revenue account for us, and that's what they decide. Let's just say that dealer happens to own a physical auction as an example, right? There's a couple of dealers here that across the country own physical auctions. So look, we have a great model. Well, we're going to charge them. It's still fantastic, but it would be a more significant subscription revenue. So yes, it will be a win-win, whether we get the wholesale volumes, which we think the wholesale volumes per rooftop will be -- could add TAM expansion that could be 20%, 30%, maybe more than the typical rooftop. So we're pretty excited about it. Operator: And our next question comes from the line of Gary Prestopino with Barrington Research. Gary Prestopino: George, I had a couple. I got a question on guarantees and I had a question on Viper. So with the guarantee, once it hits the reserve, do you start to see an influx of increased bidding. Does it kind of work like some of these classic car meta auctions where once the reserve comes off, the price goes up precipitously. George Chamoun: Yes, Gary. That's exactly the way this world operates. Dealers that are bidding on cars want to know a car is for sale. And when they know a car is for sell, they'll invest at the time. They don't want to go bid on car after car and waste their time. And we believe the ACV no-reserve sale. Look, pretend that's its own auction, as though the rest of ACV doesn't exist. As though the rest of the industry doesn't even exist. While our no reserve sales going on, we believe we have the highest bid activity in the industry. And so Gary, yes, you're seeing exactly that because dealers are willing to invest their time as they know the top bidder is going to get the car. Gary Prestopino: Okay. And then on Viper, I realize it's real early in the gains there. But what does your system do? Or how are the dealers getting over the reticence of the individual that owns the car to really trust the data to trust what's being spit out by the dealership. There's always an inherent conflict of interest there, right? George Chamoun: Yes. Good point, Gary. I think you're really bringing up that between AI and machine learning, we need the customers who appreciate and trust, right, the system. The good news is we've been out showing the end results of our data profile. And when you look at the last few months, and the last few quarters, our retail prediction of what a car and sell for in the next 30 days. Most recent results was within $38. So that's not me just saying, "Hey, this should work someday." This is saying, our prediction of what the car is going to sell. We're not -- won't always -- even within $100, even within $200, that's incredible. So Gary, we're not just -- we didn't just build a hardware unit here and say, okay, go learn. We've been learning through ACV Max. We've been learning through ACV auctions. Our wholesale predictions are within $100. So when you have this ability to walk in there with hardware that you've already been learning, you've already been proving, it allows us to have more credibility to do what you're asking, which is how do we change their process to trust it because we are walking in. Now will there still be a transitory process to get trust, of course. But at least we're walking in to this opportunity with a lot of credibility. Timothy Fox: So Simon, I think we're at the end of the call. So from here, I'll just say thank you for joining us tonight. We hope to see you on the conference circuit over this next quarter. And again, thank you for your interest in ACV, and everybody, have a great evening. George Chamoun: Thanks so much. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and welcome to Kratos Defense & Security Solutions Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Senior Vice President and General Counsel, Marie Mendoza. You may begin. Marie Mendoza: Thank you. Good afternoon, everyone. Thank you for joining us for the Kratos Defense & Security Solutions Fourth Quarter and Full Year 2025 Conference Call. With me today is Eric DeMarco, Kratos' President and Chief Executive Officer; and Deanna Lund, Kratos' Executive Vice President and Chief Financial Officer. Before we begin the substance of today's call, I'd like everyone to please take note of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasizes the major uncertainties and risks inherent in the forward-looking statements we will make this afternoon. Please keep these uncertainties and risks in mind as we discuss future strategic initiatives, potential market opportunities, operational outlook, financial guidance and other forward-looking statements during today's call. Today's call will also include a discussion of non-GAAP financial measures as that term is defined Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, at the end of today's press release, we have provided a reconciliation of these non-GAAP financial measures to the company's financial results prepared in accordance with GAAP. Eric DeMarco: Good afternoon, everyone. We finished 2025, exceeding our financial objectives for the fourth quarter, generating approximately 20% Q4 year-over-year organic revenue growth, generating a 1.3:1 book-to-bill ratio on top of this 20% growth rate, having a record backlog of $1.573 billion, a record opportunity pipeline of $13.7 billion and with the opportunity set for Kratos having never been stronger and expected to continue to increase based on recent events. Of note, generating a 1.3:1 book-to-bill ratio on top of 20% organic growth while also maintaining a record high backlog and record high opportunity pipeline, we believe, is representative of the increasing demand for Kratos' affordable military-grade hardware and software, and that our growth trajectory is accelerating. Kratos is positioned to achieve our previously communicated 2026 and 2027 financial targets; and similar to 2025, our Q1 will be the lowest, including as we come off another CRA and also this time, a government shutdown, both of which are now resolved and we will ramp throughout the year. Since our last report, the global national security opportunity and funding environment for the industry and for Kratos has continued to improve including, as I mentioned, both the CRA and U.S. federal government shutdown being resolved, the 2026 NDAA being signed, the fiscal '26 Defense Appropriations Bill being signed, and the President, the Chairman of the SASC, each proposing future defense budget increases of approximately 50%, up to $1.5 trillion. Additionally, discussions have already begun on a second additional 2026 Reconciliation Bill, including a potential additional $450 billion for defense. There is a generational recapitalization of the defense industrial base underway, driven by geopolitical and related global threat environment, a recapitalization that we believe Kratos is uniquely qualified to address with defense and national security-related budgets of the U.S. and its allies expected to increase for the foreseeable future. Crisply stated, we now have a $1 trillion annual defense spend that is expected to increase for the foreseeable future. And as a result of the defense industry consolidation, which began with the infamous DoD Last Supper in 1993, there are a few qualified companies with true capabilities to address the required military-grade hardware, software and weapon systems demand. Kratos is one of the few nonlarge traditional prime contractors, which, in my opinion, is qualified to adequately address this demand with Kratos having the right products at the right time at the right cost points now and today, and this is being reflected in our organic growth rate and our financial results. Also importantly, the Secretary of War has emphasized that he wants industry to bring to the department relevant systems now, systems that can achieve 85% of what is needed today not a PowerPoint of an exquisite system at maybe some days 100% potential threshold at a ridiculous high cost. As you know, pillars of Kratos' strategy since we founded our company include better is the enemy of good enough and ready to field today, and affordability as a technology, both of which I believe are aligned with the Secretary's comments and clear differentiators of Kratos in today's environment. Another Kratos strategy pillar also since our inception is that Kratos makes true internally funded investments ahead of government funding, enabling Kratos to move fast, efficiently and affordably for manufacturing capability and relevant products for the war fighter. Additionally, Kratos' practice of not paying dividends or buying back our stock but of investing our capital in the defense industrial base is also aligned with the vision of the current administration and also the related opportunity environment, which Kratos is realizing the benefit from. Kratos' strategy of being first to market with actual relevant products is clearly a differentiator to our customers and partners as we are seeing firsthand with the demands for Kratos' jet drones, hypersonic systems, jet engines, satellite defined software systems and solid rocket motors. Having products and not PowerPoints is clearly important now more than ever, and I believe that this trend is accelerating. Engineering, manufacturing and delivering affordable, relevant military-grade hardware at scale that must work every time is hard and having this capability does not occur overnight. We have been at this for a long time, and Kratos' customers and partners recognize this. The time for PowerPoints, podcasts and science projects is over. We are out of time. The country is moving towards wartime footing, and Kratos is ready now. For our operational update. We now have 120 Kratos Zeus and Oriole solid rocket motors on order, with deliveries of the SRMs to Kratos for system integration expected to begin in Q3 of this year, which SRMs are directly related to either under program, contract or expected hypersonic and other launches that we plan to perform. Related to these solid rocket motor orders, Kratos' hypersonic franchise is expected to ramp rapidly beginning now this year. Kratos' Zeus solid rocket motors were specifically designed by Kratos for affordable rapid full rate production to enable national security customers to fly more often faster and farther, using fewer rocket motor stages at a substantially reduced cost. And demand for Kratos' Zeus SRMs is significant. Our newly opened Maryland hypersonic facility, our soon-to-open Indiana hypersonic system integration facility and the expansion of our Birmingham advanced manufacturing facility for hypersonic systems, along with the solid rocket motor deliveries are key elements of Kratos' expected near-term and future revenue growth trajectory and EBITDA increase. These new Kratos facilities are specifically designed and built for identified programs and systems and the related security requirements with specific capabilities identified with our customers and optimized for large-scale integration and production speed, efficiency and cost. It was recently reported that Kratos has been selected by the Pentagon to develop highly maneuverable Mach 5+ hypersonic missiles, including advancing in-flight steering and propulsion systems under the Joint Hypersonic Transition Office, another new hypersonic program win for Kratos. And separately, we are now hoping to receive an additional approximate $1 billion-plus hypersonic program-related opportunity by the end of this year, which we believe will be sole sourced to Kratos as prime on an existing national security initiative. We are expecting to approximately double Kratos' hypersonic franchise revenues in 2026 over 2025 up to approximately $400 million and then potentially increase over 75% again in '27 up to approximately $700 million. Last week, we announced the groundbreaking for the Prometheus facility, our solid rocket motor and energetics partnership with our outstanding partner and defense technology company, Rafael, and we remain on track with the business plan I have previously briefed you on. Kratos and I personally have deep long-term relationships with the Rafael Israel executives, including the Chairman and CEO, and we are all committed to Prometheus' success and certain other initiatives we are partnering on. Reflecting the Prometheus initiatives coordination with the Department of War, the department last week also announced the ground breaking of a new munitions campus, where Prometheus is located and Prometheus will be the primary business presence. Kratos' space and satellite business, our company's largest, recently achieved an important milestone with the successful completion of a factory acceptance testing between Kratos' Epic command and control software system and Airbus OneSat next-generation software-defined satellite platform. The Airbus OneSat software-defined satellite platform offers dynamic in-orbit reconfiguration capabilities, significantly increasing satellite mission capabilities and flexibility, which drive new levels of complexity for the ground command and control systems that manage them. The significance of this successful acceptance test with Airbus is that Kratos' Epic C2 software is expected to unlock the agility of Airbus's OneSat platform, enabling operators to instantly reshape coverage and reconfigure the missions in orbit. Kratos' open-space software C2 and TT&C system with Airbus OneSat software-defined satellites is representative of Kratos' technology and industry-leading position in the space and satellite domain. Kratos' space and satellite business is also representative of the dual national security and commercial use of certain Kratos products, systems and softwares. These are not PowerPoints or convenient talking points. We actually do it. In my opinion, Kratos' suite of internally funded and developed software-defined command and control, and telemetry tracking and control, and other systems, both for commercial and national security spacecraft, reflect certain of the highest technology space capabilities in the world with Kratos the clear first-to-market industry leader with software-defined systems and products. Similarly, Kratos' global owned and operated space demand awareness system with approximately 190 worldwide sensors and more than 20 sites is a Kratos crown jewel and one of the most valuable technologically advanced dual-use assets of our company. Another critically important Kratos partner is global space solutions company, SES, which, in my opinion, similar to Kratos, is an industry-leading satellite and space technology company. Kratos and SES are now working together on a number of initiatives including dual use, both commercial and national security focused, and I am confident that similar to other Kratos partnerships, SES and Kratos will together be providing significant relevant technology and industry-leading solutions generating real tangible value for our respective stakeholders. Key Kratos assets driving our space and satellite business including our OpenSpace TT&C software, C2 software, other software and artificial intelligence, including for Kratos' global space domain awareness system, which is the only such SDA system in the world today. I do not emphasize it often. Kratos' OpenSpace satellite and space-system-focused software is the only software-defined networking solution designed so that virtually every piece of the satellite ground station can now be turned into software, accelerating the reaction time to changing satellite capabilities and space conditions. Kratos OpenSpace is one of the software jewels of our company. As you know, the number of space and satellite opportunities globally, national security related and commercial, is rapidly increasing. And as a result, Kratos' space and satellite business opportunity pipeline is particularly robust even after generating a fourth quarter and 12-month book-to-bill ratio of 1.2:1 and now having a record backlog of $600 million at the end of Q4. Related to the market position of Kratos' technology and first-to-market OpenSpace satellite software suite, Kratos has recently been informed that we have been selected for an initial approximate $500 million program award that I will hopefully be able to provide additional information on a future call. Similar to what we typically see at most of Kratos' calendar fiscal year ends and as we saw again at the end of '25, certain Kratos' satellite and space customers, similar to commercial software companies, historically make software, data and other Kratos product purchases in the October, November and December time period, generating higher margins for our company, which we once again expect and forecast to occur in Q4 '26. The Department of War has recently established a new acquisition model to expand munitions procurement and production, including delivering long-term demand signal certainty to the industry in incentivizing private investment to increase production. Related to this initiative, the Department of War has executed multiple up to 7-year deals, including with Lockheed and Raytheon, for air defense, missile related and other systems, including several programs that Kratos supports. And Northrop also recently announced that the Integrated Battle Command System, or IBCS, another Kratos hardware-supported program, is moving towards increased production. Kratos is an industry leader in high-volume manufacturing of military-grade hardware and systems including hardware with high-altitude electromagnetic pulse protection, an important Kratos technology differentiator, and we are a go-to provider of hardware for our national security-related customers and partners. Accordingly. We applaud the Department of War and these long-term production agreements and plans, which clarity provides companies like Kratos the long-term planning visibility for investment, resource allocation and financial forecast and confidence. In Kratos Turbine Technologies and our engine business, there are several new low-cost cruise missile, drone, hypersonic and loitering munition programs and systems that require next-generation new technology engines and propulsion systems, and here again, Kratos is first to market, including with our Spartan family of jet engines, which are running and flying today. We continue to win important new engine-related program awards including what we were able to report this morning, that Kratos and our partner, GE Aerospace, have now received an award from the Air Force to design an engine for the expendable combat collaborative aircraft or CCA. I can now also report that Kratos expects to begin low-rate initial production of small engines in the second half of this year for certain missile programs, and we are also currently responding to a customer-requested rough order of magnitude "for 15,000 engines" for a system that has been specifically designed around a Kratos Spartan jet engine. Directly related to the expected future quantities of low-cost missiles, drones and powered munitions required, we are now in our new 40,000 engine per year capacity facility in Michigan. The expected ramp in our engine and propulsion system businesses, which can generate certain of our company's highest margins, including from the financial leverage we expect to realize on certain fixed manufacturing overhead and other costs as the business ramps are expected to be contributors to our expected increased overall Kratos EBITDA margins as we progress through '26 and into '27. We continue to execute on the new industrial gas turbine, or IGT, program I mentioned on our last call, which we are under an NDA on, but there has been important information reported publicly, including on CNBC, with such program, if successful, could be a significant future catalyst opportunity for Kratos. Since our last update call, Kratos Turbine Technologies is now under contract in the high-profile e-VTOL area under what we refer to internally as project Pegasus, where Kratos is designing and is expected to deliver propulsion systems, including for a very well-known e-VTOL company. Kratos' technology and propulsion systems in the e-VTOL area is another representative example of Kratos being a provider of real dual-use products. Kratos Microwave Electronics is also expected future high-growth business area for our company, including in the U.S., Israel and elsewhere internationally, both organic and inorganic that is also currently expected to continue to generate certain of the highest profit margins in our company. As you know, Kratos microwave has several hundred employees in Israel where Kratos is working with certain of the most technologically advanced companies in the world, and I recently met in Israel with my very close partners, including the CEOs of Elbit, Rafael and Israel Aerospace Industries, each of which Kratos has been working with for decades. Simply stated, virtually every national security system globally needs military-grade microwave electronics, and we are focused on investing in and growing this business area to support our partners. Consistent with our expectations and what we communicated in our Q3 update call, we recently announced that our teammate, Northrop, received the MUX TACAIR collaborative combat aircraft, or CCA, program award with Kratos Valkyrie as the CCA aircraft equipped with Northrop's mission systems. It was also reported that MUX TACAIR was a competitive CCA solicitation that Kratos' Valkyrie won and was selected for. As I have mentioned before, Northrop is an incredibly valuable partner of Kratos and one of the most innovative technology companies in the industry, and this includes the new defense technology companies. As reported, this initial MUX TACAIR award is approximately $230 million and will be split approximately 50-50 between Kratos and Northrop with an approximate 24-month period of performance, also consistent with our previous expectations. As a reminder, there is initial MUX TACAIR funding of approximately $275 million included in the 2025 Reconciliation Bill and an additional $58 million included in the '26 Appropriations Bill. This is expected to be just the beginning for this program. As I have previously communicated in detail, this initial award includes the sale of a number of Valkyrie systems, but this is not yet high-rate production, which is expected to come next. There has been a lot of information reported on the Marine Corps Program of Record and Valkyrie being the first CCA expected to be fielded. And I encourage you to take a look at this data as I believe it validates the current favorable competitive positioning of Kratos Valkyrie and the future expectations that we have for this system. Importantly, we have now also successfully received another separate U.S. tactical drone program of record contract award, though we are not allowed to provide any details at this time. Additionally, I believe that we are in a sole-source position for 2 additional tactical drone opportunities, including for Valkyrie, which we will hopefully receive in late Q4 this year. We are also in another competitive CCA solicitation with the Valkyrie in a partner, which we also currently expect to be notified on by the end of this year or early next. As a result of our recent progress, we intend to execute a plan to increase our Valkyrie production from current approximately 8 aircraft annually up to a projected annual production rate of approximately 40 aircraft annually by the end of '28. We currently expect to have definitized with our customers later this year or early next the production quantities of Valkyrie required to be contractually delivered and the timing of these deliveries, which, in part, will be related to the 2027 federal budget defense appropriation and when it is approved. At a planned production rate of approximately 40 Valkyries annually, we believe that we will be well positioned to address expected current under program, customer required delivery schedules once definitized while also maintaining an adequate number of whitetail aircraft in inventory to be able to continue to address RDT&E, S&T and potential new customer requirements. We will continue to include in Kratos' base case financial forecasts, as we provided today, only the RDT&E and S&T Valkyrie sales quantity levels until we have definitized production funding and delivery schedules so that we can accurately forecast expected larger quantities by fiscal quarter and fiscal year. In summary, the Marines are expected to field the first CCA. We will not let them down, and we will keep you informed with the progress to the extent we are able to discuss. Kratos recently received a gauntlet award under the Department of War's $1 billion Drone Dominance Plan to acquire small lethal drones over the next 2 years. We have a family of small drones in this class that we have not discussed previously. This is a Phase 1 award. This program is scheduled to move very rapidly, and if we continue to be successful in future phases, Drone Dominance could be another meaningful program to our company. Kratos' Mighty Hornet Tactical Firejet CCA program initiative continues to progress with the Taiwan NCSIST, and we have certain future flight-related milestones we need to achieve with the potential production decision possible late this year or early next. As was recently reported with the Taiwan NCSIST, the ultimate objective of this program is for very high quantities of affordable mass fleet of Mighty Hornet IV systems to be deployed in Taiwan. Kratos' Athena program and UAS has had additional successful flights under contract with a U.S. customer. As I believe you can see, the tactical drone opportunity is happening real time for Kratos, that this is occurring as a result of the threat and that the customers believe that they are out of time and that they need to field relevant systems now. Kratos' Anaconda radar, Helios hypersonic, system-related Arc Jet, Prometheus solid rocket motor and energetics, BladeWorks jet engine and our new Poseidon program facility are all expected to be coming online over the next 24 months, contributing to the expected future growth margin and value increases for the business. New initiatives that Kratos is currently either pursuing or assessing that I can mention include Kraken and Ares, both in the hypersonic area; Vulcan in the rocket system area; and Elysium, which is the largest and for competitive reasons, I will not get into at this time. Each of these, if successful, have either customer or partner backing. Kratos' business plan remains unchanged, including that we do not buy back stock or pay dividends, but rather, we invest our capital in rebuilding our country's defense industrial base; rapidly developing, producing and delivering affordable relevant systems to the war fighter; and generating a financial return for our investors. As Deanna will discuss, we have closed on a small tuck-in acquisition, Nomad Global Communication Solutions, a technology, hardware and systems company focused on mobile command, control and communication systems including as related to unmanned systems, counter-UAS, homeland security and some other systems. Nomad was a negotiated transaction between Kratos and the Nomad owners, consistent with the type of opportunities Kratos continues to be approached with. We continue to expect the previously announced acquisition of Israeli-based satellite communications company, Orbit Technologies, which forecasted financial performance is not included in the guidance we provided today to close by the end of Q1. Once Orbit closes, we will include them in our forecasting. Deanna? Deanna Lund: Thank you, Eric. Good afternoon. As we have included a detailed summary of the fourth quarter and full year 2025 financial performance as well as the initial first quarter and full year 2026 financial guidance in the press release we published earlier today, I will focus on the highlights in my remarks today. Revenues for the fourth quarter were $345.1 million, above our estimated range of $320 million to $330 million, with overachievement of forecasted revenues across the majority of our businesses, with a revenue organic growth rate of 20% over the fourth quarter of 2024 as compared to our estimated organic growth rate of 14% to 15%. The largest contributors to the overachievement were our space and satellite, Turbine Technologies, C5ISR, and Microwave Products businesses. Notable year-over-year organic revenue growth was reported in our defense rocket support; Microwave Products; and Space, Training and Cyber businesses with organic revenue growth rates of 47.4%, 32.4% and 22.7%, respectively. Adjusted EBITDA for the fourth quarter of '25 was $34.1 million, just above the high end of our estimated range of $29 million to $34 million, reflecting the increased volume and revenue mix, offset partially by continued increased subcontractor and material costs on certain multiyear fixed-price contracts in our Unmanned Systems business, revenue mix an elevated bid proposal and other new opportunity pursuit costs. Unmanned Systems fourth quarter '25 revenue was up $7.4 million or 12.1% organically with the increase primarily driven by Valkyrie-related activity. KGS fourth quarter '25 revenue was up $54.6 million year-over-year from the fourth quarter of '24, with organic revenue growth of 22.2%, excluding the impact of the February '25 acquisition of certain assets of Norden Millimeter, Inc. Fourth quarter '25 cash flow generated by operations was $12.1 million, primarily reflecting the working capital requirements related to the revenue growth impacting our receivables by approximately $29 million and increases in inventory of $20 million and increases in other assets of approximately $3 million, primarily reflecting investments we are continuing to make related to certain development initiatives in our Unmanned Systems business. Free cash flow used in operations for the fourth quarter of '25 was $100,000 after reflecting funding of $24.2 million of capital expenditures net of $12 million in proceeds from the sale of Valkyries, which were reported as company-owned capital assets and previously classified as capital expenditures and therefore, reflected as an inflow in investing activities when sold. As we planned, we are continuing to make investments to expand and build out certain of our manufacturing and production facilities in our Microwave Products, Rocket Systems, hypersonic and jet engine businesses to meet existing and anticipated customer orders and requirements and investing in related new machinery, equipment and systems. Consolidated DSOs or days sales outstanding increased from 111 days in the third quarter to 121 days, reflecting the nearly 22% revenue growth and the timing of milestone billings and contractual funding. The impact of the federal government shutdown and its impact on government program, administrative and other offices and functions was more significant than we had anticipated, which has resulted in the delay in timing of certain contract funding and certain expected government contract receivable payment dates to be delayed, resulting in an increase in customer accounts receivable days sales outstanding. Our contract mix for the fourth quarter of '25 was 70% of revenues from fixed-price contracts, 26% from cost-type contracts and 4% from time and material contracts. Revenues generated from contracts with the U.S. federal government during the fourth quarter were approximately 67%, including revenues generated from contracts with the DOW and non-DOW federal government agencies and FMS contracts. Now moving on to financial guidance. Our financial guidance we provided today includes our expectations and assumptions for our supply chain execution, the impact of employee sourcing, hiring, retention and the related costs. Our first quarter and full year '26 guidance includes the estimated contribution from the recently closed Nomad Global Communication Solutions acquisition from the date of acquisition, which closed in mid-February. As Eric mentioned earlier, we have not included the estimated impact of the pending Orbit Technologies acquisition in our guidance and will not do so until it is closed. We expect our first quarter '26 guidance to be the lowest in revenue and adjusted EBITDA, which includes the impact of the extended U.S. federal government shutdown in the fourth quarter of '25 with impact to certain contract awards program and funding. Our first quarter revenue guidance of $335 million to $345 million reflects estimated organic growth of 7.5% to 9.5% as compared to the first quarter of 2025. Our adjusted EBITDA guidance of $25 million to $30 million reflects the estimated revenue mix and less leverage on elevated administrative manufacturing overhead and bid and proposal costs that we have ramped in the business to support the forecasted full year '26 growth. Our full year '26 revenue guidance is $1.59 billion (sic) [ $1.595 billion ] to $1.675 billion, which reflects an organic growth rate of 12.7% to 18.5% over 2025 actual performance, which came in higher than our previous full year 2025 estimate. Our guidance continues to include the impact of increased material and subcontractor costs on certain of our multiyear fixed-price contracts, specifically in our Unmanned Systems target drone business, where we have experienced cost growth on certain ancillary materials on our targets and for which we are unable to seek recovery from the customer until the renewal of future production lot contracts occurs. We are continuing to aggressively manage costs where we can to minimize the impact to our margins. Our operating cash flow guidance includes a continued use of working capital to fund our organic revenue growth, which includes the increase in accounts receivable and the impact of delays in contract funding to enable customer billings and collections and increases in inventory and related prepaid asset balances as we ramp production and procure long-lead materials for our target in tactical drones, solid rocket motors and our turbo fan and turbo jet engines. Kratos' operating cash flow guidance also assumes certain investments in our Rocket Systems and Unmanned Systems businesses related to the procurement of rocket and related systems and our plan to begin producing approximately 40 Valkyries annually beginning by the end of 2027 as well as the completion of certain of our unmanned systems and related derivatives and vehicles. Additional forecast and investments in '26 include our funding of the Prometheus joint venture established last year, which we estimate will be ratably throughout 2026 for an aggregate for the year of approximately $50 million; funding of the pending Orbit Technologies acquisition; our Anaconda radar program; our Helios hypersonic and arc chamber program; our Indiana hypersonic integration facility; our GEK and BladeWorks engine facilities; and our Vulcan, Kraken, Elysium, Nemesis, Hermes and other initiatives. Our forecasted capital expenditures of $135 million to $145 million for 2026 includes approximately $30 million to $35 million, which was originally forecasted for 2025, which has moved to the right. Eric DeMarco: Great. Thank you, Deanna. We'll turn it over to the moderator now for questions. Operator: [Operator Instructions] Our first question comes from the line of Josh Sullivan with JonesTrading. Joshua Sullivan: If I could just start off with a question on maybe some of your perspectives on defense tech valuations in the market, reports of annual or quarterly of $60 billion or $8 billion in funding, what do you think that means for Kratos? And what would an order of magnitude of nearly $8 billion allow Kratos to accelerate? You just mentioned a number of programs and wins you're working on and then tied in with the Secretary's comments you also mentioned. Eric DeMarco: Okay. So I believe that Kratos is the most valuable defense company in the industry, private or public. I'm taking nothing away from Anduril or any of the other defense tech companies. I want them to all succeed for U.S. national security. Okay. But we are the most valuable, and I can go through that if you'd like me to. On the second part of your question, we all have different strategies and business plans. Our business plan is to be balanced as best we can, drive organic growth like we're doing, invest significant amounts to rebuild the industrial base like we're doing but always be mindful of generating an adequate return on investment for the investors. So that's how I see it, Josh. Joshua Sullivan: Got it. And then I guess just on Kratos' partnership with Boom and the superpower IGT, I know there's an order from Crusoe for 29 units and tie-ins with OpenAI. But what can you say about other customers and backlogs at this point since you've announced? Eric DeMarco: Right. Yes. So thank you for the question. As I mentioned, take a look at the -- there was an interview on CNBC by the CEO of Boom, Blake Scholl, where he walked through the opportunity that we have here. Now to your question, Josh, when Kratos acquired Florida Turbine in 2019, the primary business of Florida turbine was industrial gas turbines. That's our expertise, Kratos'. We have not been focused on it and talking about it because we've been -- we've put our engineering team on low-cost engines for cruise missiles and drones. The market has definitely come our way now on the industrial gas turbine area, and we are moving out on this aggressively. Our #1 priority is to do it with our partner, but this is an area of expertise for us, and we have -- we are a merchant supplier, and there are multiple companies in this area that are coming to us now for our assistance. Joshua Sullivan: And then just one last one on the THAAD order you mentioned. Can you just remind us of Kratos' exposure on the ground and infrastructure equipment? Eric DeMarco: Yes. So as I alluded to in the remarks, the Department of War moving out with the big primes on the air defense systems and the missile systems, Lockheed and Raytheon multiple platforms on each one of them. I mentioned Northrop looking to -- I think they said they're going to go up 4x on their Integrated Battle Command System platform. Kratos is the merchant supplier to each one of those guys and many others for the ground infrastructure for radars, command and control systems, battle command systems, et cetera, et cetera, for virtually every missile and radar system. So this is significant for Kratos, for our business and for our clarity going forward, these long-term, I'll call them, supplier commitment agreements the Department of War's doing with the prime because we're partnered with the primes on, as you said, THAAD and Patriot and indirect fires, if picked, on Integrated Battle Command System, on SHORAD. I could go on and on. This is important for us, what is happening here. Operator: Our next question comes from the line of Michael Ciarmoli with Truist Securities. Michael Ciarmoli: Nice results, and thanks for all this detail, especially the CapEx bridge. Eric or Deanna, is this the CapEx peak, do you think? Or are we just getting started here? And I mean, are you comfortable with the balance sheet? I think post-Orbit, you'll have roughly $200 million in cash. And I think, obviously, spending your own money, not doing buybacks or dividends clearly aligned. But have you talked or engaged with the Department of War or even Office of Strategic Capital. I mean there's been some pretty creative transactions out there. Just curious on the terms of color there. Deanna Lund: Yes, Mike, thanks for the question. So the CapEx table that we've included in the press release is on the gross side. So it does not include potential government, whether it be federal or state funding that we may receive that we are working on a parallel path. So we tried to present what we think is the worst case for 2026. Michael Ciarmoli: Okay. Got it. Eric DeMarco: Yes. And Mike, a data point on that, take a look. Anduril announced yesterday or the day before, they just received another $40 million or $45 million in Title III funding, where Kratos is right in the middle of that on Title III funding, on IVAS funding, et cetera. And as Deanna said, we're throwing the gross number out there, but I believe you'll see a significant number of offsets this year. Michael Ciarmoli: Okay. That's good to know. And then, Eric, this one might be a tough one. But of all these initiatives and these CapEx projects, I mean, what, in your view, offers the most potential for revenue growth, EBITDA generation? And I don't know if it's easy to maybe tie it to the $13.7 billion pipeline you talked about. But anything jumping off the page there? Eric DeMarco: Yes. The hypersonic franchise, Mike, I was -- obviously, I was in Indiana this week. I was at Crane for the groundbreaking of Prometheus. And right next to where we were breaking ground is Kratos' hypersonic integration facility that's 90% complete, right? Okay. Right next to that, we've broken ground on Anaconda, and behind it, we're going to break ground on Helios. Our hypersonic franchise, the programs we have, the additional funding we expect to get and the demand to test, fly, test, fly is so significant; and in our base case, this will drive our growth trajectory and our profitability for the foreseeable future. Michael Ciarmoli: Okay. Okay. That's helpful. So that $700 million line of sight you talked to, I mean, it sounds like there could be upside to that based on breaking ground... Eric DeMarco: Absolutely. No question. If we were to get a '27 Appropriations Bill kind of sort of on time instead of a 4-month continuing resolution, that would be a home run for Kratos. Operator: Our next question comes from the line of Anthony Valentini with Goldman Sachs. Anthony Valentini: Eric, I just want to talk on the Marine Corps program for Valkyrie. Can you just give us a little bit of color? I thought it was a little bit surprising that you guys aren't the prime and Northrop is. Can you just talk a little bit why that's the case? Eric DeMarco: Absolutely. We are in it to win it, and if that means being the prime like we are on some of the other ones I mentioned, we're going to do that. I mentioned that we've won another CCA program -- type program, where we can be the prime. Where it makes more sense for us to be the sub, we will be the sub. Northrop Grumman has certain mission systems that are fantastic, and they have been working on these and investing in these specifically related to the Valkyrie for a long, long time, and they expect to continue to do that going forward. We have a strategy here with Northrop relative to the Valkyrie that goes far beyond the Marine Corps. And very candidly, I believe our probability of win, of winning at all is much higher with Northrop as the prime than if Kratos was the prime. Additionally, it reduces risk to Kratos on the integration of those very exquisite capability but not necessarily in cost, mission systems that Northrop is putting on. It's a risk reduction for Kratos, and we are getting a full stock profit margin on the aircraft. And last point -- I'm really glad you asked this. Last point, we are kind of sort of turning into the merchant supplier of tactical jet drones because we're the only guy that has anything flying right now. You've got some of these new guys that have done a few flights. Ours have been flying since 2019, 2015 on the Mako. And since we're the only guy, the mission system companies are coming to us. And if the mission system guys want to be prime and that means we can sell more airplanes faster, that's what we're going to do. Anthony Valentini: Okay. And that makes sense. Eric, I think that you had talked about in the past of being $10 million a copy. Is that the right way for us to continue to think about it with Northrop as the prime and 50-50 split of the revenue, so you guys are $5 million of content per aircraft? Eric DeMarco: That's not -- that is -- no, no, don't look at it that way. No, no. Look at $10 million per aircraft for Kratos. Okay? Might be a little less, might be a little more depending on the configuration. As you know, we have 3 different Valkyries now that are 3 different ones, rail launched, trolley launched, conventional takeoff and landing. So depending on the type of aircraft, it might move around a bit, but if you use $10 million, you're in good shape for Kratos. Anthony Valentini: Okay. That's incredibly helpful. And then the last one for me, Eric, like you've outlined a ton of different opportunities here. Like hypersonics alone, I think, is 10% growth. I recognize that you don't have the scaled production of Valkyrie in the numbers yet. But is there anything significant that we should know about that's rolling off over the next couple of years? Because it seems to me like the growth that you're outlining is pretty large, maybe above the 20% that you're talking about. Eric DeMarco: There is nothing of significance rolling off. We have 0 recompetes of any size for the foreseeable future. We won the last one last year, command and control space segment for 7-plus years. We are in a very fortunate position because we're a hardware company and an intellectual property company. Operator: Our next question comes from the line of Mike Crawford with B. Riley Securities. Michael Crawford: I hope you're doing well in that gauntlet competition that started 5 days ago. And can you just talk a little bit more about what you offer with small drones and if you have any capabilities in the counter-UAS area? Eric DeMarco: I'm sorry, Mike. We -- so we have a family of small drones, Class 1 drones, some Class 2 drones that we just haven't been talking about that we have primarily been working with the United States Army on for multiple, multiple years. And very candidly, you have not heard me talk about this one because I was not sure we were going to be successful in the first round, and we were. And the way this works in summary is there are different phases, Phase 1, Phase 2, Phase 3, et cetera, and the winners of the initial phase, which we are, we can pick our spot when we want to bring our suite of airplanes and our drones in based on the requirement of the phase. So I don't want to get ahead of myself, but we feel pretty good about this, especially as the phases progress. And as they progress, they are more in line with our differentiating capabilities. And that's really all I should say about it because it's literally -- as you said, we're going to be going out there very soon if we continue with Phase 1. Michael Crawford: And then on -- so these would be more offensive. Eric DeMarco: Yes. Michael Crawford: And so you're not involved in the counter-UAS phase of that competition. Eric DeMarco: I've been focused on the offensive one, Mike. And so we're focused on the -- relative to the Drone Dominance Program, we are focused on the offensive one. We are involved in several other counter-UAS programs, where we are building hardware, and we have initiatives where Kratos has tethered drones, not the fiber optic ones, not the first-person view fiber optic but tethered drones that are involved in CUAS capabilities. Michael Crawford: Okay. And just one more for me. Can you just go a little bit into the capabilities that you've gained with Nomad and maybe potential LTM revenue that, that business had? Eric DeMarco: Yes. So on the business side, in my opinion, this is one of Kratos' 1 plus 1 equals 4s. They do mobile systems. And as we know from recent conflicts, if you're static, you're dead. And so there are a significant number of programs coming, many -- a number of which Nomad is one, many more of which we intend for them to win with us for mobile command and control systems, mobile counter-UAS systems, mobile systems to control offensive UAVs. And this one, I'm going to be careful on, mobile systems relative to missiles. And that is the business objective we saw for Nomad. I'll let Deanna comment on the financial piece. Deanna Lund: Yes. So LTM fiscal year revenue is about $75 million, Mike. Operator: Our next question comes from the line of Jon Siegmann with Stifel. Brock Cannon: This is Brock on for Jon tonight. Appreciate the question. You touched on it earlier, but you recently announced a successful test of the Mighty Hornet system. I just wanted to know if you had any more details around your timing there and planning capacity in Taiwan for this project and then how you're going to be recognizing revenue from the program. Eric DeMarco: I'll leave that last part for Deanna. So on the first part, let me be just very, very crisp on this. We have flight demonstrations that we're prepared for, where we have to do something. Our understanding is that if we are successful there, we have done something like this before. So this is not a bleeding edge type of a thing, that a production decision will be made in the second half of this year, Q4. I believe the Taiwan agency that we're working with, they did an interview, I think, at the Singapore Airshow a few weeks ago, I think, where I saw this, where they have said that they are looking for hundreds, if not thousands of these and to be deployed ASAP as a deterrence. So that is the extent of what I can discuss with you right now. I will -- I'd like to emphasize the reason why we've won where we are, we are where we are, is because our Tactical Firejet and our AirWolf small tactical jet drones have been flying for a long time. They are both in production. The customer comes to the factory. They can see them in production. They can actually see the cost buildup, so they know what they're going to cost, and we can give them actual flight performance data. And we're seeing this more and more now. As I mentioned in my remarks, many customers feel that they're out of time, and they need to start fielding things now in order to defer, to deter and that's where we are on Mighty Hornet. Deanna Lund: And as far as your question on revenue recognition, that will depend on the contractual terms that are negotiated. So clearly, on the services, on the demonstrations, that's going to be as performed. But for aircraft, it's going to depend on the contractual terms of whether it would be percentage completion or at delivery. So it will be dependent on that. Operator: Our next question comes from the line of Ken Herbert with RBC Capital Markets. Kenneth Herbert: Eric, you talked about the funding backdrop and the supplemental, the $450 billion that sounds like will get requested and debated here this spring. How do we think about your top line organic growth numbers you've put out maybe if we are in a $1.5 trillion potential for fiscal '27 relative to a sort of a maybe low to mid-single-digit growth in defense spending all in? I mean it sounds like you're going to hit your numbers even if defense spending comes in at slight growth relative to fiscal '26 and '27. But how do you think the puts and takes and the budget impact your outlook here in the next 1 to 2 years? Eric DeMarco: Yes. So what you just said at the end there is exactly correct. We -- putting aside -- assume a normal growth trajectory for our defense budget, so let's say, 5% a year. We are in great shape to achieve, if not exceed our forecast for '26 and '27 with the potentially accelerating in '28 and '29. This is with current funding normal growth. Why is that? Because within that funding, money is moving from previous priorities to new priorities. And Kratos, we are very fortunate that we are extremely well positioned with contracts and programs in certain of the highest priority areas there are. And those are going to be, as I mentioned before. Number one is going to be the hypersonic area. That is going to be a significant growth driver for us. Number two, and this is very recent, our space and satellite business. As I mentioned, we were just informed that we have won a brand-new just under $0.5 billion program. So hopefully, we're going to be able to talk more about that going forward, but we were just informed verbally that we received that, so our space business. Number three, that's going to be kicking in later this year, and I expect it to accelerate in '27 and seriously in '28, is the small engines. We are designed in on a number of new cruise missiles. I can go through those, and I know you guys know who they are. And I expect us to go on LRIP later this year, and we could get into full rate production as early as '27. So we are in really, really good shape under the current funding construct. If the budgets go from $1 trillion to $1.5 trillion, I believe if the priorities don't change, I don't believe they will because the threat environment is not going to change in my opinion, that is going to be very good for us. And I could see it, meaning that our numbers could actually go up from where they are just because there's going to be more demand than supply of stuff. Kenneth Herbert: That's helpful. And is it fair to say you've seen an acceleration maybe in the pace of contracting activity? I mean, obviously, we had a shutdown in the calendar fourth quarter. We've got a new administration that's had some natural transitions and bureaucratic delays and other issues. But it sounds like now, at least as we flipped the calendar, we're seeing an uptick in contract activity. I'm curious if you're seeing that in your business and if you expect it to continue to accelerate as we go through the calendar year. Eric DeMarco: Yes. Very recently, in the past 3 weeks, 4 weeks, we've seen an acceleration. Okay? I believe it's because, a month ago or so, the '26 appropriation was signed. So I think that's what's driving the acceleration, that we're seeing it. We are starting to see some of the reconciliation money come in. I think there's $120 billion of the $150 billion is going to be spent in fiscal '26. We're starting to see that come in. I anticipate that's going to be accelerating this quarter, Q1 and Q2. So overall, right now, Ken, the environment is very good, and it's improving for us and I believe, for the industry. Operator: Our next question is from Colin Canfield with Cantor. Colin Canfield: Maybe if you could talk about the sensitivity of the tactical drone production quantities that you've discussed and essentially, how do we think about kind of the 40 units per year versus the other branch opportunities that you're considering? Eric DeMarco: Right. So as I mentioned, we're looking at approximately, to get to a run rate of production rate, an annual production rate of approximately 40 per year, think 35 to 45. And so the midpoint was the 40. What -- the #1 driver on that is the mix of airplanes. So whether it's going to be a conventional takeoff and landing, a CTOL; whether it's going to be a dual capability, so runway and rail launched or if it's going to be rail launched. So that's the #1 that's going to drive that. Number two is this. It's -- under the program, we have -- and I can't get ahead of the customer, and I never will. We have a very good idea of what that demand is going to look like beginning next year. And as you know, I've been trying to communicate to you that we have some other potential customers that, I think, we're going to get specifically for the Valkyrie. We're going to get better clarity on that between now and the end of this year. Those 2 factors, mix and the clarity we're going to get on some of these other opportunities on types of planes and quantities, that's going to drive where we ultimately end up on our annual run rate. And I want to mention, one of the -- the third key factor is the engine. The long lead on that is about 14 months. And so we have to be cognizant on the engine buy and when the deliveries are relative to when the integration process can occur with the aircraft. Colin Canfield: Got it. So it sounds like the 40 is perhaps 2 CCA programs and then expansion beyond that, if you win it, is perhaps third and fourth CCA programs. Eric DeMarco: No, no, no, don't characterize it that way. Look it as one plus we're going to continue to have, I call, demonstration airplane. So science and technology and RDT&E that are going to be sold every year. Think 4 or 5 like, I think, we have in our plan for this year. And then on top of that, I want to have a number. Think of a handful. And I might not -- we might not be able to get there, a handful of whitetails sitting there because this has been part of the keys to our kingdom. Think about it with Airbus and the Luftwaffe. We had airplanes in inventory that could come over and check out, and we deliver them. And so those are flex factors also, but think one program. If we have additional programs with quantity, we may have to take that number up if we're going to hit deliveries in '28 and '29. Colin Canfield: Got it. Got it. And then perhaps one follow-up. Just now that we have the kind of construct in place, how do you think about kind of the sensitivity of cash investment versus that production schedule and then relative to the, we'll call it, the timing of the risk events that you alluded to earlier on the call in terms of kind of customer feedback that their time has run out and the probability of that occurring perhaps this year versus next year? Eric DeMarco: Right. So on the first one, we are very sensitive and cognizant of cash. So let me give you a specific example. Earlier in the Q&A, I think Josh asked what happens if you guys were private and raised $8 billion. Okay? I got -- we have a balanced approach, and we're going to stay balanced. We're going to organically grow the company. We're going to satisfy the customer, and we're going to generate a return -- a profit for the investors. If we didn't have to worry about the profit part for a few years and we had a couple of billion dollars, Kratos could absolutely run the table in many of these drone areas because we don't have to develop anything. We got the airplanes. We'd go into production. The customers would buy them. But we have to be cognizant of cash like you said. So we are very cognizant of the cash and the investing. We are mapping that into the customer funding profiles that we have. Okay? On something like an engine, we're going to have to -- there are deposits required. We're going to have to make deposits and things like that. So that's going to be cash out. I mentioned the timing of the appropriation like the '27 appropriation. God willing it happens on October 1. It probably won't. So that can impact the cash until the appropriation comes through, the customer gets the money and they can pay us. So I'm saying a lot, but we have a major simultaneous equation that we're always managing to make sure that we satisfy the contractual requirements and we don't get too far ahead of ourselves on the capital side. Does that kind of answer it? Colin Canfield: Great. Operator: Our next question comes from the line of Peter Arment with Baird. Peter Arment: Eric, nice results as always. On the Spartan jet engine opportunity, Eric, what's the best way to kind of frame up when things could start to move into kind of production and scale things up there? Eric DeMarco: Yes. So use 40,000 or 50,000 in engine, okay, somewhere in there per engine. We -- okay. We have been informed by 2 customers. These are not -- these are customers. We're designed in. It's our engine. That platform has been designed around. It might be 3 -- 2 or 3 that they intend on us beginning to go into LRIP in the second half of this year. So I think hundreds of airplanes that we start -- hundreds of engines, pardon me, that we start to build, okay, with deliveries beginning in '28, all right? If things work out the way I think they're going to work out, and again, go back to the '27 appropriation and timing, second half of '28, we could see like a step function, where we're delivering hundreds of engines, and we're getting ready to build thousands of engines to deliver in '29. So it's coming. One I can -- Peter, one I can mention to you that's out there, that it's public, that we're the engine on if you pull it up, so you may have seen what happened with the Powered JDAM and the maritime strike version with Boeing. In the last 2 weeks, it was given a new designation. I believe it's called [ PJDAM-XR ] and they talked about some of the things I'm talking to you about here, right? As we're also -- I think it's pretty -- I think it's publicly out there that we are on a number, I think, 3 of Lockheed Martin's low-cost cruise missiles. We are -- I think it's out there. I think I can say we're on one of Northrop Grumman's. And we are on at least a handful, I don't know the number off the top of my head, of these new defense technology guys that have won ETV, Franklin and MACE. So there's a lot of them out there that are coming, and that's how I see it playing out over the next couple of years. Peter Arment: That's great color, Eric. And just one last one on -- you've given us a lot of details on the growth opportunities. Outside of hypersonics this year, what is kind of the next 1 or 2 that you would highlight as the next main growth drivers for you in '26? Eric DeMarco: So number one is -- I haven't talked about this a lot. It's our Microwave Electronics business. I mentioned I was in Israel very recently. I was with Israeli -- on the microwave thing specifically, I was with Israeli Aerospace Industries, and I was with Rafael. We are on virtually every one of both of those guys' missile systems and radars. So this is Iron Dome. This is Arrow. This is SPYDER. This is Sling of David. This is BARAK. I can go on and on. So we are -- we do microwave electronics for both of those. Our U.S. microwave business, I don't talk about it a lot. It's competitory. We have recently received a production award on a very large, well-known missile program. I'm under an NDA with the prime. I can't talk about it. We're on that one. So our microwave business is ripping, and as I said in the prepared remarks, virtually every system globally, whether it be a missile, a radar, an air defense, a drone, et cetera, it needs microwave electronics. We are all over it. We are designed in, and we're getting designed in more. And here is the third one, our space and satellite business and in particular on the national security side. It is amazing, what is happening. I mentioned the win we were informed of very recently. We -- virtually everything we're bidding on, we're winning. And it's because we have a software-defined command and control, and telemetry tracking and control system that can interface with these new constellations that are going up, including very recently LEO. And that's where the game is at. So our space business is looking great in the second half of this year when we start delivering a bunch of this -- these software-defined products. And then in '28, I think our space business is going to knock it out of the park. Those are the 3 -- hypersonics, microwave electronics, engines and space. Those are the 4. Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Seth Seifman: Good results. Just wanted to ask in the -- just understanding in the fourth quarter, I think the release talks about Valkyrie being a driver of growth. And we saw some good profitability in the unmanned segment in the fourth quarter. So how did Valkyrie play into that? And then kind of what does that mean for Valkyrie in '26? I know you mentioned you weren't including production yet. But how do we think about what is in there? Deanna Lund: Yes. So the Valkyrie-related activity, that is some of the new contracts we just received that we've just talked about earlier, and that is expected to continue in 2026. Seth Seifman: Okay. Okay. And if we were breaking down the expected growth between the segments, I know you guys have sometimes talked about that. How do we think about KGS versus unmanned? Deanna Lund: The lion's share of the growth is expected in KGS. Eric DeMarco: Driven by hypersonic -- the hypersonic business and the microwave and space. Seth Seifman: Yes, microwave and space. Deanna Lund: And space business. Eric DeMarco: Those are the 3 big forces. Deanna Lund: Because as we mentioned earlier, as Eric mentioned in his prepared remarks, we're not including any large production type awards in our Unmanned Systems business. So that is not contributing as much of the growth. So the lion's share of the growth rate is in KGS that we provided guidance on. Seth Seifman: Got it. Got it. If I could sneak in maybe just one more bigger picture, if you could -- I know we saw the groundbreaking on Prometheus. If you could talk or maybe just update us on how things are going there, the investment levels and how the investment is reflected here. And then since that's a JV when we go forward, is that something that's going to be consolidated into Kratos results? Or is it something where we're just going to see maybe your share of the earnings? Deanna Lund: It would just be our share of the earnings, so thus far, you can see it on the face of our balance sheet, I believe, through 12/28 or year-end. There is about $5 million of investment that we put into the venture. And then as we -- as there are operating results for Prometheus, it will be our percentage at 49.9%. So you won't see anything on any of the detailed line items on the income statement, so no revenue, no cost of sales, no SG&A or R&D. It would just be one line income or loss in investee depending -- obviously, in the beginning of the start-up activity, I would think there's going to be some operating losses because there's going to be depreciation that's going to be -- it's going to be a lot of noncash losses with depreciation of the facilities. And -- but it will just be our percentage of that whatever the income or losses on the income statement. Seth Seifman: Right. No, that's super helpful. And maybe, Eric, when you think about the growth there, at the time that you did this, I don't know the -- we knew that all these multiyears were going to be coming. Does that present more opportunities for rocket motors you'll be manufacturing there? Eric DeMarco: Yes, sir. That's a great question. Last week, I was with the Rafael team, and Seth, we were going through the forecast as a result of the new dynamic you just mentioned. The forecast has improved significantly. Let me give you an idea kind of sort of what this looks like. So we're going to be producing -- we'll begin in the second half of '27. And this is a classic high growth model. This is very similar to Kratos. And then when it gets to full rate production, it's projected to be a significant cash generator. Seth, it's going to go something like $100 million, $200 million, $400 million, $1 billion in revenue, something like that. And so think 2030, 2031 at full rate production for the first 3 phases. It's $1 billion in revenue. Think 20% and divide by 2. Operator: Our next question comes from the line of Pete Skibitski with Alembic Global. Peter Skibitski: A couple of questions. First one, just to clarify on the '26 growth unmanned, I want to make sure I understand. I thought you guys said your share of MUX TACAIR would be about $120 million, and it will be over a couple of years. So we should expect unmanned to grow at least $60 million or so in '26. Is that a fair assumption just on the MUX TACAIR contract? Deanna Lund: No, what I -- answering Seth's question, I said it will be relatively flat year-over-year. So there's not as much growth in unmanned because, as just a reminder, in 2025, we had the Airbus with -- shipment in 2025, and that was, let's call it roughly $20 million, but it was not on a percent complete basis, so an apple to an apple. So as we move forward, it will be more on percent complete, so -- and we have not included a lot of the -- any production awards in that forecast. So I would -- it's not an incremental $60 million. It's roughly -- I would call it more like flat year-over-year at what we've assumed in the forecast today. Peter Skibitski: Got it. Okay. Okay. Fair enough. And then last one for me is just on hypersonics, the growth you're going to see over the next couple of years. Eric, I just want to get a sense of which contract vehicles are driving that growth. Is MACH-TB the majority of the growth? And when you talk about all these Zeus and Oriole SRMs on order, are those all under MACH-TB? Are those other contract vehicles? And maybe to some extent you can name those other contracts. Eric DeMarco: Yes, there are others. So number one is MACH-TB. Number two is the Navy program that's coordinated very closely with the Missile Defense Agency, very closely. Okay. Number three, it's with the prime. I can't talk about it, but it's with the prime. Hold on. I want to make sure I'm not missing a piece. Those are the big 3 primaries, MACH-TB, a Navy/MDA program. Space and Missile Defense Command may be in there somewhere, too, a little bit and then the prime, then a big prime. Peter Skibitski: Okay. Got it. So it's -- MACH-TB will be Zeus, maybe Oriole, but also all of your partners' missiles that they are... Eric DeMarco: Yes. The big -- in MACH-TB, the big drivers for us is Zeus 1 and 2, Erinyes, Dark Fury and some other things I can't talk about that we're going to be flying. Operator: For our next question, it comes from the line of Andre Madrid with BTIG. Andre Madrid: Could you maybe provide more color as to what the split between target drone and tactical drone revenue was in the quarter? I mean was target drones especially impacted and this held the segment back and prevented -- I'm just trying to find the puts and takes there because I think I might have expected more from the MUX TACAIR award than we saw. Maybe just like the puts and takes on the segment. Deanna Lund: Yes. So the tactical revenue for the fourth quarter was roughly $8 million to $9 million. Andre Madrid: Got it. Got it. Okay. That's helpful. And I guess kind of on the same subject, maybe a little less, but I'm talking about CCA potential opportunities being the GEK 1500. Are there any anchor customers in place for that platform yet? Eric DeMarco: I cannot -- sorry, brother, I can't talk about this. I can't talk about it. Andre Madrid: No, that's all good. I get it. And then, I guess, if I may, there was the increment 2 of CCA that they said that they had selected 9 companies for that were in given concept refinement contracts. Can you disclose whether or not you were one of those companies? Eric DeMarco: I can absolutely not talk about that. Andre Madrid: Got it. Got it. And then I guess one last one. The Drone Dominance Program, it seems like that's flowing through DRSS as opposed to KUS. Could you maybe just explain the reason why there? Eric DeMarco: Yes. That's actually a very good question. So in Unmanned Systems, those are all Class 4 -- call it, Class 4 aircraft. They're jets. And you got -- and down in Huntsville, which is in DRSS Class 1 and 2. Very good question. That's why. And obviously, because the customers are different, the supply chain is different, et cetera, et cetera, et cetera, we left them separate. Operator: Our next question comes from the line of Trevor Walsh with Citizens. Trevor Walsh: Just kind of a quick one for me. Most have been asked already. On the CapEx color that you gave, Deanna, around some of the spend from '25 slipping into '26, which is how we get to that $135 million, can you just elaborate a little more? Was that a single initiative where it slipped? Or was it more broad-based across the spend expected in '25? And then relatedly, is there anything that could slip kind of into '27 kind of in a similar fashion? Deanna Lund: Yes, sure. So what slipped? It's really 2 programs. So it's the Indiana payload integration facility as well as the Birmingham advanced manufacturing hypersonic facility. Those were just construction plans that, as you know, construction takes longer always. So they were originally forecasted for '25, but they slipped in just from a timing perspective into '26. As far as for '26 moving into '27, right now since we just started the year, we believe everything is going to be incurred in '26 that we forecasted. But some of that's going to be construction related, so some may push out. But at this point, we think that's a good range for 2026. Operator: Our next question is from the line of Hans Baldau with NOBLE Capital Markets. Hans Baldau: I'm on the call for Joe Gomes. And so on the second Valkyrie production, the $25 million to $28 million in CapEx you're planning for 2026, can you help us understand the downside protection there if the contract awards or delivery schedules slip, how exposed Kratos is? Eric DeMarco: Yes. Right now, where we stand right now, I don't believe there's any -- there's 0 risk. I believe those airplanes will all be spoken for under what we have. I don't see a risk there. Hans Baldau: Okay. And with the microwave products, how much is that tied to missile and air defense programs specifically versus other applications? Eric DeMarco: Okay. I'm going to -- at least 50%. Okay? It may be as high as 60%, so think 50% to 60%. Then think 20% satellite, communication satellites. Then think the vast majority of the rest, communication systems, comms. Operator: One moment for our next question, is from the line of Austin Moeller with Canaccord Genuity. Austin Moeller: So just my first question here, Eric and Deanna, $400 million incremental for MACH-TB, $4.6 billion for space and boost glide interceptors and $3 billion for hypersonic defense systems was in the Big Beautiful Bill. Then in the fiscal year '26 appropriations, there was $13.5 billion added specifically for Golden Dome within the Space Force budget. So just thinking about the programs that you're bidding on and the RFP process and when task orders might go out, how much of this funding do you think might be captured in the second half of '26 versus 2027? Eric DeMarco: Right. So on our related programs, either we're prime or we're working with one of the traditionals, okay, the funding on the ones you just went through, it's the vast majority of it is Q2, Q3 and Q4 of this year. And then '27 will be very significant for that funding. That's how we see it. Austin Moeller: Okay. And on MUX TACAIR, which you're partnered with Northrop as the prime, I think you alluded to this a little bit earlier, but Northrop is also bidding on the Navy CCA program, and the Marine Corps, of course, operate off of ships. So should we be thinking about potential opportunity for Valkyrie airframes for other agencies within the Navy department? Eric DeMarco: What great question. I cannot -- I'm -- I cannot talk about that right now. Excellent, excellent question. Operator: Our next question comes from Cashen Keeler with BNP Paribas. Cashen Keeler: So I guess on the organic growth outlook for the year, it's a bit lower than the initial 15% to 20% you had laid out last quarter. So I guess, is that just mathematically coming in higher for the year on revenues? Or is there anything else that's driving that lower for the year? Deanna Lund: That's correct. That's correct. As I had said in my prepared remarks, we had originally forecasted 14% to 15% organic growth for 2025, and we came in at 20%. So that is -- so it is a mathematical. Eric DeMarco: Yes, we're -- the business is doing great. We -- as you know, we beat the heck out of the Q4 numbers, and now that we have an Appropriations Bill and the shutdown is done, hopefully, '26 will be really good, too. Cashen Keeler: Got it. Okay. And then just on free cash flow, obviously, you have a lot of opportunities and investments in the pipeline right now. But as we think about free cash flow longer term, is there a time line when you would expect to be kind of more neutral or positive on free cash flow? Eric DeMarco: Absolutely. I mentioned this on -- I'm glad you're asking it. I mentioned on the last call. We're starting to see it now on the -- it starts on the operating cash flow. And the operating cash flow is starting to increase, and it's going to start to ramp in '27 and '28. It's just going to depend on the number of new opportunities that we're presented with from the department. And I went through -- Deanna went through a list. I went through several in my prepared remarks where, once again, the government -- the customer has come to us, and they have said, "Here's an opportunity. You can get a very long-term multiyear decade program if you'll invest the capital to stand up this very specialized facility to build these things." So we definitely have line of sight on it, but I don't want to give you a time and then -- because you guys are punitive on this, and then the goalpost moves because 2 new opportunities came that generate a significant return for the shareholders. So we're cognizant of it. We see it. But right now, with the budgets increasing, the government trying to rebuild the industrial base and then providing companies like Kratos, the nontraditionals, with significant large opportunities, we're going to go for these right now and build a hell of a company here. Operator: Our next question comes from the line of Clarke Jeffries with Piper Sandler. Clarke Jeffries: I wanted to ask around the guidance of -- the guidance philosophy for hypersonic, mentioning an expectation to double hypersonic this year and 75% '27. Where was that compared to a quarter ago? And just maybe you can help us level set on the areas where you're not including in the base case hypersonic revenue versus where you are. That would be very, very helpful. And then one follow-up. Eric DeMarco: Yes. So the #1 is the engines in the motors, the 120 motors that are going to start coming in late Q2, early Q3, and then those deliveries are going to ramp throughout '27 and '28. Those are tied to missions and launch manifests. And our Aerojet Rocketdyne on Zeus and ATK on Oriole, they've really stepped up, and so we are getting much more comfortable now with that. Okay. Number two, the glide vehicles. There's one company in the United States that has the carbon-carbon material for our systems. We've placed the long leads. We have a number of vehicle systems' worth of materials coming in starting in Q3 -- I believe, in Q3, and then that's going to accelerate into '27 and '28. And then on top of that, and I know I've said it a couple of times, we now have an Appropriation Bill, which was very, very important for us. So taking all that, we are really comfortable for the rest of this year and going into next year with the hypersonic business and I'll say the middle of the fairway numbers we provided to you. Now where you were going on that. There's a -- I mentioned I'm very -- I'm hopeful that there's another $1 billion sole source or I think we're going to get. And let's say we get that by the end of this year. That could be additive to '27. We'd have to take a look at long leads and things like that, but that could be additive to '27 and could provide upside on it. Clarke Jeffries: Perfect. And then just the number of tactical drone opportunities that you're talking about that are sort of in the pipeline, just wondering if you could frame Group 3 versus Group 4 kind of opportunities? And then just generally with the context of drone dominator, how interested are you in Group 1 and 2 in terms of really putting more investment capital against those opportunities? Eric DeMarco: Right. We are very, very interested in Group 5, so Valkyrie, Mighty Hornet, Tactical Firejet, AirWolf, Mako. That is our expertise, low-cost, high-performance jet drones. So Group 5 is the sweet spot, and that's where I did most my talking today because that's where the customers are coming to us. Group 1 and 2, like on Drone Dominance, we have a business there. We won a slot. I believe we won it because of our design capability and the capability of the drones. Okay? We'll see, but that is -- and we will make the investment necessary to satisfy any customer requirement, but that is not the strategic focus of Kratos, including from an investment standpoint. Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Eric, maybe if we could just -- one big picture question and one micro one. If we could just dig into the size of your microelectronics -- Microwave Electronics business, just given the production rate increases we're seeing, can you size it? What was the growth in '25? How do you think about the growth in '26? And what are some of the larger programs driving it? Eric DeMarco: Deanna will help me on the numbers. Deanna Lund: Yes. So the growth for the year was about organic 17%. Sheila Kahyaoglu: Got it and... Eric DeMarco: Big programs are Iron Dome, Tamir, Arrow, BARAK. There's next 2 -- the next 2 are classified. So those are the big 5, 2 classified and those 3 I mentioned. Sheila Kahyaoglu: Perfect. And maybe you've given us so much color on this call. Can you -- I don't know if it's easy to just tell like the 3 upcoming catalysts we look for with Kratos. Eric DeMarco: Yes. From my opinion, number one is, as I mentioned, I'm expecting that we're going to receive a very large potential $1 billion, $1 billion-plus hypersonic opportunity. I think we're going to get that. That is looking pretty good. I'm hopeful that a customer is going to let us announce or they will announce that we have received another tactical drone CCA type program award. I can't control that. I'm hopeful that happens. That financially and from a company standpoint is a catalyst. Number three, I think it's possible that one of our customers in the jet engine area could announce a very large production contract for the jet engines. That would definitely be a catalyst because that will be a new growth driver leg for the company. Operator: And our last question comes from the line of Gavin Parsons with UBS. Gavin Parsons: You guys have a lot to talk about. Eric DeMarco: A lot going on. Gavin Parsons: A lot going on. Well, I appreciate the question. Two-part question on the framework you talked about for the primes. I guess first part, does that accelerate your growth or more so give you better visibility into sustaining it for a longer period of time? Eric DeMarco: For the near term, it's great visibility and sustainment, and we'll see what happens over the next quarter or 2 relative to timing of things that will accelerate for us. Gavin Parsons: And then the second part, the primes are finally leaning into investment, right, announcing major increases in CapEx, doing less buybacks. Does that result in more direct competition? Or are they looking at more dual source as they look to grow faster? What's the risk there? Eric DeMarco: Yes. We really don't compete with the traditional primes. We rarely do. It's -- we partner with them. I went through a little earlier that for every one of the major primes that builds missile, radar, air defense type systems, the ones that are going to be involving Golden Dome, we build the hardware for them. We partner with them. Look, with Northrop, we're delivering them tactical jet aircraft. So what the primes are doing now and leaning forward, this is going to be an accelerator for Kratos, is what it's going to be. I mean, take a look at Northrop, and that's one of our closest, if not closest partner. I mean, they talked about it last week or 2 weeks ago. They're looking to increase production on Integrated Battle Command System by 4x. We build a significant amount of the hardware on IBCS. That would be incredible for us. Take a look at Leidos Dynetics. Okay. I believe Tom or his CFO said in their earnings call and their transcript, I believe they said, check me, that by the end of '29 or 2030, they need to deliver 300 or 400 indirect fire systems. Kratos builds a significant amount of the hardware for Dynetics, for indirect fires that they get them do integration work on with the weapon system. I can go on and on. So these companies like Leidos Dynetics and Lockheed and Northrop and Raytheon that are leaning forward, especially including these large multiyear orders, there is nothing bad here for Kratos. There's -- I don't want to -- there's nothing in my -- that comes to mind competitory, and this could be an accelerator for us going forward. Operator: And this concludes our Q&A session, and I will turn it back to Eric DeMarco for closing comments. Eric DeMarco: Great. We appreciate you all joining us and taking the time to ask us the questions sincerely, your interest in the business. We look forward to chatting with you when we report Q1. Thank you. Operator: This concludes our conference. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Pacific Current Group Limited 2026 Half Year Results. [Operator Instructions] And finally, I would like to advise all participants this call is being recorded. Thank you. I'd now like to welcome Michael Clarke, Managing Director, to begin the conference. Michael, over to you. Michael Clarke: Thank you for the introduction. Good morning, and welcome to the Pacific Current Group investor presentation call for the first half of the 2026 financial year. By way of introduction, my name is Michael Clarke, and I'm the Managing Director of Pacific Current Group. I joined the Board of Pacific Current in February 2024 as a Non-Executive Director and transitioned to my current role in July of 2024. I'm joined on the call by Ron Patel, the acting Chief Financial Officer of Pacific Current Group. Ron joined Pacific Current over 17 years ago. Also on the call is the recently appointed Chief Operating Officer, Gabe Neri. In our full year update to shareholders in August last year, we highlighted that PAC was committed to taking actions that would unlock shareholder value and to report the progress made to achieve this goal. We are gratified to report that the momentum developed in both of the previous financial year '24 and '25 has continued into this financial year. If we turn to Slide 3 in the presentation pack for the overview, Pacific Current is pleased to update on the company's interim results for the 6 months ending 31 December 2025. Key results included declaring an underlying net profit after tax or NPAT of AUD 6.7 million, down from $15.3 million in the previous corresponding period. NPAT was adversely affected by lower distributions and management fee income from boutiques and lower interest income after the off-market buyback, but was partially offset by continuing cost management initiatives, particularly including debt reduction and corporate cost reduction. Underlying earnings per share declined by a lesser extent to $0.22 a share from $0.29 in the previous corresponding period, supported by a reduction in the number of shares on issue. Statutory profit declined by $11.7 million in the period driven by fair value adjustments to asset valuations. Pacific Current is declaring an interim dividend of $0.20 per share fully franked with a record date of 5 March 2026. This is an increase of 33% on the previous corresponding period and the first fully franked dividend for some time. Declaring an increased fully franked dividend continues the capital management initiatives of the past 2 years aimed at efficiently and effectively returning surplus capital to shareholders. Implementation of further cost-saving initiatives in the half year resulted in a 31% reduction in corporate costs compared to the previous corresponding period. It's also again worth highlighting that although underlying net profit and earnings per share declined year-on-year, the number of ordinary shares on issue was significantly reduced following the off-market and the continuing on-market share buyback, further enhancing capital efficiency and shareholder value. Because of capital management initiatives, asset sales during the period and related considerations, PAC's fair value estimate of net asset value increased to $16.34 per share at 31 December 2025. This estimate exceeds the statutory net asset value by $2.42 per share and compares with a fair value estimate of net asset value of $14.32 per share on 31 December 2024, representing an increase of over 14% from the previous corresponding period. As will be discussed later in the update, fair value NAV per share has increased by over 14% per annum over the past 5 years from $8.40 per share to $16.34 per share or over 95%. Turning to activity. It was another busy period for transactions and other activity with the following significant portfolio transactions completed. First is the partial sale of Victory Park Capital. In September 2025, PAC sold a portion of its interest, specifically 2% of its equity interest in Victory Park and 0.8% interest in Victory Park's Holdco for future carried interest entitlements to CNO Financial Group for USD 5.5 million. Following the transaction, PAC's interest reduced in Victory Park reduced to 9.2% equity, 18.6% future carry and 24.9% existing carry. We also fully repaid the senior debt facility in October 2025. This debt facility, the senior secured debt facility with WH. Soul Pattinson amounted to USD 42.1 million, and the transaction included a USD 0.8 million early repayment premium and USD 0.3 million of interest for October. The facility was settled using the USD 43.5 million restricted deposit account over which WH. Soul Pattinson held security. PAC also commenced an on-market share buyback in October 2025 for up to 2 million shares or 6.8% of issued capital, which will be conducted in the following 12 months and fully funded from existing reserves. Ord Minnett was appointed as execution-only broker. As at 31 December '25, PAC had repurchased just under 200,000 shares for around AUD 2 million. The buyback will commence post the results announcement subject to Board confirmation of material interest. PAC also exited the Janus Henderson Group shareholding in November 2025, selling its entire stake and generating USD 9.4 million in proceeds. Also importantly, PAC conducted growth capital deployment initiatives. And as of December 2025, PAC entered into a $2 million loan facility with an affiliate of Roc Partners, bearing a 10% interest rate and maturing on 30 November 2028. In the period since 31 December, PAC has also completed lending facilities for both Northern Lights Alternative Advisors and Independent Financial Plans, IFP designed to accelerate the growth trajectory of each business. I'd now like to hand over to Ron to cover financials for the year. Ron Patel: Thank you, Michael. Turning to Slide 4, underlying results. The first half of FY '26 reflect a business that continues to transition following the significant portfolio realizations of the past 2 years. Underlying net profit after tax was $6.7 million, down from $15.3 million in the prior corresponding period, driven by lower distribution, management fees and interest income. These impacts were partly offset by lower interest expense following the repayment of the debt facility, together with a 31% reduction in corporate costs. With the balance sheet now debt-free, there will be no interest expense in the second half of FY '26. Despite the decline in net profit after tax, underlying earnings per share fell by a lesser extent, supported by the materially lower share count following the off-market buyback. Pacific Current declared a fully franked $0.20 per share interim dividend, up from -- up 33% on the prior period, reflecting both the strength of the balance sheet and our disciplined approach to capital management. Turning to Slide 5, shareholder value. As at 31 December, statutory NAV was $13.92 per share, while fair value NAV was $16.34 per share, a difference of $2.42 per share. The uplift in fair value NAV reflects mark-to-market gains on financial assets, higher valuations for boutique investments held as associates and the continued impact of portfolio simplification. Fair value NAV has grown at 14% per annum over the past 5 years, increasing from $8.40 to $16.34 per share. Turning to Slide 6, revenue composition. Management fee revenues declined due to the realizations of Banner Oak, Carlisle and partial exit from Pennybacker and Victory Park. Performance fees in the current period were modest and largely from Roc. Financial asset revenues increased, supported by Petershill deferred consideration and dividends from Abacus and Janus Henderson shares. Interest income was lower due to reduced cash balances following the substantial off-market buyback and repayment of debt. Overall contributions from boutiques and investments were lower, consistent with a portfolio that currently has a higher weighting to cash. Turning to Slide 7, alternate balance sheet. The alternate balance sheet provides a clearer view of PAC's corporate net assets and investment exposures. PAC's corporate net assets increased to $164 million, up from $144 million at 30 June. This reflects the full repayment of the WHSP debt facility, which eliminated the associated noncurrent liability, a reduction in deferred tax liabilities and continued simplification of the balance sheet. The reduction in fair value through profit and loss assets reflects the partial realization of PAC's interest in Victory Park and Pennybacker, together with a decrease in the fair value of the remaining minority stakes. Financial assets include Abacus shares and bonds and the Petershill deferred consideration receivable, which remains on track for settlement in May 2026. Turning to Slide 9, NAV breakdown. This table shows the movement in book value and fair value across the portfolio. As part of preparing our statutory accounts, we undertake a valuation exercise to assess whether any assets are impaired and to determine the fair value of financial assets measured at fair value. These valuations are performed in accordance with accounting standards and are not intended to represent the precise value at which an investment would be realized. Further detail on the valuation approach is provided on Page 27. Notable movements include Roc recorded a significant fair value uplift, reflecting stronger growth forecasts. IFP also saw a material uplift supported by an improved growth outlook and Pacific Current senior secured loan facility. Victory Park decreased following the partial sale and a softer business outlook. Astarte increased due to successful fundraising and improved carry expectations. Financial assets reflect the sale of Janus Henderson shares and higher valuations for Abacus bonds and shares. Corporate cash increased to $152 million, driven by the sale of Janus Henderson shares and partial sale of interest in Victory Park. Overall, fair value NAV per share has increased to $16.34, up from $15.51 at 30 June. The significant proportion of this asset base is in cash and financial assets. Thank you, and I will now hand back to Michael. Michael Clarke: Thanks, Ron. Turning to Slide 13 in the presentation pack. Just some more details on the senior loan facility provided by Pacific Current's independent financial planners. This loan is an example of working closely with boutique partners to accelerate the growth trajectory of their businesses. IFP is a Florida-based independent registered investment advisor or RIA platform providing compliance, infrastructure, technology and administration services. Specifically for RIAs, at present, they have USD 16 billion on their platform and are experiencing robust growth, largely propelled by positive trends in the private wealth sector. To accelerate future growth initiatives, PAC is providing IFP with a USD 25 million debt facility on commercial terms. This will facilitate IFP refinancing existing debt and importantly, provide growth capital to fund advisor book acquisitions and advisor recruitment transition packages. Turning to Slide 14 in the presentation pack. Looking at the outlook for the remainder of the financial year, Pacific Current Group management expects to maintain the strong momentum that has been built in the first half by continuing to focus on executing a clear and disciplined plan. We'll do this by following 5 key initiatives. The first is accelerating growth by pursuing potential opportunities within the existing boutique partners and selectively assessing new investments to drive scalable and sustainable growth. Second major dot point or point is to unlock shareholder value by evaluating targeted capital initiatives aimed at enhancing returns and optimizing the group capital structure. Third key point is controlling operating costs by maintaining disciplined cost management to support margin stability and capital efficiency. Fourth dot point is continuing to strengthen the balance sheet by prioritizing balance sheet optimization to enhance financial flexibility and long-term resilience. And finally, continuing to enhance organizational efficiency by embedding and refining the structural and governance changes introduced in the last financial year to improve agility, accountability and decision-making across the organization. In conclusion, we would like to thank our employees and the PAC Board, both past and present, for their work to enhance shareholder value. Though strong progress was made in the first half of this financial year, there is still much to do, and we remain relentlessly focused on achieving the best possible outcome for our shareholders in the remainder of the financial year and beyond. We'd now like to answer any questions you may have. Thank you. Operator: [Operator Instructions] Currently, there are no questions. I'd like to hand back. Michael Clarke: Thank you very much for your time this morning. We look forward to continuing to work hard on the portfolio. And if there are any questions that come to mind, please contact us directly, and we look forward to be able to answer those. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect.
Operator: Thank you for standing by, and welcome to the Ingenia Communities Group 1H '26 Results Teleconference and Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. John Carfi, CEO and Managing Director. Please go ahead. John Carfi: Good morning, and thank you all for attending. I'm pleased to be presenting our first half results for FY '26 and to confirm we remain on track to deliver the targets and objectives set out in our 5-year plan, including a 10% to 15% compound annual growth rate in settlements. We are now halfway through the second year of our 5-year plan and despite growing competition in the living sector are well progressed in the delivery of improved shareholder returns. Before I get underway, allow me to introduce some of our executive team who are here joining me to present and also to answer questions. Justin Mitchell, our CFO; Donna Byrne, General Manager of Investor Relations and Sustainability; Kristy Minter, EGM Residential Communities; Matt Young, EGM Tourism; and Michael Rabey, EGM, Acquisitions and Development. I'll start on Slide 5. We started this year with a solid foundation in place, having successfully delivered on our year 1 goals, which established a more streamlined business with a clear purpose and focus on improving development returns, operational efficiency, enhanced productivity and industry-leading customer service. Our first half result demonstrates further targeted execution, which puts us on track to deliver our year 3 goals and a full year result at the top of our guidance range this financial year. New home settlements, a key driver of our result are in line with our expectations and are down on first half last year as we revert to a more traditional second half skew. We are seeing ongoing demand for our land lease communities and have increased both occupancy and rate across the Holidays business, underpinning our growth for the second half. Operationally, we are seeing ongoing strong demand from our customers with consistent momentum across all areas of the business, and I'm extremely pleased with our progress in relation to key strategic goals. Key to improving returns is the significant progress made in development, where we have established the foundations for a strong second half, growing lot settlements and improving returns in line with our 5-year plan. Over the half, we commenced 5 new projects and progressed the execution of key project milestones, including facilities delivery, display homes and home production. This timing has driven the second half skew consistent with prior years and puts us on track to deliver our 5-year settlements CAGR target of 10% to 15%, underpinned by sales in hand. With greater financial discipline in place, we are now implementing design and procurement changes across new projects as we cycle through older projects and deliver communities which have been designed with greater efficiency and improved financial goals, including cash generation. Importantly, and despite growing competition in the sector, we have managed to strategically restock and extend our development pipeline, and I look forward to announcing further details as each transaction concludes. Financial metrics will improve this year in line with our year 3 targets as we see higher return projects such as Sanctuary and Latitude One expansion contribute in the second half. Over to Justin now to discuss our financials. Justin Mitchell: Great. Thanks, John, and good morning, everyone, and thanks for joining us this morning. I will start on Page 8 with the key financial highlights. Pleasingly, the group has maintained momentum across our operating businesses, delivering a solid performance for the first half, in line with expectations, and the group is on track to deliver at the top end of guidance. The Holidays business has continued to deliver strong results with tourism revenue increasing 12% on a like-for-like basis. While new home settlements were lower, this is consistent with previous communications with a more pronounced skew to the second half. Development gross margins has remained stable for Ingenia at 46%, while the joint venture pleasingly saw an increase to 53%. We remain focused on delivering enhanced financial returns for development and across our diversified business while maintaining a prudent balance sheet position to fund growth, which I'll talk to in more detail shortly. Now focusing on the financial results. Revenue was flat -- sorry, revenue was flat relative to the prior year. Holidays performed well, driving significant growth in revenue, demonstrating continued momentum with ongoing strategic investment to deliver enhanced value across the portfolio. Together with the growth in rents from our living business, this offset the lower development settlements I referred to before and the impact of DMF recognized in the prior period. Group EBIT reduced 1% to $85 million. This slight decline was in line with expectations, primarily due to the timing of settlements and DMF noted previously, offset by a higher composition of settlements from the joint venture projects. Overall, first half settlements totaled 248, with 29% of those coming from the joint venture. Our underlying profit was $62 million and EPS was $0.152. The decline in these metrics was the result of items noted previously as well as a higher debt cost and the normalization of the effective tax rate. Normalizing for both these tax and DMF, underlying profit was down 3.5%. Our statutory profit increased 11% to $97 million, driven by positive net revaluations across our portfolio with strong underlying earnings growth, coupled with relatively stable cap rates. These valuations uplifts contributed to an increase in our NTA to $4.10. An interim distribution of $0.048 per security has been declared as we move towards alignment of distribution with the taxable earnings from the trust. Turning to Slide 9. Whilst we have seen growth in EBIT across our nondevelopment segments, there continues to be cost headwinds with growth above CPI and in particular, council rates, utilities, waste and volume-related expenses within our tourism business. Lifestyle Rental contributed $25.7 million in EBIT, up 6%, driven by contracted and market rent reviews and new annuity income from settled homes. The Lifestyle EBIT margins have been impacted by lower CPI and legislative changes reducing rental growth in comparison to the prior year, no DMF income recognized and new community scaling as the portfolio expands. Lifestyle Development contributed EBIT of $32 million, impacted by higher marketing costs due to the launch of new projects as well as anticipated second half skew of settlements. Average home prices and gross margin were relatively flat year-on-year, but we do expect these both to improve in the second half, driven by the mix of projects. The development joint venture delivered a 56% increase in operating profit to $12 million, with settlement volumes increasing to 72 for the half, coupled with both average price and gross margin improvement. Holidays delivered a 10% increase in EBIT to $31.5 million. The business has benefited from higher occupancy and rate growth, supported by our strategic investment in new acquisitions and in new cabins. I'll now turn to page or Slide 10. We continue to actively manage capital with discipline and have maintained a prudent balance sheet position. At 31 December, gearing was 31%, comfortably within our target range and providing capacity to fund further investment. The group has circa $200 million of funding headroom, which combined with strong cash flows from lifestyle rental and holidays provides capacity for growth. The group remains well supported by its lenders. In December, we secured an additional $100 million in new facilities, and our weighted average debt maturity is 3.3 years with no expiries before January 2027. Drawn debt was 55% hedged with the weighted average cost of debt at December being 5.03%, which we forecast to increase in the second half. I want to emphasize that the group can fund its existing projects. As opportunities arise to expand our development pipeline and strategic investment in Holidays, we are able to strategically recycle capital from lower growth assets across our Lifestyle and Holidays business. This would facilitate the release of capital, reduce gearing to be invested into higher returning projects. In closing, Ingenia is well positioned, underwritten by stable and recurring income with strong momentum from our existing operating assets. The group has delivered a solid result for the first half in line with expectations and has continued to make good progress on executing our strategic targets. Based on this momentum, we expect to deliver at the top end of our guidance range. We maintain a disciplined capital position while continuing to invest in growth aligned with our strategic objectives. And we have sufficient capital available to fund this growth with multiple capital recycling options available as required. I will now hand over to Michael Bray to discuss the development results. Michael Rabey: Thank you, Justin, and good morning, everyone. Turning now to Slide 15. We are pleased with our development performance for the half, reflecting our continued focus on scaling the business, improving project level execution and embedding a disciplined delivery model shaped by the work completed over the past 18 months. Our EBIT result reflects our expected second half skew and settlements, increased joint venture contribution and significant investment in new projects and marketing activity. We settled a total of 248 homes in the first half. And importantly, sales on hand position us well for full year growth in line with our strategy. Pleasingly, in that time, gross margins have remained stable and within our target range. We're now seeing tangible benefits from our design, cost, construction and efficiency initiatives, positioning the business to move into positive cash generation in the second half as newer, higher return projects contribute. At the same time, we continue to trade out of mature projects, reinforcing capital discipline and establishing a strong platform for scale and efficiency as future projects commence. Despite recent changes in interest rate sentiment, our position remains strong for the full year, underpinned by sustained demand for age-appropriate housing and the structural undersupply in this segment of the living sector. Moving to Slide 16. Joint venture projects contributed 29% of group settlements and are expected to peak in the current financial year. Margins remain strong with net cash generation exceeding $100,000 per lot, supported by resilient pricing, particularly in New South Wales. While these projects continue to deliver strong returns, their proportional contribution will moderate as Ingenia-owned projects increase their share of settlements, driving improved EBIT outcomes in future periods. Moving to Slide 17. We have maintained stable build times across 16 active projects and continue to align delivery tightly with demand. We completed 254 homes in the half, up 17% on the prior corresponding period and closed with limited finished inventory. As at the 20th of February, we have settled 301 homes, in line with the prior corresponding period and have a further 440 deposits and contracts on hand, representing a 23% increase on PCP and cementing our confidence in full year guidance and momentum into FY '27. Improvements to the sales journey have also delivered better sale quality, reduced cancellations and shorter time frames from sale to settlement. Moving to Slide 18. With home selling across 13 projects this financial year, we have the scale and product diversity to optimize performance across markets. In the first half, we saw improving days on market with Queensland continuing to deliver market-leading results. Pricing momentum remains strongest in Queensland, followed by solid growth in New South Wales with promising early signs of improvement emerging in Victoria, where we have seen significant growth in settlements in the first half compared to PCP. I'll finish on Slide 19. We completed final settlements at Nature's Edge during the half, now contributing stable rental returns and are preparing for final settlements at Hervey Bay and Freshwater in the second half. New communities are contributing to settlements growth in FY '26, including Springside in Victoria and the Latitude One extension in New South Wales. We are also restocking our strongest market in Queensland with 5 new communities commencing this year, delivering first settlements from FY '27. These new projects provide the opportunity to meaningfully benefit from the productivity, quality and efficiency initiatives delivered over the past 18 months. Sunbury is a clear example as the first project where we have fully embedded optimized master planning to drive yield uplift alongside cost-efficient slab and frame systems supporting gross margin expansion and disciplined specifications that meet customer needs while enhancing returns. We continue to extend our pipeline following the Townsville acquisition with 7 opportunities with potential for over 1,700 homes currently in due diligence or contract negotiation as we also explore first moves in new geographic markets. In closing, we have delivered a solid first half with strong sales momentum, supporting full year guidance and providing a firm platform into FY '27. Our focus remains on growing the pipeline, maintaining capital discipline and embedding initiatives that support scale, efficiency and returns. I'll now hand over to Kristy Minter to take us through the residential portfolio. Kristy Minter: Thanks, Michael. I'm pleased to present the results for our established residential communities. These outcomes demonstrate the stability of our rental annuities and our focus on delivering high levels of customer satisfaction. I'll start on Slide 20 with a summary of the Lifestyle Rentals segment, which achieved 6% EBIT growth, driven by increases from existing sites and 182 new rent-producing sites. Our stabilized EBIT margin has remained steady despite challenging operational cost escalation. Turning now to our land lease communities on Slide 21. Our land lease site income continued to grow with 2 new communities completed in Queensland. Average weekly rent is up 4.6% on prior year, and we completed 133 resales, generating an additional $2.1 million in commission. Rent growth has been impacted by government legislation with Queensland rents capped at the higher of CPI or 3.5%. And in New South Wales, we have adopted a fixed 4% annual increase. Operating costs continue to exceed CPI with council rates, water and waste disposal rising by more than 20% in the past year. We are managing margin impact by resetting site rent through strategic buybacks and resales and additional focus is being applied in driving more efficiency in the operation of site facilities and services. Our commitment to customer obsession is underpinned by 4 pillars of operational excellence that boost resident satisfaction. This, together with our Ingenia Connect services, ensure our communities stand out as a preferred customer option, helping to drive market share, retention and increased referrals. Moving now to our all-age rental portfolio on Slide 22. Occupancy remains strong at 99%, thanks to continued high demand for rental accommodation in our key markets in Brisbane and Melbourne. We achieved strong rental growth across this portfolio and we will continue to maximize revenue by upgrading accommodation and adding new homes. Consistent with our strategy, we are targeting over 14% yield on future investment in new homes across these communities. Lastly, our Ingenia Gardens communities on Slide 23. Solid financial returns have been achieved through high occupancy, rental increases and diligent cost management. Our commitment to delivering exceptional support and service to our residents is demonstrated by an average 85% satisfaction rate. Ingenia Connect services are highly valued by our residents, and we are seeing a positive improvement through an increase in tenure, which is at an all-time high of 4.1 years. In closing, we have consistently shown operational discipline, strengthened our point of difference and fostered a strong sense of belonging for our residents. Thank you. I'll now pass to Matt Young. Matthew Young: Thanks, Kristy, and good morning. Moving to Slide 26. As Justin mentioned, Holidays has delivered significant growth in EBIT with an increase of 10% for the period. Importantly, the new website has delivered a strong early performance with revenue up 18% and conversion up 32%. This has assisted in shifting approximately 8% of direct bookings that were previously made at Park to now being made via the website, improving booking efficiency, strengthening data capture and reducing pressure on park themes. Variable costs are higher directly correlated with the uplift in occupancy, including linen and wages. With higher occupancy and the average length of stay decreasing by 3%, these costs remain in line as a percentage of revenue. While EBIT growth was significant, margin has declined slightly due to marketing spend incurred as we finalize work on our new website and implemented our AI pricing tool. Ongoing cost increases in nondiscretionary expenditure included lining costs, waste counsel and rates and utilities. Additionally, OTA spend increased, reflecting the recovery in international demand, which is more costly to acquire with our global OTAs. We continue to use these channels deliberately as an acquisition tool, particularly for international and first-time guests. With around 65% of OTA bookings coming from new guests, they remain an important driver of customer growth, supported by a clear strategy to convert these guests into loyal repeat customers through targeted retention initiatives and our direct booking strategy. Moving to Slide 27. Our new acquisition in July, Kinka Beach, South of Yeppoon, has performed strongly since acquisition, with cabin occupancy up 15% and rates increasing materially, supported by improved distribution, pricing discipline and enhanced online visibility. Since going live in December, the new accommodation has generated over $85,000 in bookings with forward bookings up 48% over the next 12 months, demonstrating early outperformance against expectations. In parallel, the Rivershore expansion comprising of 80 additional sites across glamping tents, bell tents, tiny homes and powered sites remains on track for completion in Q2 FY '27. Moving to Slide 28. In summary, the Holidays portfolio enters the second half with strong momentum. Strong demand, improving margins and the early success of our digital initiatives continue to support revenue and EBIT growth, positioning the portfolio to deliver sustainable long-term returns through FY '26 and beyond. Thank you, and I'll now hand back to John. John Carfi: Thanks, Matt. Our disciplined focus on execution continues to yield favorable results as we move into the second half with a clear pathway to projected growth targets, enhanced returns, sufficient capital to fund growth and a business that is laser-focused with a highly disciplined approach to driving efficiency and productivity. As we move into year 3, we expect gains from our initiatives to accelerate. Our people and structure are in place. We have a highly motivated workforce deeply committed to delivering on our strategy and medium-term goals with conviction. The business is generating growing cash flows. Our operating business is performing extremely well with clear strategies, targeted acquisitions and development supporting increase in a growing base of stable cash flows. Development is on track. We are seeing solid demand across our existing projects with the commencement of new projects providing a runway for growth in settlement activity into FY '27. We are on track for planned settlements in the second half, underpinned by sales in hand. We will deliver growth on second half '25 and see the peak of settlements from the joint venture. As new projects benefit from refinement of our designs and procurement, optimized project returns and cash generation will begin to be realized. Assuming no material change in current conditions, we expect settlements to grow this year and our full year result to sit at the top of our guidance range. Capital management supports our 5-year plan. We have sufficient capital for our needs and are deploying in line with our financial and strategic goals. We remain comfortably within our gearing and hedging target ranges and continue to maintain prudent capital settings with balance sheet capacity to support planned investment growth, along with the potential to dispose lower growth assets for opportunities beyond our current plan. With the foundations in place for delivery of our core 5-year plan, we continue to review opportunities to accelerate growth, including pipeline expansion and adjacencies in the living sector, allowing us to capitalize on growing demand and accelerating our scale ambitions. Finally, we have a strong position in a very attractive living sector, which remains resilient, underpinned by the fundamentals of a growing and rapidly aging population and a structural undersupply of suitable housing solutions. With an experienced and motivated team in place, we retain strong conviction in our strategy and our ability to deliver growth, scale and improve returns. That concludes the formal presentation today. But before I go to questions, I'd like to thank the entire Ingenia team for their support and commitment. I'm pleased with the position that the business is in and look forward to updating you on further progress. I'll now open the call to questions. Operator: [Operator Instructions] The first question comes from the line of Adam West with JPMorgan. Adam West: I'm just wondering, so you mentioned in the back of your slides that there was higher incentives across the Victorian projects impacting the development profit per site. I'm just wondering, do you expect this to be persistent? And how are the Victorian incentives sort of comparing to New South Wales and Queensland? John Carfi: Thanks for the question, Adam. I'm not sure we agree. We haven't experienced higher incentives. We budget for incentives at the start of the year, and then we dial them out depending on needs, whether we want to accelerate sales or whether we think we've got difficult projects to move, but there hasn't been a significant increase, if anything, on last year. Adam West: Okay. That's clear. And I'm just wondering, the second one is, I guess, how are you finding competition for sites, particularly in the Queensland region? Have you seen a step-up? Or is it pretty consistent with what you're seeing last year? John Carfi: I think last year, we were already seeing strong competition for sites. And there's probably 2 aspects to that. One is we did a lot of work on strategically looking for areas to focus on and obviously, efficiency and what have you. We've done a lot of work in communicating strategy on the ground to external agents and dealers for one of a different -- better term. So we're getting a lot better deal flow than where we were. The other thing is we've expanded what we're looking for. And I think I've spoken about it in the last 12 months. If we see larger sites that are on the market where perhaps the land lease competitors aren't competing, let's say, a 30-hectare site somewhere, then we'll look to secure that, do 10 to 12 hectares of land lease and either develop out the other component or look for another buyer to take the other component. So pretty comfortable with the deal flow we're getting at the moment. We've got a lot of deals on the table. We're backfilling the pipeline at a rate greater than we're chewing through it. So we're pretty comfortable. Adam West: Yes, that's clear. I guess just final one for me, but in the Holidays business, I guess, sort of mentioned you've got an AI pricing tool. I'm just wondering, can you provide a bit of color to that? And have you seen a better rate coming through since you've implemented it? John Carfi: I'm going to have a go at answering that. But if I can't, I'll throw it to Matt because I'm really out of my depth. So we -- obviously, most tourism business use pricing tools. AI has just been helping us by being able to do it a lot quicker and more frequently on a daily basis. But obviously, we've got to plug in the core assumptions where we want occupancy to land, and it will manage around that occupancy and peak demand. What we found in prior years, we were probably selling peak periods too early. in order to get a high occupancy rate. But as we're moving through, we're able to delay those in some cases or still take the uplift in revenue based on assistance from the AI pricing tool. I'd say it's a work in progress, but probably the biggest takeaways that allow us to reprice more often on a daily basis than what perhaps it would have in the past. Operator: The next question comes from the line of Adam Calvetti with Bank of America. Adam Calvetti: The 1,700 homes that are in DD at the moment, it seems like quite a sizable amount. How do we think about, I guess, the quantum of that and when that potentially might settle? John Carfi: Yes, it's a good question. And I suppose the answer to that is they're all different and over a period of time. So in many cases, our acquisitions are on a structured basis. So they might require some work, some sweat equity on our behalf to unlock, but settlement would be subject to a planning outcome or a satisfactory outcome. In some cases, it's just a deferred settlement to give us time in order to secure that outcome. And I think I've been saying for the last 12 months or longer, most of the pipeline build that we need is in later years. So we're not competing for something that needs to be able to start tomorrow. It's not to say we wouldn't look at it. So we're seeing less competition in that space. But generally, there's an element of unlock required and the consideration is generally deferred to unlock. And that's why we say comfortably we can continue on the 5-year plan without within the current balance sheet constraints. However, if we see opportunities to accelerate that by something that would need capital to settle early because it is unlocked already, then we've got the ability to do that through the sale of lower growth assets. Adam Calvetti: Okay. That makes sense. And then on the 5 projects that are commencing in the second half, how do we think about the price point of those relative to the 646,000 average price point over this first half? John Carfi: I think compositionally, you'll probably see that relatively stable. A lot of those are in regional areas with lower price points. So I think you'll see that relatively stable. As you'll see the JV price point stabilize as we peel off some of the high-priced projects and move more into Morisset. Adam Calvetti: Okay. That makes sense. And then last one for me. Just on council rates and some of those stat charges that have increased. I mean, what proportion of the portfolio has kind of been hit? And what's potentially still up for, I guess, debate or councils to increase those stat charges? John Carfi: I think you've seen in the last 12 months across the entire economy, every council in Australia has taken the opportunity to increase rates. Pretty well all our energy contracts have all but renewed. So I think we've seen the bubble come through, if you like. But the caveat there is who knows? I think there are still councils and regulatory authorities out there still trying to get their hands in everyone's pocket generally. There is a lot of lobbying happening at an industry level to try and where we think councils are getting out of control either on rates or other services. But ultimately, they're all trying to pass through costs that they're copying. But I do think we've seen the lump, and we've probably seen the lump across the portfolio, but there'll be odd battles yet to be had in won. Operator: The next question comes from the line of Solomon Zhang with UBS. Solomon Zhang: Just wanted to just drill into the cash profit on development. It's good to see the improving trends. You're calling out positive cash profits in second half '26 from a swing of, I guess, negative cash profits in the first half. I just want to think a bit longer term, I mean, where are you targeting cash profits on, I guess, completely new developments, which don't have those legacy cost issues, like whether that's a dollar per home or a percentage of the revenue? John Carfi: I'd love to give you an exact number, but I'm not going to. Originally, when we set up the 5-year plan and we reviewed the portfolio of projects, we had ambitions of getting to cash neutral at a project level. We've gone from, I think, negative $25,000. We're currently sitting at negative $10,000 0 or $11,000-ish at the moment, and we've got good line of sight to positive cash flow for the full end of this financial year. I think if you look at the result for this half, it's probably more an issue of both lot settlements and composition. Our second half is skewed severely not just by lot settlements, but also by composition. And that's why confidently, we know we're getting the positive cash flow. So ahead of where we expected to be in terms of the 5-year plan this financial year. We have project composition and some internal design initiatives that we think we can continue to improve on that into FY '27 and probably '28 as we roll through composition of older projects. But I don't want to give out external targets other than to say you can expect ongoing improvement through next -- at least the next 2 years. Solomon Zhang: Makes sense. And you've called out on the sales front, pretty strong momentum. But I guess we have cash rate hikes that have been pushed through and further expectations for more hikes for the rest of this year. Are you seeing any evidence of any slowing sales momentum or metrics? I mean some of your peers are commenting on a little bit more buyer hesitancy and elongated sale to settlement time frames, but just interesting on what you're seeing across the portfolio. John Carfi: Yes. It's a good question. Obviously, we follow commentary coming from everyone else. Some of it gets made up by the newspapers and someone gets quoted for something you didn't actually say. Like everyone else, we're not seeing an impact at our sales suites. In fact, we've seen an increase in uptake in inquiry. The quality of inquiry has improved and our time from purchase to settlement has also decreased. Now in saying that, I wouldn't be reckless enough to expect that, that would continue. But certainly, our buyer cohort so far has not been impacted by either the interest rate increase or the sentiment associated with that. We'll continue to monitor, obviously, all of those things. But at this stage, whether we're growing market share, I'm not really sure, but inquiry levels are elevated and time to settlement has improved. Solomon Zhang: Good to hear. Maybe just a final quick one. So when you look at your 440 deposits and contracts in place, what proportion is Victoria? And what's the settlement profile expected throughout the balance of the year? Is it pretty even? Or is it more fourth quarter skewed? John Carfi: Look, there's a big fourth quarter skew. But let me assure you, having developed and built a lot of housing over the years, we're well placed from a production point of view. In fact, some of the lots in Queensland where we had some weather events, we were worried they would fall over are now back in order. So production is under control. We've got a lot of settlements happening in May, June, but we're geared up. We're comfortable to be able to do that. We're comfortable to be able to monitor our customers during that period of time to make sure that they've done all the things they need to do. to be in a position to settle. So we're pretty comfortable. And as we said, we aim to be at the top end of the guidance because of our comfort associated with that. Most of that is happening in Queensland. There is some Victorian stuff at Parkside and in Lucas, not much out of slower project like Springside. So we are heavily skewed to Queensland where from a production point of view, we're beyond the point where any significant inclement weather would cause a major impact. So we're pretty comfortable. Operator: The next question comes from the line of Tom Bodor with Jarden. Tom Bodor: Just was interested in the stabilized EBIT margins for the lifestyle communities around that 53% mark. How do you think about the gap between that number and the sort of facility or community level margin in terms of your regional overhead? And where could that stabilized margin get to over time as you scale up? John Carfi: It's a great question. We would expect the stabilized margin to improve if we start -- as we scale up based on a lot of initiatives we have in place and obviously, the scale benefits we're getting. But also as we're bringing new projects online, I think we said early on when we produced a 5-year plan, we had some subscale communities. We had some that were just inefficient to operate because of either landscaping or other fundamentals. So as we deliver new things into the portfolio or do expansions like we're doing up at Plantations or Latitude One, we get more efficient as we go because there's less amenity and operational cost per house with rents. And the other thing we're doing to counter that is also despite the fact that we've been restrained in terms of potential rent increases in Queensland and New South Wales and probably likely in Victoria, we have a strategy around strategic rental increases where we believe we're under under-rented or where we might be constrained by a particular regulation that keeps us within the confines of the rental range within the development through buybacks and other initiatives. So we think it's a steady process of continuing to improve. There are some assets where the margins will never improve. And we'll either -- if they're good quality assets, we'll hang on to them. If not, then those are the sort of lower growth assets we might look to dispose of over time. But think of every asset gets worked over on a quarterly basis to see whether there's adjacencies or opportunities to improve margins. So the data is getting a lot better. The team is getting a lot refined, and we're doing a lot of work around efficiency from a development point of view, but also from an operational point of view. So I would see steady improvements consistently for the next 2 or 3 years. Tom Bodor: Could they get to 60%? Or is that too ambitious? John Carfi: Sorry? Tom Bodor: Could they get to 60%? Or is that too ambitious? John Carfi: I think across the portfolio, that's too ambitious. We might get the odd project that outperforms like everyone else, but I think that would be too ambitious across the portfolio. Tom Bodor: Okay. Great. And then just on the Holidays business as well, the margin, it was a little bit lower. Just wanted to get a sense as to your full year expectation and how that might look over time? Was there some impacts from this sort of website and booking system that were in the margin that would be next period? Or I'd just be interested in your comments on that. John Carfi: Look, there's 2 aspects to that. There's some of the marketing and website costs we took through impacting margin. The other thing is we've identified opportunity to chase revenue through taking advantage of the increase in overseas bookings, and that comes at a cost, obviously, but the revenue benefit at an EBIT level is too good to pass up. So we'll continue to chase that. We'll manage the marketing website cost. But if that revenue comes at a slightly greater expense and it's providing an overall benefit, we'll probably continue to chase that. Operator: The next question comes from the line of Suraj Nebhani with Citi. Suraj Nebhani: Just a couple of quick ones from me. Firstly, I guess, John, the confidence around getting to the top end of the guidance and your comments and Michael's comments around improvements in volumes year-on-year. Just keen to understand how you're thinking about that? Can you give me some color around expectations for settlements? John Carfi: Yes, definitely. So I think you've got to look back at the first half of last year as an anomaly, both in terms of the percentage of settlements or the SKU and also the composition of those settlements. This first half has been both low numbers and a composition issue that's driven the result. In the second half, we're pretty well all but bedded down the sales we need. So by the end of March, effectively, we get to a point where there's nothing we can sell this year that will settle this year. The team, we're pretty comfortable that we've secured or all but secured what we need to do to settle this year, and they're high-quality contracts. We obviously identify every single customer, the likelihood that they're going to settle the position they're in to settle and obviously, the production. So we're fairly confident around the number of lots. And obviously, at the same time, we're betting down the composition. So we have great line of sight to both the quantity and the composition, and that is the biggest factor driving our result for the second half, and that's why we've got confidence coming out and saying we're going to be at the top end of the market. The team, for your benefit, is well and truly focused now on securing sales for FY '27 and getting FY '27 production in hand and under control. Suraj Nebhani: Right. So I guess in terms of regular SKU, is there any period that you think might be more representative or like maybe FY '24 or something like that? Like I'm just keen to get a sense. And in terms of growth, like year-on-year, would you say you'd be in the 10% to 15% 5-year target range? John Carfi: We certainly affirm that on a lot settlement basis, we confirm the compound annual growth rate over the 5-year period. Now that's not to say it's a consistent number every year, but over that 5-year period, we expect it. We're certainly targeting to deliver within that range on an annual basis. I don't know that there's a regular first half, second half skew in this industry. So I wouldn't anticipate that we'd end up with a similar skew next year, particularly in terms of composition, but it's hard to predict until we start making the sales. But yes, we're pretty comfortable with the 5-year plan CAGR that we've put out and delivering in accordance with that. Suraj Nebhani: And then maybe just one question on margins more broadly across the various divisions. How do you expect that to change half-on-half, Development and Rental and Holidays? John Carfi: I'm going to throw to Justin to take that one. Justin Mitchell: Sir, Justin. I you're talking about EBIT margins, obviously, in relation to each division. So maybe just quickly step through. As we've previously indicated, with the second half skew, so lower settlements in the first half and obviously, the cost of marketing that we've invested, which would clearly flag. As we see that improve in the second half, you would expect those margins, the EBIT margins to improve half-on-half. So there's upside there. I would suggest that holidays as well would also see some improvement given that typically, January is probably our strongest month from a revenue perspective. And we started to see some of those costs, particularly around electricity already embedded in the first half, whereas in the prior year, we sort of like relative to that, taken a significant uplift. like electricity is something like 40% increase. So I would expect that to see an improvement as well and that Lifestyle will be reasonably flat half-on-half. Operator: The next question comes from the line of Ben Brayshaw with Barrenjoey. Benjamin Brayshaw: I was wondering if you could just talk high level about the outlook for the joint venture over the medium term, whether you're expecting to commit more capital to add inventory. Just how you're thinking about the joint venture in the context of ownership arrangements. You mentioned on the call that the settlement activity, if I heard correctly, would peak in the second half of this year. John Carfi: Good question, Ben. Look, good question. The joint venture hasn't made any acquisitions in the 2 years I've been here. We've offered them every opportunity we've identified. And at this stage, they've declined each one. We are cognizant that they have a new CEO in place and presumably in the process of reviewing strategy. Justin and I are meeting with them in Miami next week to bring on discussions to see what intentions they have. They have a right to participate in acquisitions. And as I said, they've not demonstrated that. So either way, even if they started participating tomorrow, then those new projects probably wouldn't go into production for another 3 years. So either way, you will see a decline in joint venture settlements as a percentage of overall from the end of this financial year or a peak at the end of this financial year. At that point in time, the only joint venture project that will be in production is Morisset, barring 1 or 2 potential sales at Natura or Element. So we're happy to stay in that joint venture. It doesn't need any further capital investment. In fact, it's likely to make a distribution. So it won't burden the balance sheet. We're happy to do more things with Sun if opportunities arise. However, at this stage, we still feel as though we're more opportunity constrained than capital constrained, and we are sourcing enough opportunities to backfill the pipeline on balance sheet. But they do -- I must emphasize, they do have a right to participate, and we have no obligation to take them out of the JV, and they've not indicated any desire to get out of the joint venture. Benjamin Brayshaw: And perhaps a question for Justin. If you could just talk about the operational leverage within the JV and if the settlement rate was to decline in the future, whether that -- whether you expect that would impact the margin? Justin Mitchell: Look, as John said, we've only got one project that will be settling beyond this year. So I'm not particularly concerned around pricing in that joint venture. We have -- really the debt is secured against the passive assets, which are the 3 that will be completed. And we have a small amount of debt. As John alluded to, we're actually taking cash out of that joint venture as we're through the vast majority of infrastructure spend, et cetera, and starting to realize pretty significant returns from -- cash returns from those projects. So it's not something that is a significant concern. Benjamin Brayshaw: In relation to the EBIT margin, you're not concerned about the margin in the future? Justin Mitchell: Of the EBIT margin? No. Benjamin Brayshaw: Okay. John, you mentioned that there was sales momentum, in particular for the months of January and February. I was wondering if the sales momentum also something you've seen come through for the 6 months to December? Or how you describe the sales velocity? John Carfi: Yes. We've definitely had improving -- steadily improving inquiry all the way through for this year. Some of that, Ben, obviously relates to the timing of marketing and project launches. So it's not as steady. It can be sporadic from that point of view. But yes, inquiry levels have been steadily increasing and up. It's hard to pick, is it the market? Is it us? Is it something we've done. But certainly, we have done a lot of work behind the scenes to improve our marketing to improve our website and to improve the pain points for customers to get to an appointment with us. So all of those things, in my view, have converged to increase that activity at a customer level. We've not seen it slowing. We'll continue to monitor. But I would say all those initiatives have played a part. Benjamin Brayshaw: So if I look at the contract and the settlement activity in the last 6 months, it looks like the net sales have been in the order of 250 lots, which is sort of flat on where you've been tracking in the last couple of years. Is that accurate? John Carfi: I'm not sure. I'm going to throw it to Michael on that one, if I can. Michael Rabey: No. We've seen net sales increase on PCP for the 6 months. So new sales in those 6 months grew significantly on the PCP. Benjamin Brayshaw: Are you able to say just approximately in rough terms, what the percentage increase in the sales rate has been? Michael Rabey: Well, I think the sales on hand, as you saw in the presentation, were up a total of 23%. So some of that is obviously going to relate to future periods, but it's in that order, if not a little bit higher for the first 6 months. Operator: There are no further questions at this time. I'll hand back to Mr. Carfi for closing remarks. John Carfi: Well, thank you all for your attendance and for your interest. Justin, Donna and I look forward to meeting with many of you in the coming weeks, and we will be available for any additional request. Thank you once again for attending today. I will now conclude the call. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the BioMarin Pharmaceutical Fourth Quarter and Full Year 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to Traci McCarty, Head of Investor Relations. Please go ahead. Traci McCarty: Thank you, operator. And starting on Slide 2. To remind you, this nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical Inc., including expectations regarding BioMarin's financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q, 10-K and 8-K reports. In addition, we will use non-GAAP financial measures as defined in Regulation G during the call today. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP, and you can find the related reconciliations to U.S. GAAP in the earnings release and earnings presentation, both of which are now available in the Investor Relations section of our website. Please note that our commentary on today's call will focus on non-GAAP financial measures unless otherwise indicated. Moving to Slide 3 and introducing BioMarin's management team joining today's call, Alexander Hardy, Chief Executive Officer; Brian Mueller, Chief Financial Officer; Cristin Hubbard, Chief Commercial Officer; and Greg Friberg, Chief R&D Officer. I will now turn the call over to BioMarin's CEO, Alexander Hardy. Alexander Hardy: Thank you, Traci. And moving now to Slide 5. Thank you all for joining us today to discuss BioMarin's fourth quarter and full year 2025 results as well as our outlook for 2026, which will be an exciting year. We are particularly proud to have accomplished our strategic goals for 2025, while achieving outstanding growth. In 2025, total revenues grew by 13% to a record $3.22 billion for the year and operational excellence led to strong profitability and increasing cash flow. This result was fueled by a 9% increase in enzyme therapies revenue and a remarkable 26% rise in Voxzogo revenues. Importantly, enzyme therapies revenue has grown at a 9% CAGR over the last 5 years, demonstrating the durability and reach of this $2 billion-plus franchise across our 80-country footprint. With Voxzogo, now in its fifth year on the global market, we're very pleased with the consistent strong growth already achieved and have deep conviction in our ability to continue expanding should another product be approved. BioMarin's 2025 performance and 2026 outlook highlight both our deep global capabilities and the vital importance of our targeted therapies to the patients we serve. Building on the strong foundation in 2026, we will expand our therapeutic and commercial reach with the addition of assets from two significant acquisitions announced last year. The first, Inozyme, strengthened our enzyme therapies portfolio with the addition of BMN 401 for ENPP1 deficiency. This is a condition for which there is no approved targeted therapy. So we're really pleased about the possibility of launching what could be our sixth first-in-disease enzyme therapy should pivotal data be supportive. We look forward to sharing that update in the coming months and to filing submissions soon thereafter. Our second acquisition, Amicus, potentially adds both Galafold for the treatment of Fabry disease, and Pombiliti and Opfolda for Pompe disease to our commercial portfolio and is expected to close next quarter. This transaction presents a particularly compelling opportunity that further builds on Amicus' success by leveraging our scale and global capabilities to serve even greater numbers of patients. In addition to the expansion of BioMarin's portfolio from acquisitions, we're particularly excited to build upon at Voxzogo's leadership in achondroplasia with a potential addition for treatment of hypochondroplasia. Because CNP is the master regulator of bone growth and supported by the 1-year results from the investigator-sponsored study, we are excited to see and share the upcoming pivotal results with Voxzogo for the treatment of hypochondroplasia in the coming months. We look forward to the possibility of adding hypochondroplasia to our global skeletal conditions treatment offerings by early next year. On top of Voxzogo indication expansion, based on the very encouraging PK data recently shared, we're preparing to begin enrollment in our Phase II/III study of BMN 333. We believe this next-generation, long-acting CNP therapy has the potential to set a new standard of care and to demonstrate superiority compared to any candidates under development for achondroplasia. Those are just a few of the anticipated pipeline highlights expected this year so you can understand our enthusiasm for what's ahead in the coming months. Turning to innovation. During the period where we are delevering the financing associated with the announced acquisition of Amicus, we will remain actively engaged in business development activities targeting pipeline assets. This is an important component of a larger pipeline expansion plan, a plan that both accelerates our financial performance and further diversifies our portfolio to drive durable long-term growth. In closing, we are pleased that the transformational work implemented over the last 24 months has already delivered significant results and positions us for even more revenue growth, profitability and pipeline expansion. Prior to any contributions from the Amicus assets, this year, we anticipate BioMarin's enzyme therapies will deliver high single-digit growth and Voxzogo will continue along its trajectory towards blockbuster status. Following the completion of the transaction, we anticipate that integrating Galafold and Pombiliti and Opfolda will enable both medicines to reach more people around the world living with Fabry and Pompe, significantly enhancing our 2026 outlook and enabling accelerated revenue growth through the 2030s. With that, I will turn the call over to Brian provide additional financial updates. Brian? Brian Mueller: Thank you, Alexander. Please refer to today's press release for detailed fourth quarter 2025 results, including reconciliations of GAAP to non-GAAP financial measures. All 2025 results will be available in our upcoming Form 10-K, which we expect to file in the coming days. Starting on Slide 7. Our fourth quarter results reflect strong global demand, with total revenues of $875 million, representing 17% year-over-year growth. This strong performance was broad-based across our portfolio with Voxzogo delivering 31% year-over-year growth and enzyme therapies achieving 13% year-over-year growth in the fourth quarter. Palynziq revenue increased 25% in Q4, marking its fourth consecutive quarter of 20% or higher year-over-year revenue growth. For the full year, Voxzogo revenue increased 26% over 2024, totaling $927 million and underscoring the strong global expansion since its launch over 4 years ago. For the full year 2025, approximately 73% or nearly $680 million of the $927 million of total Voxzogo revenue was generated outside of the United States, reflecting BioMarin's differentiated global reach and infrastructure, deep rare disease expertise and ability to execute at scale. Full year 2025 enzyme therapy revenue increased 9% year-over-year, led by 22% growth for Palynziq and 7% growth for Vimizim underscoring the durability and strong demand for these established brands. As expected, Q4 revenue benefited from the timing of large orders in both Voxzogo and enzyme therapies. In Q4, we recognized revenue from an approximately $30 million contracted government order for Voxzogo, the magnitude of which we do not expect to repeat in Q1 2026. Additionally, in Q4, we saw stocking levels increase in the U.S. and select global markets for Voxzogo, Palynziq and Vimizim. Now moving to Slide 8. As an update on our plan to divest Roctavian, we recently made the strategic decision to withdraw it from the market. As a result, during the fourth quarter, we recorded approximately $240 million in special items on a GAAP basis. Approximately half of that amount relates to an inventory write-off that does not get adjusted out of non-GAAP income. BioMarin reported $3.15 of full year 2025 non-GAAP diluted earnings per share. And looking past the 2025 IPR&D and Roctavian charges, included in non-GAAP income, our underlying business earnings per share grew by approximately 34%. This performance contributed to $828 million in full year 2025 operating cash flow, a 45% increase versus full year 2024, further demonstrating the strength of our operating model and providing meaningful capital to reinvest in innovation. We are pleased to see the operational transformation implemented over the last 24 months drive this level of profitability. Together with our revenue growth plans, BioMarin is positioned to sustainably grow profitability and cash flow while still investing in the business. As we prepare to close the Amicus acquisition, we were pleased to secure approximately $3.7 billion of debt financing consistent with the strategy that we shared upon announcement of the transaction. Confidence in the strength of BioMarin's business and financial outlook supported a positive credit ratings outcome and helps drive demand for all components of the capital raise, which enabled favorable pricing across the capital structure. Now moving to Slide 9. Looking ahead to full year 2026, we are providing initial guidance that reflects BioMarin's growth expectations, excluding any post-close contributions from the announced acquisition of Amicus. Please note that currently available BioMarin consensus estimates include a combination of revenue estimates, some that include Galafold and Pombiliti and Opfolda revenues and some that do not. We plan to provide updated guidance on the combined business following the close of the acquisition expected in the second quarter of 2026 and we request that you wait for those details prior to updating BioMarin's models with the post-close Amicus contributions. Turning to 2026 guidance items. We expect enzyme therapies revenue of between $2.225 billion to $2.275 billion, and Voxzogo revenue of $975 million to $1.025 billion. We expect continued high patient demand across both the enzyme therapies and Voxzogo in 2026, resulting in high single-digit growth rates of both business units at the midpoint. Outside of enzyme therapies in Voxzogo, we are expecting significantly lower royalty KUVAN and Roctavian revenue in 2026, which affects year-over-year comparisons of total revenue. We estimate those revenues to be between $100 million and $125 million in 2026, representing a 3% headwind to total revenue growth when compared to 2025. Taken together, we anticipate 2026 total revenues in the range of $3.325 billion to $3.425 billion. Again, this excludes any contributions from the Amicus products. And while we will wait for the acquisition to close to provide more details on 2026 revenues for the combined business, we are expecting a meaningful uplift to our 2026 total revenue growth rate once the transaction closes. We anticipate 2026 non-GAAP diluted earnings per share in the range of $4.95 to $5.15. Please note that our guidance reflects approximately $0.25 per share of preclose integration preparation costs and interest expense related to the Amicus transaction. On non-GAAP operating margin, our underlying organic operating margin expectation without the Amicus transaction is approximately 40% for 2026, consistent with our previously communicated target. In the announcement of the Amicus transaction, we shared that we expect the Amicus acquisition to be modestly dilutive in 2026, which we expect to be a slight headwind to operating margin that could drive it slightly below 40% for the year. Aside from the impact of the Amicus transaction, we recognize that over the last two years, BioMarin has been able to solidify its revenue growth potential and transform its cost structure to realize the potential of a strong operating margin profile well into the future. I will also comment briefly on quarterly dynamics in 2026. Coming off our strongest revenue quarter on record, we expect similar trends in 2026 as those observed in 2025. For example, we expect the first quarter of this year to be the lowest total revenue quarter of 2026, with both total revenues and Voxzogo revenue expected to be on par with Q1 2025. Q1 non-GAAP diluted earnings per share will have the additional impact of the vast majority of the pre-close Amicus cost just described, resulting in it being our lowest anticipated EPS quarter for 2026. For both Voxzogo and enzyme therapies, we anticipate large international order timing to contribute to higher revenue in the second half of 2026 compared to the first half and weighted to Q4, similar to the 2025 dynamic. Our underlying business has consistently produced profitability growth that has outpaced top line growth and today's guidance reflects our commitment to continue to grow the business, operational efficiency and prioritized reinvestment and innovation. Thank you for your attention and I will now turn it over to Cristin for a commercial update. Cristin? Cristin Hubbard: Thank you, Brian. I'll open by highlighting the outstanding work of our teams around the world. Their focus and deep expertise have been instrumental in driving another year of impressive commercial performance. Now moving to Slide 11 and starting with enzyme therapies. In 2025, enzyme therapies delivered year-over-year revenue growth across every product in the portfolio, leading to 9% growth, driven by new patient starts across all products and consistently strong therapy-adherence rate. With 22% year-over-year revenue growth, Palynziq, again, outperformed expectations. As the only approved enzyme replacement therapy for PKU, Palynziq stands alone in its ability to enable people with PKU to reach physiologic phe levels while reducing dietary restrictions regardless of severity. The performance further highlights our leadership in the PKU market having established invaluable partnerships with our stakeholders during almost 20 years treating people living with PKU. In 2026, Palynziq is expected to remain the primary growth driver in today's enzyme therapies portfolio, supported by the anticipated adolescent-label expansion with the U.S. PDUFA target action date of February 28 and an anticipated European approval later this year. Excitement is building among the treating physicians and families around the value proposition that Palynziq represents to the adolescent PKU community. This label expansion will enable young people with PKU to start treatment while living at home, supported by caregivers and under the guidance of their health care providers. Adolescence is a pivotal time where dietary therapy typically starts to become unsustainable for those living with PKU, which can result in rising blood fee levels. The opportunity for adolescents to use Palynziq may provide dramatic fee lowering, the ability to eat more like their peers for social inclusion and ultimately, a better setup for them to enjoy an independent successful life. Now turning to Slide 12. Voxzogo continued to be a standout growth driver, delivering 26% year-over-year growth in 2025. It's particularly gratifying to know that well over 5,000 children with achondroplasia worldwide were being treated with Voxzogo at the end of 2025. Now going forward, with Voxzogo in its fifth year of commercialization, our growth strategy is focused on a multipronged approach. First and foremost, we are driving new starts globally across all ages with a particular emphasis in children under a 2 years of age, an age group where we do not expect another approved product for the next several years. Next, in highly penetrated countries, which have become incident markets, our priority is to continue to find and start treatment-eligible infants going forward. In addition, we see meaningful opportunity to more deeply penetrate larger countries where we already have established commercial presence and large growth potential remains. And finally, we are expanding uptake in fast-growing newly launched markets where significant pools of eligible patients exist and streamlined care pathways are enabling access. To provide more context on the results that these strategies are producing, I'll share a couple of recent examples illustrating BioMarin's deep global capabilities, commercial scale and more than 20-year track record serving patients around the world. In a recently launched country in the Asia Pacific region, Voxzogo reached approximately 40% penetration within 7 months of launch. This success stemmed from early non-promotional prelaunch activities and strong relationship building with clinicians. We ensure that there was a focus on patient identification beforehand and strong support for each patient's experience throughout the journey. In another example, in a midsized European country, Voxzogo achieved approximately 70% penetration within 12 months of launch. This was driven by early non-promotional engagement with clinicians and patient advocacy groups to build strong relationships with local stakeholders and drive momentum and awareness of Voxzogo. We tailor our approach to meet the needs of the patients and the respective country's ecosystem. We will build on these successes to drive deeper penetration in existing markets and to prepare for new country launches in 2026. These strategies are crucial to our growth outlook with Voxzogo since roughly 75% of total revenues are generated from countries outside of the United States. In the United States, we are driving increased penetration across all age groups, supported by investments in data, digital and field force. We're seeing particularly strong momentum in the under 2-year age group, reflecting international guidelines for achondroplasia, recommending early diagnosis and treatment with Voxzogo as soon as possible and long-term data supporting its safety and efficacy from infancy. Approximately half of the new starts in the fourth quarter were children under age 2. Since we believe Voxzogo will be the only approved therapy in this age segment for the next several years, driving new patient starts in children under 2 is a key pillar of our growth strategy. With the potential full approval of Voxzogo on the horizon, we believe families and caregivers will have even greater confidence in Voxzogo's established safety and efficacy profile when considering treatment for their infants and children with achondroplasia. In conclusion, I'm incredibly proud of what our teams have accomplished and energized by the opportunities ahead. I will now hand it over to Greg for an R&D update. Gregory Friberg: Thank you, Cristin. We have a very busy year ahead for R&D with multiple meaningful milestones. Moving to Slide 14. As Cristin mentioned, we are preparing to submit the full approval package for Voxzogo and achondroplasia. This submission will allow us to present a comprehensive story around final adult height as well as a broader health and wellness outcome data set. We have collected over 10,000 patient years of safety data, including data for some children who have been on Voxzogo treatment for more than 10 years underscoring the value of Voxzogo across all age groups, including meaningful impacts on quality of life and anatomic outcomes. In addition to linear growth, Voxzogo's broad evidence package demonstrates the treatment's impact on key complications associated with achondroplasia, including foramen magnum stenosis and symptomatic spinal stenosis as well as improvements in body proportionality, arm span and leg deformities like genu varum and tibial bowing. These extensive data also show clear functional benefits with improvements in measures of mobility, gait and quality of life. Together, these findings support our plans to submit the full approval package to the FDA and to continue sharing additional data through peer-reviewed publications and scientific forums later this year. Now moving to Slide 15. BMN 333 is our long-acting CNP therapy for achondroplasia. We previously shared our plan to initiate a combined Phase II/III study in the first half of this year. Today, we're pleased to share more details on the Phase III study design and powering assumptions. The Phase III portion of the study will enroll 60 patients into each arm and will have 90% power to detect a 50% increase in annualized growth velocity versus Voxzogo. This translates into a growth increase of 2.25 centimeters per year over placebo, an effect size that would represent a clear best-in-disease effect. This represents a floor, not a ceiling. We also anticipate that this would translate into greater benefits and other measures of health and wellness for achondroplasia, including proportionality, and health-related quality of life. Our goal is to establish BMN 333 as the new standard of care for achondroplasia and potentially for other skeletal conditions. Now turning to Slide 16. We have several additional exciting highlights expected across the pipeline in 2026. To note a few, we anticipate Phase III data readouts for Voxzogo in hypochondroplasia and for BMN 401 in ENPP1 deficiency, both serving as key steps towards potential approvals as the first genetically targeted therapies for each of their indications. We are approaching the U.S. sBLA action date for Palynziq for the treatment of adolescents with PKU. Given the unique clinical benefits of Palynziq, we believe families with teenagers seeking treatment will be particularly interested in a therapy that can deliver potent fee reduction as well as the potential to enjoy an unrestricted diet. Our PDUFA action date is February 28, and we look forward to sharing that outcome when it becomes available. Finally, BMN 351 for Duchenne muscular dystrophy demonstrated 5% mean absolute dystrophin expression at week 25 and in the 9-milligram per kilogram cohort, a level that translates to a predicted 10% absolute level at steady state. We are currently enrolling in a 12-milligram per kilogram cohort and plan to share those results in the second half of the year. Full results for the 6- and the 9-milligram per kilogram cohort will be presented in an oral presentation at the Muscular Dystrophy Association meeting in March. In summary, 2026 will be an important year of many data readouts, clinical advancements and regulatory activities across our R&D portfolio. We'd like to thank all of the patients, families and caregivers whose dedication and support enabled the advancement of these programs. Thank you for your attention today. We will now open the call to your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Mohit Bansal with Wells Fargo. Mohit Bansal: Congrats on all the progress. Just one point just -- and the dynamic in the achondroplasia market now that we have data for the oral medicine also out there, so how do you see this market evolving with the availability of weekly as well as oral at some point? And then the last part of the question is basically, if you do deliver 2.25 centimeters or above growth velocity, above -- over and above placebo with BMN 333. Do you think injections could be the first-line therapy there before orals? Gregory Friberg: Thank you, Mohit. This is Greg Friberg. I think I'll take the first half of your question, and then I'll hand it off to Cristin. With regard to the recently released data for the FGFR3 inhibitor, our take there, of course, was that this was generally comparable to other CNP class effects at 1 year. Of course, this is 1-year data. We'll need to see both durability as well as safety data over time. And the read through, of course, in terms of how we believe Voxzogo can deliver value here is that Voxzogo not just having one year of data has a tremendous amount of supporting evidence behind it. We talk about the 10,000 patient years of safety. We also, of course, have a deep a wealth of information with regard to evidence beyond height, whether it's foramen magnum, physical function, tibial bowing, quality of life, all of this data, again, creates a real confidence that, that data is something that patients can rely on. With regard to 333 and the effect size, we've stated again what the powering assumptions would be, and we do believe that the 2.25 centimeters of growth not only are differentiating on a clinical level, but we have some preliminary market research that suggests as well that, that would be important. It's important not to get too caught up in the growth being the outcome that we care most about because the growth is a surrogate for the health and wellness of these patients. Again, going back to Voxzogo, we do believe that increase in growth would, in all likelihood, again, lead to a best-in-disease profile that patients, payers and physicians with value. So with regard to the market dynamics, I'm going to hand it off to Cristin. Cristin Hubbard: Yes. Thank you so much, Greg, and thank you so much, Mohit. I do think -- and as we've said before, I think having more options is certainly important for patients. So we're going to see how that continues to play out. But I think Greg has done a nice job articulating what we've seen in the recent data releases. But what I do think is really important is to understand kind of where Voxzogo plays in this dynamic and in this landscape. First and foremost, it's really important and the data continue to show as do the international guidelines that treating early is the most important thing you can do for patients. And that is something that we really have been able to generate, not only does our label allow us to do that, but importantly, the evidence that we continue to generate supports this that treating early will provide the longest-term benefit, and we have that in 10,000 patient years across all age groups actually in the pediatric space. So I think that's a really important component. The other piece is going to be the switching dynamic or patients that are doing really well going to switch over to another therapy. And what we see and what we hear in our market research and what we have in our field interactions is actually a fair amount of reticence, the large majority of what we're hearing in the marketplace and in our market research is that for patients that are doing well on Voxzogo. There's not going to be a huge incentive to switch right away, especially because the long-term data for safety and efficacy hasn't yet played out for the other products, and that's really important. We've learned that HCPs and KOLs alike are not going to be the drivers of switch, they will provide the data that is out there, but they are going to be the ones that they will be the patients and the caregivers who are actually driving the switch. So this is where that long-term safety and efficacy data really comes through, and I think that is going to play out as we see this dynamic continue. Operator: Your next question comes from the line of Chris Raymond with Raymond James. Christopher Raymond: I'm hearing you guys on the switcher dynamic and the comment that if patients are doing well, there will be a limited motivation to switch, but we were kind of surprised to learn one of your competitors is anticipating about half of their patients in their early achondroplasia trials will be Voxzogo experienced. And I think their commentary is that there actually is a decent amount of parents and patients out there that are interested in switching to something. Maybe just talk about what you're seeing more broadly. Is there a demographic or some attribute other than just performance that might drive this decision or desire to switch? And then if I can maybe ask a question on 351. I'm kind of struck by -- this drug is mentioned in your commentary, but I'm just looking at the dystrophin data, it looks pretty differentiated, if not superior to what's out there. Maybe just talk a little bit about your plan to communicate this. I know there's data, the full data is going to be at the MDA conference next month, but just talk about your plan to communicate the waypoints on that drug, please? Gregory Friberg: Thanks so much, Chris, and this is Greg Friberg, again. Let me take your second question first. I would agree with you. The data is quite encouraging from BMN 351. The 5% absolute dystrophin measure, again, which if you look at our PKPD model predicts roughly 10% at steady state, that is an unprecedented number for the exon 51 skip amenable patients. Now what we also know from the program is that data monitoring committee has allowed us, again, to go to a higher dose level and complete the study. So we see quite a bit of value to continuing the experiment for a variety of reasons. Number one, of course, the 12-milligram per kilogram level, we'll see whether we can see something superior to that number, knowing that within all these patients, there's some degree of variability. Number two, we'll obviously get to see more chronic safety data as well. And this is something, again, that in this field, of course, where benefit burden is key is something that we absolutely want to continue to follow. And finally, we'll get our first look at some functional data as well as we treat these patients for longer and look at, for example, the Stride Velocity 95C data. We expect that this next tranche of data will have it before the end of the year. And in the meantime, we will be presenting our complete 6- and 9-milligram per kilogram data at the Duchenne Muscular Dystrophy Association meeting in March, just a couple of weeks away. So we're sitting tight. And again, encouraged by what we've seen. We want to see more data there for this weekly IV administered antisense oligonucleotide. With regard to Voxzogo, your question is a nuanced one. It's one of whether or not, again, patients, physicians, their caretakers, whether they can have the confidence in the data package for the medicine that they're given in many cases, to very, very young infants. And of course, with Voxzogo, we have a wealth of data. We're looking forward to present that in our full evidence package that we'll be presenting for full approval to the FDA in the coming months. And I think I've gone through some of the package there, that goes through, again, some of those data points. With that, though, from the commercial perspective, I want to give Cristin, a chance to share her perspective. Cristin Hubbard: Yes. Thanks for the question, Chris. And I'd be happy to kind of both dig in on the switching dynamic but also important on the market dynamic in the different geographies in which we operate. So again, going back to that notion of why switch, what we hear disproportionately is that above all else, efficacy and safety are the highest priority. Convenience is the third. So the fact that we have both kind of long-term safety and efficacy data but also importantly, durability. We are showing data now that shows that Voxzogo continues to work year-over-year data that we published going 7 years out, which really matters to these caregivers, these patients and importantly, the physicians. So I think that this is going to be in the near term, in particular, when there is more data in favor of Voxzogo, I think that, that's going to be part of the switch decisions. Now importantly, when I think about the markets, we've got very different categories or phenotypes, if you will, on markets. We've got some which are larger markets, which we have highly penetrated. And these have become ends incident markets. So really where we intend to grow Voxzogo there is going to be really in newborns, where our label enables us to. Then moving over to some of the bigger growth opportunities, I think we have where Voxzogo can really play a meaningful role. That's going to be both in countries that we're already in that still have meaningful opportunity ahead of us. Now let me be clear, these are more complex markets. They take a little bit more time. But we think that the value proposition of Voxzogo is there, and we'll continue to grow there in but also, as you heard me say in the prepared remarks, we have some exciting markets where they are fast growing, there's access pathways, and we're growing quickly in those. And so between all of this, when you look at kind of 75% of our revenues being weighted outside the U.S., I think there's an important value story and important story for Voxzogo and all. Operator: Your next question comes from the line of Phil Nadeau of TD Cowen. Philip Nadeau: Another question on Voxzogo, but on hypochondroplasia. Can you help us frame the upcoming results? What magnitude of growth velocity increase do you think would be meaningful in hypochondroplasia patients? And can you talk about the dynamics of that market? Would you expect uptake as quick as in achondroplasia? Or are there other factors which could make it less rapid? Gregory Friberg: Thanks, Phil. This is Greg again. I'm going to take it for stab, and again, I hand it to Cristin at that point. With regard to the study, again, we're very excited that we'll be turning the card over in the first half of this year. The study is designed to measure an effect size roughly equivalent to what Voxzogo delivers for achondroplasia. That being said, that's a fairly conservative assumption. We know that Dr. Dauber's data, for example, is showing slightly larger, more like a 1.8-centimeter growth of AGV in the hypochondroplasia patients. And it's our goal and intent also to follow through, as I mentioned previously, not just measuring AGV, but also looking at measures of health and wellness for these patients. So we believe we've designed the right study. Now it's a question of reaching the endpoint and turning it over, and we're very excited to see the data. Cristin? C. Guyer: Yes. So I think once we see the data, the scientific rationale will have been proven. But I do think that the enrollment rate of the trial in and of itself shows the excitement level that could be here for hypochondroplasia, assuming that all plays out well. And I think that this is yet another example, though, of our leadership in skeletal conditions where we're out there defining area where nothing exists now. And so when I think about what the biggest opportunity is, and we've said it before, it's really in and around diagnosis. This is an underdiagnosed condition, and it doesn't quite have the infrastructure that is needed to ensure that, that can happen rapidly for these patients. So we're out there now doing a prelaunch non-promotional work. We're educating on signs and symptoms requiring further evaluation and genetic testing for hypochondroplasia. We're really talking a lot about the burden of the condition to really enhance that sense of urgency to treat. And we're working actually on establishing and disseminating guidelines for when to refer and test for these patients so that we can shorten that journey to diagnosis. So all in all, we really are working at ensuring that diagnosis which I think will be the biggest problem statement for hypochondroplasia that we can get out there and tackle that early. To remind you, the total TAP side that we understand it to be today is we expect that the prevalence is in and around that of achondroplasia. But because of these diagnosis rates being so much lower, we said that the TAP is around 14,000 patients. I hope that helps you to understand. We're really excited about this and think there's a lot of work there and help to grow space. Gregory Friberg: And that targeted patient profile includes what we studied in the clinical trial, which is those patients that are more negatively effective in terms of standard deviations for growth deficit. Operator: Your next question comes from the line of Akash Tewari with Jefferies. Siyue Wang: This is Siyue Wang on for Akash. One on Voxzogo again, just following on the infigratinib data, where does this fall in your scenario analysis for your 2027 revenue outlook? And additionally, can you talk about the importance of the full approval for Voxzogo with the final adult height and how you expect that to impact patient preference? Brian Mueller: This is Brian. I'll take the first part of the question on '27 and any impact from infigratinib data. We don't have new updates on '27 at this time. I will say in response to your question, that the assumptions we made in the more competition impacted scenarios when we did update our views on that range, this is in line, we assumed two competitors and comparable data to Voxzogo. Gregory Friberg: And this is Greg Friberg. Just commenting on the full approval. This is a real chance for us to work with regulators to present our totality of the data set. We know that we have confidence in the 7, 8, 9, 10 years of safety and efficacy data that we have in achondroplasia. We will have the opportunity to also put in front of them those measures of health and wellness. I mentioned the foramen magnum data, the physical function, tibial bowing to see again whether or not it meets criteria for label inclusion. It's an important moment, having full approval, build on that confidence, there are some other technical, I think, benefits that come along with full approval. But most importantly, again, we see this as our opportunity to put forward what we see as a leading evidence package for achondroplasia. Operator: Your next question comes from the line of Salveen Richter with Goldman Sachs. Tommie Reerink: This is Tommie on for Salveen. We just wanted to drill a little bit more into the factors assumed in your Voxzogo guidance, especially as it relates to new starts and potential switching in the context of upcoming competition. And also for 333, kind of your confidence in establishing as the preferred option for new patients from switching given that the long-acting competitor will have a bit of a head start here. Brian Mueller: Tommie, it's Brian. I'll start with the first part of your question. Thank you. In terms of the Voxzogo guidance for '26, first of all, just to note, we're really pleased to have grown the product 26% in '25. Its fourth year on the market. And with respect to the range, the $975 million to $1.025 billion really just reflects a handful of scenarios. On the lower end of that range, you can assume a stronger competitive impact from the first competitor potentially coming to market in '27. I'll also share that we're being guarded on a couple of routine market access renegotiations in '26. These are normal course of business. Again, the product is fifth year on the market. Those will resolve this year, but we're being measured on those. And then at the high end of the range, it would just assume a lesser impact from those couple of swing factors in the guidance. Cristin, anything else to say on patient additions, and where they're coming from. Cristin Hubbard: No. I mean, we're continuing to generate patient demand. And really, our priorities remain the same. Now our execution at a country level may look different depending on what choices are available inside country. But at the end of the day, our priorities remain the same. And these profile that we've seen so far are very much in line with what we anticipated. And importantly, where we tend to continue growing patient demand is what I've said, it's in that 0 to 2 population and ensuring that we're really protecting switching. Gregory Friberg: Yes, this is Greg. With regard to the 333 question, the ultimate issue here is whether or not convenience is the lever that we're focused on or whether or not patients, physicians, regulators can have confidence in the data package we put forward. We believe that we've designed the appropriate study to show that 333 can have a superior growth profile over all the available agents. And in that regard, really have an opportunity to differentiate itself as the most active agent in the field, not just for AGV, but also the pull-through of health and wellness as well. The study is certainly powered to detect the size difference that we mentioned there. But the question, I think, behind your question was whether that -- those prior assumptions were aggressive or conservative. And I would argue that they're somewhat conservative. Our animal model data as well as our PK/PD model or dose response model suggests that any one of the doses that we're putting into Phase II could potentially deliver the profile we're looking for. Operator: Your next question comes from the line of Ellie Merle with Barclays. Eliana Merle: Just what's your latest expected timing for the data readouts from the Phase II CANOPY basket study for Voxzogo? And second, just to ask a bit more on the Voxzogo guidance. Could you comment specifically on what the guidance reflects or how you're thinking about U.S. growth versus ex-U.S. growth over the course of the year? And then if you could just elaborate on that last comment that you're being guarded on a few routine market access conversations and sort of the implications for that for Voxzogo? Gregory Friberg: And this is Greg. Maybe I'll knock down the CANOPY question first, if that's okay. We're anticipating that we're on track for data in the 2027 time frame, as we've stated previously. No updates in that regard. And that refers to IFS, and the Noonan, Turner, SHOX program. Our CANOPY study, of course, also includes hypochondroplasia, which we're excited to turn the card over in the first half of this year. Brian Mueller: Thanks, Ellie, this is Brian. I'll start with the first part of your guidance follow-up. We're not delineating further individual growth dynamics in the U.S. and ex-U.S., again, we've discussed before about growing in all markets. By the way, even with competition coming to market, Voxzogo's 50 on the market, we are satisfied with to be able to confidently guide to a high single-digit growth rate in '26 and at the midpoint, having the product reach blockbuster status, I'll remind you that the -- we're expecting to have the infant market in the U.S. even if competition comes to market, so that will remain 100% of Voxzogo and Cristin's already touched on the level of opportunities ex-U.S. So we'll keep you updated from quarter-to-quarter on the growth dynamics but not breaking it out further at this time. Alexander Hardy: Hi, Ellie, this is Alexander. I'm just going to come back to your question about the reimbursement processes that Brian mentioned to just give a little bit more color on those. They're in a number of markets, when you get into 5 years on the market and the product is very well established and has broad usage. You tend to go under formal reimbursement processes. And this represents actually an opportunity for us to broaden the access in those countries. Up to that point, they may well have been under a name patient single patient access type approach. So you go into a negotiation and you offset potentially a reduction in price but with the opportunity to significantly expand the population. Obviously, in the first year that it happens and there's two of these countries where it's going to be happening in 2026, you obviously have a price reset on your entire population. But then in front of you, you have the potential to reach many more patients. So it's a very exciting actual opportunity for Voxzogo in those markets and overall. Operator: Your next question comes from the line of Cory Kasimov with Evercore ISI. Adithya Jayaraman: This is Adi on for Cory. I had a question on BMN 333. Based on the preclinical data and initial first -- should we expect the safety profile to largely mirror Voxzogo or are there any meaningful differences emerging that could differentiate the profile one way or the other? Gregory Friberg: Thank you for the question, Adi. Our preclinical models and in this case, the cynomolgus monkey models, in particular, have not demonstrated any additional safety concerns for 333 over Voxzogo as a free drug. The reality actually is that the profile for free CNP allows us to go up to much higher exposures when given in the form of 333 as compared to the daily administration of Voxzogo. And again, that's opened this therapeutic window that has allowed us to go to 3x, 5x, 7x and higher AUC exposures. And again, we're quite hopeful that recapitulate what we've seen in efficacy animal models that we're going to have a best in disease profile. Operator: Your next question comes from the line of Paul Matteis with Stifel. Paul Matteis: I'm not sure how limited you are, and how you can speak about Amicus and things going forward, but I thought I'd give it a brief try. Just as it relates to the integration of the business, Alexander, you, I guess, reorg BioMarin's commercial infrastructure with different business units, and this was kind of, I think, more in reaction to Valrox a number of years ago. But how do you think about Amicus fitting into that going forward? And how much do you think you can leverage a lot of the reps you have, the units you have existing relationships versus kind of building out a whole new way of selling some of these products? Alexander Hardy: Thanks very much for the question, Paul. Yes, I mean these two products, our intention is post closure, these are going to drop right into our enzyme therapy business unit. I mean they just fit perfectly. The entire go-to-market model is exactly the same as our current portfolio. So the opportunities and the opportunities for us to drive synergies on the top line as well as synergies in terms of the way that we operate are tremendous. We're looking forward to sharing more post close. We're on track right now for a second quarter close. And then we'll share more about our specific plans and our expectations for what these really exciting products that Amicus has done such a good job bringing to market what the pro forma looks like when you add those into BioMarin. So more to come, Paul. Paul Matteis: Okay. And if I could just ask one quick follow-up. But Brian, I think you said earlier in the call, please don't update your models just yet for the deal. I think a number of models have been updated. Are you seeing anything in the way people are modeling this, that is missing the point that you want to make sure you guys can articulate your vision first, or I guess I'm not -- by any means asking you to give kind of guidance or context here, but from our end, it seems like as Alexander lists, it isn't all that -- it's fairly straightforward. So where are you coming from on that point? Brian Mueller: Yes. Thanks a lot, Paul. I appreciate the opportunity to clarify that. The comment was based on entirely just the mixed bag of some analysts having post-close Amicus revenues included in their BioMarin models and some not. Thanks for the opportunity to clarify that had nothing to do with the direction of what we see and those that are including it. Operator: Your next question comes from the line of Joe Schwartz with Leerink Partners. Joseph Schwartz: So one of the levers you highlighted for longer-term growth when you announced the Amicus acquisition was some initiatives to identify patients who might have Fabry and Pompe that wasn't diagnosed yet. I think Amicus had some pilot programs to do this. And in a few centers -- and I was just wondering if BioMarin had the opportunity to see the results of these pilot programs and if they are along the lines of what you expect to roll out. Can you just talk a little bit about your initiatives there? Cristin Hubbard: Thanks for the question, Joe, it's Cristin. So you are indeed exactly what you just said that there are -- they've been running pilots. There's different models. And just to reiterate that we are in the process now of really diving between sign to close, really understanding what's going on, what makes sense, given what we already have in our company versus going on over there. And at the end of the day, we are running as two independent businesses at this point in time. And so they're continuing their work on any of the pilots that they have ongoing. I think the real opportunities that we're excited about for both Galafold and Pom, Op as Alexander has already spoken to is certainly how it fits to -- it fits within our business unit model here on enzyme therapies. But also importantly, the really big opportunity there is to increase the diagnosis rates for both Galafold as well as Pom, Op. But then when you're talking about Pom, Op, really driving that switch. So important areas that we'll continue to work on, but we're in the process now of really diving in and understanding what's exactly going on. Operator: Your next question comes from the line of Olivia Brayer with Cantor. Olivia Brayer: I have a few follow-ups on Voxzogo. First is just maybe can you talk about level of confidence in actually hitting the numbers that you laid out this year? Just in light of a weaker first quarter due to those ordering patterns that you highlighted, Brian. Anything more you can tell us on those ordering patterns, and why they might be so heavily weighted to the fourth quarter this year. I'm just trying to understand how having a new entrant on the market could impact some of those patterns and just cadence of quarterly Voxzogo revenue this year? And then a quick follow-up on hypochondroplasia. When do you think we could realistically see that launch and uptake in those patients? And any comments at this point just around how quickly you could start to see added sales from hypochondroplasia patients especially as you think about navigating some of the competitive headwinds in the achondroplasia market next year. Brian Mueller: Thanks, Olivia, this is Brian. I'll start with a little more color on the quarter. I appreciate the question. Yes, so a few brief things there. First of all, we've always experienced these kind of bolus orders and the potential volatility of quarterly revenue. And by the way, we've typically seen step-down from Q4 to Q1. We do -- I think we -- especially after this year, we definitely observed some Q4 buying globally. It isn't always inventory levels. It could be, in some cases, of single national payers kind of just making their way through their budgets. There's a number of factors. But we've seen this in Q4, it was -- seen this before for Q4 was exacerbated here in '25. Another item I'd share is, and this is to your point about the competition, I mean two things. One, when we map our revenue to global Voxzogo patient additions. It is amazing how clear of a straight line, the study patient additions have been quarter-after-quarter over the last several years, frankly. But yes, when you look at revenue, it bounces around a bit because of these -- because of the order timing. In fact, while Q4 had a bolus effect, there's actually some markets where it was kind of a catch-up because revenue was flagging patient additions, so that's number one. And number two is I think we're going to continue to observe that this year. I'll share and this should also help you all estimate the proportions of revenue for Voxzogo, we expected the quarters will be similar to last year. So I already said that Q1 is on par with Q1, but we also expect a lot of it to be back-loaded to Q4, and any confidence, any assumptions around the competition are fully baked in? Cristin Hubbard: And with regard to your second question, so as you've heard us say, we'll be presenting or sharing the top line data in the first half of this year for hypochondroplasia, and then our submissions will happen in the second half of this year. So what that means is, hopefully, approvals coming 2027 and we would expect to see immediate revenue impact at that point in time. And we'll share as we see the data, we'll share more on our go-to-market plans as we move further along in the process. Operator: Your next question comes from the line of Jason Gerberry with Bank of America. Jason Gerberry: Just on the Phase III powering in the 2.25 centimeter per year. Is that a threshold effect when you're doing your Phase IIs ranging, if you're learning that perhaps that may be too ambitious of a target, would you just kind of adjust your statistical analysis plan. Is it -- I think in your earlier comments, not to get too hung up, I think, on that 2.25 number. So if it looks like you're on a trajectory for, say, 2 or 2.15, is it still worth moving forward in the Phase III with BMN 333. So I just wanted to clarify if that's the threshold effect in a go no-go threshold in the dose-ranging work? Gregory Friberg: Yes. Thanks for the question, Jason. And that 2.25 really comes from the sample size that we've laid out, that's 60 versus 60. There's some standard deviation, some alpha numbers behind that as well. But we wanted to share with you again what our ambition was, what we thought not only statistically significant but clinically meaningful. We will have a chance to look at our Phase II data. It's not a straightforward black-or-white situation. We're doing actually a Bayesian approach where we'll be looking at the totality of the data. And setting a certain threshold for confidence to move forward. Rather than get into the details there, I will just answer your question directly and say we would have the opportunity to potentially modify the protocol thereafter. But those numbers and announcing them again, I think they stated appropriately our ambition of what we think a meaningful and clinically relevant improvement over what is already a well-established, safe and effective therapy in Voxzogo would look like. Operator: This concludes the Q&A portion of the call. I will turn it back to the CEO, Alexander Hardy, for closing remarks. Alexander Hardy: Thank you, operator, and thank you all for joining us today. We're particularly proud to have accomplished our strategic goals for 2025 while achieving an outstanding growth. In 2026, we will build on this momentum and expand our therapeutic and commercial reach with the addition of high-growth assets from two significant acquisitions announced last year. We also look forward to sharing a number of key regulatory milestones, data readouts and label expansions throughout the year, setting us up to deliver even more growth, profitability and pipeline expansion. We're energized by what lies ahead this year and intend to deliver again on an ambitious set of priorities, demonstrating our dedication to innovation and sustained growth in ways that we will believe patients, we will believe, we'll benefit patients, employees and shareholders. Thank you for your continued support, and we will speak to you soon. Operator: Ladies and gentlemen, that concludes today's call. You can now disconnect. Thank you, and have a great day.
Operator: Good day, ladies and gentlemen, and welcome to Keysight Technologies Fiscal First Quarter 2026 Earnings Conference Call. My name is Victoria, and I will be your lead operator today. [Operator Instructions] This call is being recorded today, Monday, February 23, 2026 at 01:30 p.m. Pacific Time. I would now like to hand the call over to Liz Morali, Vice President of Investor Relations. Please go ahead, Ms. Morali. Liz Morali: Good afternoon, and thank you for joining us for Keysight's First Quarter Earnings Conference Call for Fiscal Year 2026. With me are Satish Dhanasekaran, President and CEO; and Neil Dougherty, Executive Vice President and CFO. Later, during the question-and-answer session, we will be joined by Kailash Narayanan, President of the Communications Solutions Group; and Steve Yoon, Senior Vice President of Global Sales. The press release and information to supplement today's discussion can be found on our Investor Relations website, investor.keysight.com. During today's discussion, we will make forward-looking statements about the financial performance of the company. Actual results may differ materially from those mentioned in these forward-looking statements as a result of risks and uncertainties. Information about these risks and uncertainties can be found in our most recent Forms 10-K and 10-Q filings with the SEC. We do not intend to update any forward-looking statements. In addition, we will refer to non-GAAP financial measures and reference core growth, which excludes the impact of acquisitions or divestitures completed within the last 12 months, and currency movements. The most directly comparable GAAP financial metrics and reconciliations can be found on our Investor Relations website, and all comparisons are on a year-over-year basis, unless otherwise noted. I will now turn the call over to Satish. Satish Dhanasekaran: Thank you, Liz, and welcome to the Keysight team. You're joining the company at an exciting time. Good afternoon to everyone listening in, and thank you for joining us today. Since our last earnings call, we have seen further acceleration in demand with robust growth across business segments and key regions. During the first quarter, Keysight delivered outstanding results with both revenue and earnings per share exceeding the high end of our guidance range. This performance reflects the execution of our strategic road map alongside the convergence of several secular tailwinds. These include AI-driven technology transformations, next-generation connectivity, rising semiconductor complexity, and defense modernization. Our differentiated portfolio of solutions is helping customers address increasing design complexity, accelerate innovation and move more quickly from concept to deployment. The investments we have made over the last 3 years have strengthened our portfolio, deepened our customer relationships, and prepared us to capitalize on this unprecedented time. In Communication Solutions, we saw robust order growth outpacing revenue growth of 27% in the quarter driven by both commercial communications and aerospace, defense and government markets. First, to commercial communications. Wireline delivered record orders, surpassing wireless for the first time and was driven by demand for both R&D and manufacturing solutions. This momentum was broad-based across compute, memory, interconnect, and networking technologies. This quarter marks the ninth consecutive quarter of wireline growth with 4 fundamental drivers shaping demand into the future. First, AI infrastructure is rapidly scaling. Hyperscalers and their respective ecosystems are investing in designing and deploying scale-up and scale-out architectures. As these systems grow larger and more complex, there is an increasing need to validate performance across the entire infrastructure stack. Keysight's full stack portfolio across electrical, optical, RF, and network protocol technologies enables this end-to-end validation from early design through deployment. We're engaging with all the hyperscalers and their ecosystems early in the development cycle to further breakthrough innovations in AI infrastructure. Second, the industry is moving to higher speeds and Ethernet-based AI networking. AI workloads are driving rapid data center build-outs with 800 gig and 1.6 tera optics, alongside accelerated development of 3.2 tera. The move to Ethernet-based AI fabrics for better interoperability is creating more test opportunities for Keysight. Our high-speed digital, optical and protocol solutions are helping customers design and validate next-generation switching silicon, SerDes and interconnects, reducing risk and accelerating time to deployment. In parallel, our arbitrary waveform generators and oscilloscopes are facilitating the move towards higher lane speeds such as 448 gig per lane to enable 3.2 tera speeds. Third, optical interconnects are increasing in importance. Rising bandwidth and power demands in AI data centers are accelerating the adoption of optical interconnects to supplement copper. Keysight is assisting optical transceiver and module suppliers to ramp and design their 800-gig and emerging 1.6-terabit modules with our recently introduced Digital Communication Analyzer, Lightwave Component Analyzer products providing precision measurements for standards compliance prior to deployment. Concurrently, customers are designing architectures around co-packaged optics, optical circuit switching and silicon photonics. Our differentiated optical capabilities, including tunable laser sources and polarization synthesizers provide metrology-grade measurements for silicon photonics workflows. Fourth, system-level validation and benchmarking are becoming essential. As AI clusters scale, our workload emulation solutions are assisting leading customers in solving their deployment challenges by emulating real AI workload and stress conditions. These 4 drivers create meaningful opportunities and sustained demand for our solutions as customers design, deploy and scale next-generation AI systems around the world. Keysight's thought leadership and partnerships with industry leaders will be on display at the upcoming DesignCon and OFC events. Turning to wireless. We saw healthy growth in the quarter driven by activity in non-terrestrial networks, 6G research, emerging AI at the edge applications and continued stability in 5G. We're seeing a broadening of nonterrestrial network ecosystem as new LEOs and direct-to-cell services gain traction. Keysight's 5G emulation platforms have expanded their coverage to nonterrestrial network system use cases. This quarter, we achieved a live NR-NTN connection with Samsung in a 3GPP-defined satellite frequency band, furthering standardization. The Spirent PNT portfolio further enhances our ability to serve this market with industry-leading satellite emulation capabilities. Concurrently, we're seeing an uptick in activity across the wireless supply chain driven by AI edge devices and supply chain resilience priorities of manufacturers around the globe. Early 6G R&D engagements expanded as the industry prepares for large-scale technology demos at L.A. Olympics in 2028, solidifying our view of commercialization by 2030. This quarter, Keysight collaborated with MediaTek to progress standards around integrated sensing and communication use cases. In addition, we registered multiple wins for our newly launched RaySim AI RAN offering, which makes possible the emulation of real-world network environments to train AI models for network functions. Keysight will be showcasing its end-to-end solutions portfolio for the wireless ecosystem at Mobile World Congress 2026 in Barcelona, along with a number of industry leaders. Turning to aerospace, defense and government. We saw record quarter 1 orders and growth across all regions, driven by heightened global focus on deterrence and defense modernization priorities. Orders reflected a mix of program expansions, production automation and new system deployments across spectrum operations, space and satellite and radar applications. Keysight's high-precision and purpose-built RF and digital solutions and automation capabilities are ideally suited for these applications with stringent mission-critical performance requirements. U.S. primes continue to develop precision capabilities and ramped radar production in the quarter. We secured multiple wins in North America for Keysight's high-performance threat emulators to meet critical spectrum operation requirements. Our digital transceiver module payload testing capability was chosen by a Canadian prime contractor for space and satellite applications. We continue to expand collaborations with defense technology start-ups and neo-primes as governments look to accelerate innovation around new applications in satellites, drones and autonomous systems. We also saw a robust broad-based activity in Europe, supported by rising defense budgets and elevated national security priorities aimed at strengthening regional sovereignty. Keysight is actively engaged with multiple European primes and government agencies in the areas of signal detection and recording, radar phased array antenna characterization, over-the-air 5G field deployments, and precision angle of arrival characterization applications. Our newly acquired PNT portfolio had a solid quarter as aerospace defense organizations depend on technology to test anti-jam and anti-spoof avionics in contested environments. The increase in global defense spending represents a structural tailwind to our aerospace and defense business, and we're well positioned to capitalize on the sustained demand going forward. Moving to Electronic Industrial Solutions Group, orders grew for the third consecutive quarter, and revenue was a record. Orders and revenue both grew double digits across all 3 EISG markets of general electronics, semiconductors, and automotive and energy. In our general electronics business, growth was driven by ongoing momentum in AI-related innovation and infrastructure investments across the global supply chain. In particular, the increasing complexity of high-performance PCBs with higher-density interconnects, multilayer architectures, faster speeds, and tighter tolerances is driving greater test intensity. Keysight's solutions addresses customer needs across all major PCB design standards. By investing ahead of the curve, we're leading in both R&D and production with increasing speed and higher frequency measurement capabilities. Digital health again grew with wins spanning medical device manufacturing, R&D, and biomedical research. In education and advanced research, lower funding in the U.S. was offset by strength in Asia as sovereign programs step up investments in semiconductor research and workforce development. In our semiconductor business, the pace of investment accelerated. High-bandwidth memory and a broader AI-driven capacity expansion led to robust demand for our wafer-level test and characterization solutions. Silicon photonics programs and production time lines across major foundry customers are picking up speed and intensity. Keysight's deep photonics and semiconductor expertise as well as our broad R&D and production portfolio make us the partner of choice. The outlook for the year has reflected in our customers' latest technology road maps and capacity plans has improved sequentially. Lastly, in automotive and energy, the overall business environment was stable as orders grew for the second consecutive quarter. While the end market remains mixed, we had healthy annual renewals in our ESI simulation portfolio, as well as key wins with leading EV and robotaxi customers in software-defined vehicle-related manufacturing. EV and charging R&D investment by OEMs and test labs was stable sequentially. We recently introduced 2 new megawatt charging solutions that enable customers to reduce design time and deliver reliable, high-power charging systems that meet the latest global and local standards. In summary, we're pleased with the start to the year and have confidence in our ability to outperform, grounded in our strong pipeline of solutions and go-to-market momentum. Keysight serves a diversified set of end markets, which allows us to capture growth wherever it emerges. As AI investment inflects, we're leveraging our strengths to capitalize on that momentum. Importantly, the same core strengths driving our success today are the ones that position us for future inflection points. As new growth opportunities develop, we're built to identify them, respond quickly and outperform. We see a broad and expanding set of opportunities ahead and remain confident in our ability to convert them into sustained growth and value creation. I'll now pass it on to Neil to provide additional details on our financial performance for Q1. Neil? Neil Dougherty: Thank you, Satish, and hello, everyone. We achieved record results in Q1, well above the high end of our guidance range fueled by strong growth across our businesses as we continue to meet increased customer demand for our portfolio of technology solutions. First quarter total company revenue of $1.600 billion was up 23% on a reported basis with acquisitions adding 8 points and currency 1 point. On a core basis, excluding those items, revenue grew 14%. Orders of $1.645 billion were up 30% on a reported basis and up 22% on a core basis. Gross margin was 66.7%, up 90 basis points, driven by favorable product mix, including the addition of higher gross margin revenues from our recent acquisitions. Operating expenses were $628 million, in line with our expectations as we continued investments in next-generation R&D. Operating margin was 27.4%, up 20 basis points. We delivered net income of $376 million and earnings per share of $2.17, both up 19%. This result was driven by strength in our core business, which delivered operating margin of 28.9%, up 170 basis points year-over-year as a result of 41% core operating leverage. Moving to the segments. The Communications Solutions Group generated revenue of $1.124 billion, up 27% on a reported basis and up 16% on a core basis, with a gross margin of 68.5% and operating margin of 27.5%. Within CSG, the commercial communications business generated revenue of $758 million, up 33%, with growth in wireless and wireline. Aerospace, defense and government achieved revenue of $366 million, an increase of 18%. The Electronic Industrial Solutions Group generated $476 million in revenue, an increase of 15% with growth across all 3 markets: general electronics, semiconductors and automotive. EISG delivered gross margin of 62.4% and operating margin of 27.2%. Software and services accounted for approximately 40% of Keysight revenue while annual recurring revenue was 29% of total mix. Moving to the balance sheet and cash flow. We ended the quarter with approximately $2.200 billion in cash and cash equivalents generating cash flow from operations of $441 million and free cash flow of $407 million. This quarter, we repurchased approximately 420,000 shares of Keysight's stock at an average price of approximately $207 for a total consideration of $87 million. Now turning to our outlook. Today's guidance does not contemplate any impact from the recently announced Supreme Court decision regarding tariffs, which we are still assessing. For the second quarter of 2026, we expect revenue in the range of $1.690 billion to $1.710 billion, representing 30% year-over-year growth at the midpoint. We expect Q2 earnings per share to be in the range of $2.27 to $2.33, representing 35% year-over-year growth at the midpoint. This guidance is based on a weighted diluted share count of approximately 173 million shares. From an acquisition perspective, the integrations are on track, and we are excited about the expanded opportunities we have to serve customers. Our expectation for $375 million in acquisition-related revenue for fiscal '26 is unchanged. Our synergy target of more than $100 million in run rate cost synergies and other operational efficiencies also remains unchanged, with realization heavily weighted to late in 2026 given our time line for ERP migration. As you heard from Satish, we are highly encouraged by the strength of our portfolio and the direction of our end markets. With the visibility we currently have, our base case for fiscal '26 has increased as we now expect total annual revenue and earnings growth just above 20%. In closing, we started fiscal 2026 with outstanding results, and we see solid momentum into Q2 as we contemplate the remainder of the year. With that, I will turn the call over to Liz to begin the Q&A session. Liz Morali: Thank you, Neil. Victoria, will you please provide the instructions for the Q&A session? Operator: [Operator Instructions] The first question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Congrats on the quarter. I guess,, my first question, Satish, when you outlined the growth drivers, I think it was 4 of them, predominantly driven by AI and what you're seeing around optical interconnect and such. With the wireline business now surpassing the wireless business, I'm curious if there's an ability to unpack how much those are contributing to the business, how much they're necessarily growing. Any color you can provide on what you're seeing there would be greatly appreciated. Satish Dhanasekaran: Thank you, Aaron. Yes, we're very excited by the quarter. Broad strength is sort of the theme for the business, and we'll unpack a number of the drivers. But particular to your question, roughly, we sized our AI exposure last year in Q4 to be just about 10% of the company revenue. And on top of that, this quarter, on that run rate, I should say, we had robust order growth and significantly above company average. So the company average order growth was 30%. So significantly above that, and for the AI business inside of the wireline parts of our operation. And the name of the game is really about broadening of demand across our customer base, right? We've doubled the number of customers that represented that demand. If you look at the -- through the lens of customer concentration at the company level, our top customers, top 2 were still non-AI customers. So it again reflects the broadening of demand across the globe and across the applications that we have. And that's what we attempt to do on my earnings message is to really break out the various demand drivers and how Keysight is plugged in to those different parts of those workflows. If you just look at it on an R&D and manufacturing basis, I mean, both R&D and manufacturing grew year-over-year. So we're quite pleased by the strength that we're seeing in the marketplace, and we think that strength continues into this year. Aaron Rakers: Yes. Very helpful. And Neil, as a quick follow-up, I'm curious, in these last 2 quarters, you've driven a significant amount of incremental operating leverage to the model. I know it's a little bit dated, but going back to the Investor Day, you had talked about, like, a low, 31%, 32% operating margin target. I'm curious, as we progress through this year with 20% growth, how you view the current kind of operating -- incremental operating margin leverage in the P&L from here? Neil Dougherty: Yes. I guess, I would point you back to statements that we've made publicly. We've designed our business model about delivering 40% core leverage on growth that's in the mid-single digits or better. In fact, this quarter, we delivered 41% leverage, obviously, on significantly higher growth -- core growth. But keeping in mind, there were no tariffs in the base period, right? So you're delivering that 40% incremental leverage while absorbing the impact of tariffs. I think as we think about the full fiscal year, again, pointing you to that 40% core growth as kind of the starting point. And then we have noted the acquisitions as we inherited them, we're operating at a significantly lower operating margin. So they're dilutive to operating margin here in this first year. But once we get that $100 million of cost and other synergies out, we expect them to be accretive to Keysight's overall operating margin. So we're certainly moving in that direction, but executing on those acquisition synergies will be a key driver as we look forward. Operator: Our next question comes from the line of Meta Marshall with Morgan Stanley. Meta Marshall: Great. Congrats on the quarter. I guess, just as you see kind of strength in the AI orders, trying to get a sense of is that customers -- same customers expanding their implementations with you or kind of finding more use cases? Or just kind of are you finding a broadening of the customer base? Like, with some of these neoclouds or kind of other cloud builders coming into the market, are they kind of adding to the growth? Just trying to get more of like a same-store sales versus kind of expanding customer base there would be helpful. Satish Dhanasekaran: Yes. Thank you, Meta. I mean, if you think about the customer base, silicon companies, anyone that's designing chips that go into data centers are obviously core customers of ours. The contributions we're making to them is growing. And then you look at manufacturing ecosystem that feeds these companies also largely known customer base but where we are able to leverage our channel, and really expand the contributions we're making to them. We've had a focus on hyperscalers that's also expanding. And I think the last customer set is a newer one, which is the neoclouds that you referenced and it's smaller part of the -- it's a smaller part of the business today, but growing. What's also interesting, as we looked at the customer base through the lens of our regional footprint is if you went back a year ago, probably a lot more of the business in the U.S. And as we start to think about the business this quarter, especially more business internationally as well, including in Southeast Asia, where a lot of the manufacturing installed base is. Meta Marshall: Great. And as a follow-up, just on the aerospace and defense. We've been hearing about kind of budgets stepping up for a while. This is kind of the -- we're starting to really see it an acceleration in your guys' numbers. Do you view this as kind of the beginning of a trajectory or this could be kind of a new run rate for this business? Satish Dhanasekaran: That's a great question. I think there's 2 parts to the answer. One is what happened in the quarter and what we are looking as we look over the horizon could be the case. As far as this quarter is concerned, we started to see the effects of last year where we had an administration change, and coupled with some budget uncertainties that delayed spend and all of that started to -- most of these programs start to come in through the end of the year spend, if you will. And so that reflects the upside and the demand side of the -- for our aerospace, defense business. But as we look ahead into the pipeline and even further out, what we're seeing is increasing defense spending in Europe, and we also saw a very strong European defense spend this quarter and we expect that to continue. We're also seeing prime contractors in the U.S. investing more in organic R&D and also investing more in capacity adds. So I think that's another lever that is different than in the past. And with the breadth of the portfolio we had around EMSO and space and satellite radar now combined with our PNT business from Spirent, we can make a broader impact to these customers. And we think the budgets are very supportive in this business, and we're well positioned there. Operator: Our next question comes from the line of Tim Long with Barclays. Timothy Long: Two, if I could, as well. Maybe Satish, for you. Obviously, a lot of traction in AI. You covered a lot of the key use cases. You mentioned some of the emerging ones, CPO, LPO, [ sci-fi ], 448 per lane, you could probably also throw more scale-up Ethernet. You mentioned Ethernet's good, maybe more scale across Ethernet. So when you look at kind of this next phase here, are you seeing some of these newer use cases and technologies as being fully additive to what's going on? So maybe if you can just talk about some of the emerging ones and how meaningful they can be to that bucket. And then second, maybe, Neil, one for you. Appreciate the incremental margin conversation. 40% software services in the quarter. I know there was some probably ESI in there, a good quarter. But maybe just talk higher level about that trend and how you see that contributing as the company gets more recurring in the model and some of the software pieces that you're adding, what do you think that does to gross margins or operating margins as the model moves forward? Satish Dhanasekaran: Thank you, Tim. I'll just make some broad remarks, and I'll have Kailash make some specific comments on what he's seeing in the business. I think at the high level, what we're seeing is concurrent parallel technology wave sort of coming at pretty much an unprecedented rate, what was a well-defined 2-, 3-year long technology refresh cycles, I mean, now are happening concurrently. And I think that pace of innovation, when you combine that with the complexity of the technologies, and some of them are competing, right? You can look at electrical versus optical. And so the race is on. And I think the economic value that can be unlocked from having a technology that goes faster at a lower power is there. So there is an economic value for the AI clusters that can be unlocked. And so it really plays to the strength that Keysight has had. And so when we started our strategic focus that I called out at the Investor Day in 2023. This is what we were shooting for. And given the full stack offerings we have, the physical layer tools and the emulation capabilities, we're now able to bring that to bear to new emerging use cases in a way that would be difficult for product-driven organizations, which may have products here and there. But I think having that breadth of portfolio and the technology to go provide solutions is a huge differentiator for us, one, I believe, is sustainable as we look into the future. Kailash Narayanan: Yes. At a broader level, what we're doing is enabling these new AI racks and clusters. And what we see is hundreds of components are getting -- new components are getting designed and invented that are going into these racks and clusters. And with our physical layer portfolio, we're able to help in early R&D all the way to manufacturing of these components. And with our protocol layer portfolio, we're able to emulate these clusters and racks at scale even before deployment -- live deployments happen. So that's one dimension of this. Satish talked about the overlapping technology waves, the acceleration of the speed of these technology cycles. And the reason that's happening is you talked about a bunch of technologies, silicon photonics, there's parallel innovation going on in optics and electrical transmission. There is also innovation from a long-haul, short-haul perspective, scale-up, scale-out networks, and new components are getting designed, right? So we're attracting not just the regular customers where we're deepening our engagements with start-up companies and other players, neoclouds. They're coming in and they're inventing for power, speed and density. All of this is sort of layering on existing typical cycles that we would see in a wireline type of -- an IT type of a dynamic. We're seeing a lot more of that go on concurrently, and that's driving a lot of growth. We're excited to showcase many of these innovations this week at DesignCon and in a month from now at the OFC as well in mid-March. Neil Dougherty: Yes. And -- so this is Neil, just with regard to your comments on software and services. As you know, we've looked to grow the proportion of our business coming from software organically. That mix shift towards software happens relatively slowly, and we've looked to supplement that with acquisitions. We made the acquisition of ESI a few years back. And obviously, recently, we just completed not just Spirent, but the optical design and PowerArtist businesses. Together, those acquisitions have above-average software mix, added about 3 points to the overall software mix for Keysight. The interesting thing, if you think about the organic side is right now, the hardware portions of our businesses are growing quite aggressively. So I think that slows some of that mix shift. I think from a margin perspective, though, we have a highly differentiated portfolio that's aligned to these secular themes around AI and data center and soon to be 6G, which should, in the end, be gross margin positive as well. Operator: Our next question comes from the line of Mark Delaney with Goldman Sachs. Mark Delaney: First question, I was hoping to better understand the company's expectations for the second half of the year. I think, Neil, you spoke about a little over 20% top line growth as your new expectation for fiscal '26. I think that's all-in, not organic. Please correct me if I'm wrong. But it does seem to imply that there's a little bit of... Neil Dougherty: That's correct. Yes, all in. Mark Delaney: Okay. And it seems to imply there might be a little bit of a moderation in the second half. And I realize it's coming off of a very robust 1Q and 2Q guidance. But if you could speak a bit more on what you're trying to assume in your second half guidance and how much visibility you might have because the orders are strong, it seems like the end markets are generally doing well, but just trying to reconcile that with what might be implied in your comments for full year revenue. Neil Dougherty: Yes, I mean, I guess, we've talked at length over the years about how we manage our business. And we generally have really strong visibility 1 quarter out, pretty decent visibility 2 quarters out, and then it falls off beyond that. So I think here we are, we obviously had very strong order and revenue growth here in Q1. We have a strong funnel here as we enter Q2. So we feel really good about the guidance that we put out for the second quarter. That funnel visibility extends now out into Q3. And then with again, a little bit less clarity as it relates to the back half -- to Q4. So I think looking to put guardrails on it, we believe that, again, on an all-in basis, we can grow the business 20%, a little over 20% this year. Is there opportunity for upside if we can sustain the same level of momentum that we see in Q1 and Q2? Absolutely. But our base case is at this point for organic growth that is substantially above our long-term model even in the back half of the year and we'll see how it develops as we move through the year. Mark Delaney: Okay. No, helpful context. My other question was on supply chain, just given how strong the business is running in terms of demand and volumes, maybe speak about your ability to get enough supply overall, but if you could also speak specifically to getting enough DRAM and memory because that's an area that's been somewhat tight in particular. Satish Dhanasekaran: Yes. Thank you, Mark. We've prepared for sort of the scale of the business, given the conversations we're having from the customers last year. I think of -- I think, I made a comment that 2025 was a year of building momentum for us. And I think that's really helped us prepare for this compounding momentum that's now upon us and our team is doing a great job scaling, but also in a disciplined manner as we move forward. As far as memory is concerned, we're not -- we don't have volume usage for these high-end demand, high-bandwidth kind of memories that are used in AI and other areas. And so given that, we're not necessarily exposed to that. Now there is some on the margin, prices are going up on memories. So we factored that into our outlook and guide. And we keep monitoring this, but we feel good about our ability to execute in the next couple of quarters and then we'll keep planning that way. Operator: Our next question comes from the line of Andrew Spinola with UBS. Andrew Spinola: I wanted to ask a high-level question about the competitive landscape in your AI business. Just given the strength of the demand there, what does the pricing look like in that market? Are you able to see any price ups, any improvements in pricing? Or is the size of the customers affected? And can you also talk about just how the market is, given how quickly it's moving, how many competitors are you against in a lot of these end markets, how competitive are they just given the -- how fast this market is moving? Satish Dhanasekaran: Yes, Andrew, thank you. I'd just say Keysight's competitive advantage is that we are designed to be a solutions-oriented company. While there are a lot of product-based competitors that play into the marketplace in general with tools, our strength is enhanced because we have our own in-house tech stack that gives us the differentiation, especially in advanced technologies when you start to think about 1.6T and beyond, as an example, or you're looking at new optical and electrical technologies converging, speed is very important for this ecosystem. As you noted, customers are racing with -- for innovation and our ability to keep pace with them with the products and solutions they need is key. We also participate in a number of standards bodies across the globe, and that gives us a very unique vantage point to not just provide products, but be really staying ahead of our customers. And that's what they appreciate. Having said that, we don't take that for granted. We work hard to make sure our customers in the ecosystem are supported, and we have teams around the world that work with our customers every day. And with regard to new technologies as our new products come out, our goal is to design things that are competitive, but also have the ability to grow our gross margins, and we feel good about the value creation associated with our business in AI and actually the entire portfolio. Andrew Spinola: Got it. And then you had mentioned on the prior call last quarter that you were operating in a constrained environment. I'm just wondering if any of the acceleration in top line in Q2 is a representation of some of those constraints coming off? Or is this just general continued improvement in demand? Satish Dhanasekaran: I think largely improvements in demand for sure. And as the AI infrastructure is starting to get deployed at scale, we're starting to see that scale build, right, and people are manufacturing more with confidence, maybe on the front end of it, people are trying to get their designs correct and trying to deploy things that have high quality. And now I think the confidence is improving and therefore, the scale is building. Operator: Our next question comes from the line of Atif Malik with Citigroup. Atif Malik: Great job on the results. Satish, you spoke about NTN ecosystem and new LEOs. I'm curious if you have some sort of a TAM number for these new kind of projects. Satish Dhanasekaran: Yes. Thank you, Atif. It's been an exciting year for wireless already. We started the year having returned the business to growth last year, high single-digit growth. And this year, we're off to a robust start, surpassing our expectations even for -- since the beginning of the year. And one of the legs of that is really this nonterrestrial networks, the use of satellite technologies for commercial direct-to-device type of applications. But if you take a big picture view, we see networks are getting multidimensional, right, and integrating terrestrial, airborne, satellite communications more seamlessly and with the infrastructure also with sensing and other technologies is going to be part of this vision for 6G. And so the early work that we've done with standards has positioned us well, and we've had a couple of wins even this quarter that sustains the momentum in this business. It's a little bit too early to sort of size that as a TAM, but we feel good about our ability to grow our wireless business this year based on NTN, but also eventually 6G and other applications. Atif Malik: Great. A follow-up for Neil. Neil, can you talk about the linearity of the orders in Q1? And are you expecting orders to outpace revenues in Q2? Neil Dougherty: Yes. I mean, I think we saw pretty strong demand from the outset in Q1, and that was sustained throughout the quarter. So not a whole lot to be gleaned from the linearity within the quarter other than broad strength. I think as we think about the second quarter, obviously, you can see through our guide of $1.7 billion of revenue that the timing of some bigger deals is going to be shipping in Q2 that I think is likely going to kind of bring orders and revenue close together, either side of one, I would call it. Operator: Our next question comes from the line of Mehdi Hosseini with SIG. Mehdi Hosseini: Two follow-ups for me. One, Neil, in the past, you have defined your overall business by a mix of software and hardware, R&D and high-volume manufacturing [Audio Gap] all acquisitions of the past 2 years. Where are we with those 2 mixes? And I have a follow-up. Neil Dougherty: Yes. So the software and services was 40% within the quarter. Software specifically is above 25%, so 26%, 27%, in that range. If -- on the software, hardware mix, I think we are seeing a little bit of -- a little bit more manufacturing opportunity here in the wireline space with the data center build-out. But we've talked about that kind of being [ 60/10 ] over the long term, and we're probably a little bit below [ 60% ] R&D at the moment in the current environment. Mehdi Hosseini: Okay. Great. And my follow-up is for the team. As we -- you've had a number of sequential growth, a number of quarters with sequential growth in wireline. I'm under the impression that most of it is driven by a scale-out. If I'm correct with that assumption, when do you see opportunities in the scale-out would materialize? And can you help us understand the size of the TAM or market opportunities scale-out versus scale-up? Kailash Narayanan: Maybe, yes, let me take that question. This is Kailash. We're seeing opportunities in scale-up as well as scale-out. So clearly, as these clusters and racks are put together, there is an expansion we're capitalizing on that scale. But not just that, to your earlier question about R&D, there is quite a bit of activity at this moment going on from the perspective of 1.6 terabit R&D as well as 448 gig per lane and 3.2 tera R&D. We are seeing expansion in those areas as well. So scale-up and scale-out are opportunities for us in both R&D and manufacturing. Operator: Our next question comes from the line of Samik Chatterjee with JPMorgan. Samik Chatterjee: Hope you can hear me. Satish, if I... Satish Dhanasekaran: Samik, your volume is very low. Operator: Samik, if you're using -- if you're using AirPods or anything, you may need to disconnect and use your hand phone. Samik Chatterjee: Can you hear me now? Satish Dhanasekaran: Much better, Samik. But still you may have to speak up. Thank you. Samik Chatterjee: Okay. Sorry, Satish, about that. But maybe just starting off, I mean, the $100 million increase in revenue from -- in the guide that you're incorporating, clearly that's very high end relative to when even if I go back and look at Keysight historically. I know you spoke a lot about the drivers, but wondering if you can sort of share your views about how much of that is the confluence of different technology sort of inflections that are happening at the same time relative to Keysight maybe participating a lot more in manufacturing and a lot more relevant in the manufacturing based on both organic as well as inorganic development. Just trying to parse out, I mean, we've seen you go through multiple sort of cycles before. but the magnitude of the increase here in revenue seems a bit unprecedented. So just break that down for us, if you can. And I have a follow-up. Satish Dhanasekaran: Yes. Thank you. So Samik, Neil may have some comments on sequential math. But I'll just say, at the highest level, we see this compounding momentum this year. And this is because a number of these tailwinds that we have that have been sort of the underpinnings of our growth strategy, whether it be next-gen semi or connectivity with wireless or semiconductor, defense modernization, and AI, or in the wireline sector, right? So all of these are coming together and one where we are perfectly in a great position to capitalize through the differentiation of our solutions we have. We feel really good about the fundamentals in the business, and the team is executing very well. I'll maybe have Steve make some comments on the pipeline and sort of the volume and the quality of how the pipeline is progressing as we see it. And then I'll maybe give you some additional color. Sung Yoon: Thanks, Satish. Well, let me start by saying it's a great time to be in Keysight sales organization right now. This was the highest quarter ever and excluding acquisitions, our second highest on record, which is unprecedented for quarter 1 for Keysight. This was also our seventh consecutive quarter of year-over-year order growth. But I think this momentum that we're seeing now started building about a year ago when we delivered 8% growth year-over-year in Q2. Our focus throughout has been to broaden engagement across our key customer base, strengthening our partnerships and gaining that early visibility into strategic programs where we can shape their requirements and capture key technology inflections. And I think we're doing that, just the evidence is there and it's showing up in our funnel dynamics as Satish was alluding to. In my 36 years with the company, this is one of the strongest funnels I've ever seen across the 4 dimensions that I track, which is short-term funnel, long-term funnel, funnel intake and funnel velocity. Both our total funnel and new funnel intake are at all-time highs, and our late-stage funnel is up high double digits. This really provides a strong near-term visibility for this quarter, which gives us great confidence going into the second half as well. I'm also excited about our robust NPI pipeline as well as new synergistic opportunities we have now with our recent acquisitions, especially Spirent. Together, they position us with the right solutions at the right time, and we're engaging with the right customers and right market makers and their ecosystem to capture these opportunities ahead. Samik Chatterjee: Got it. For my follow-up, Satish, I've received this question from a couple of investors. So I thought I'll ask you directly in terms of get your thoughts on this. A few investors have asked about sort of your software business and how we should think about the disruption fears from AI itself to the software capabilities that you offer your customers, both sort of on-box and off-box as in attached to the hardware as well as what you offer as stand-alone software, how to think about the AI disruption risk relative to those software solutions? Satish Dhanasekaran: Thank you, Samik. I think, look, we've been very clear since the launch of the company that we're a software-centric but a solutions company. As a solutions company, our focus has always been on our customers' toughest problems and solving them better than they can solve it internally or better than they can solve it with anybody else. And this has been the work that we have been doing, and it's work in progress, and we continue to deepen our relationship with our customers. I would really welcome you to join us at DesignCon or Mobile World Congress or OFC, where you can see the work we're doing with industry to really progress standardization and progress technology. And it's a collaborative model, one where having the tech stack that's differentiated, gives our customers an advantage. So I don't look at our business as sort of like a software business or a hardware business. It's a solutions business where software is part of the value proposition. Now there is a section of our business where we have design tools, where we're unique in those design tools, where we enable our customers to simulate. But underlying the competitive advantage there is not some workflow enabler, but it's really deep physics, deep physics that has been built over decades, right? Even the optical business that we just acquired from Synopsys has been around for multiple decades. And it's not as simple as Maxwell's equation, right? It is a whole bunch of deep physics that enables people to model the real world. And we'll have to stay on top of it. Obviously, we're investing to keep building new capabilities and expanding into new use cases. So I would not go as far as saying we're not looking at AI. We are, in fact, embedding more AI into those tools to make them easier for our customers to use and for them to simulate more complex things. So that's the path we're currently on. Operator: Our next question comes from the line of Rob Mason with Baird. Robert Mason: Again, congrats on the good results. Satish, a number of times you, again, talked about how quickly the pace of innovation is moving, these design cycles compressing. And I guess there's nowhere that's more evident in your wireline business. And as you think about moving from 800 gig to 1.6 and now 3.2 on the research side, can you just frame for us how much recapitalization versus upgrade-type activity that mix is involved there? And I'm just curious, just given the pace that it's on, does that -- has that spend cycle change from what it typically -- or what you have experienced in the past? Satish Dhanasekaran: Yes. I think this has always been the question that's on people's minds. So when 100 gig was done and we were moving to 400 gig, obviously, there's a little bit of customers moving to 400 gig, so they buy more 400-gig tools and they buy a little less 100-gig tools, and it's always the case. But what we're currently seeing is concurrent designs where the 800 gig is being ramped and 1.6 is being accelerated in R&D and customers are talking about how do they get to 3.2 as well, right? So it is -- the next couple of years, we see this concurrency continuing just because all this content ultimately has to go into the AI clusters where you're really having to have the right networking fabric to match with the compute that's there in these clusters. So it's not good enough to have a great compute chip but maybe not an equivalent throughput on the networking side. So it's really the system-level problem, and we feel good about not just one portfolio that addresses that, but we feel good about our portfolio that were -- that we have for the wireline ecosystem. It's highly differentiated. Robert Mason: That's helpful. Just as a follow-up, I know you've only owned the Spirent businesses, OSG, I guess, as well, a short time. But can you give us a feel for, at least within the first half of this year, maybe how those businesses are tracking on a pro forma basis from a growth standpoint? Neil Dougherty: Yes. I would just say, as I said last quarter, we took a pretty conservative approach in terms of how we plan for those businesses this year from a growth perspective, given the broad scale integration activity that's going to be going -- ongoing and the acquisitions right now are right in line with our own expectations. We remain on track to deliver the $375 million of revenue that we communicated last year, and our synergy realization is also tracking to plan. Liz Morali: Thanks. We'll take our last couple of questions, please. Operator: Our next question comes from the line of Rob Jamieson with Vertical Research Partners. Robert Jamieson: Just want to touch base on AI just quickly and the expansion of the customer base that you're talking about. We've heard you talk about prior, like -- and what you saw in 5G, where it started with a handful of customers and grew to hundreds. I guess, what I'm trying to ascertain is, like, where are we on that path today? Like, is this still early innings? And really, what I'm trying to do here is trying to pair some of the comments from a couple of quarters ago when you all talked about some of the trends you were seeing in the AI ecosystem and how they were sustainable all the way out to 2028 and beyond, especially as we move from the data center to edge and access layers. So just would love to kind of understand where you think we are in that customer expansion base and if this is still, like, early innings compared to, like, your prior cycles like 5G. Satish Dhanasekaran: Yes. I think, Rob, it's -- from everything we can see, there's one thing we can take away is AI is going to have a material impact to the rate of innovation across our end markets. And so when we think about it through that lens, yes, you can always say, well, things ebb and flow. When you take a long-term view, I think this acceleration that we see in adoption of technology is going to continue, and we're in a great position to enable the leading innovators around the world. And even with the expansion that we've seen in customers to date, we still are largely servicing, call it, the U.S.-based -- U.S. hyperscaler-based demand. And we're starting to hear about more sovereign investments around the globe that are yet to come and use cases where AI starts to intersect with some of our other businesses as well. So those are still largely ahead of us, and we feel good about our position today, and we'll continue to invest to realize future opportunities. Robert Jamieson: Perfect. And then just really strong free cash flow performance, Neil. How are you thinking about prioritization between M&A, organic reinvestment and buybacks in full year '26? Just what does the current pipeline look like? Any changes in valuation environment? And any color on the types of assets you'd be looking to kind of add to the portfolio would be helpful. Neil Dougherty: Yes. I mean, I don't think our priorities have changed. Our #1 priority by far is still to invest in the organic growth of our business, obviously, participating in these AI -- rapidly moving AI markets takes a lot of investment. And as Satish mentioned, the investments that we've made over the last 2 to 3 years are really enabling our success today. We're similarly going to be making some investments to scale capacity and make sure that we are capturing all the opportunities that are here in front of us. I think beyond that, we continue to look to strike a balance between returning capital to investors and adding value through accretive M&A. Our immediate focus in the M&A side is on capturing value for the 3 acquisitions that we've just closed, and we're hard at work on that. But at the same time, we're starting to rebuild the funnel of opportunities across our end markets that can potentially create value into the future. Satish Dhanasekaran: Yes. I want to also add, our Board has authorized a $1.5 billion stock buyback authorization that we have as well as a way of returning capital. Operator: Our next question comes from the line of David Ridley-Lane with Bank of America. David Ridley-Lane: So I'll just ask a simple one just to make sure that we're hearing the message that you're delivering. Why now, right? And what I think I've heard over the course of this call is that manufacturing kicked in. But tell me if I'm wrong on that and just why are the orders all of a sudden hitting right now? Satish Dhanasekaran: Yes. David, I would say that 2025 was a year where we built momentum in the business. And now what we're experiencing is a broad-based demand across all our businesses and across our regions as well. So it's broad-based. Yes, for the AI business, if you look at it, there's continuing demand in R&D and manufacturing is becoming important to customers. So obviously, that's the case. But if you take our aerospace and defense business, that's got nothing to do with manufacturing in the same way you think about it in the wireline side of things. And our wireless business was up. Our EISG business was up. Operator: That concludes our Q&A session for today. I would like to turn the call back over to Liz Morali for any closing remarks. Liz Morali: Thank you, Victoria, and thank you all for joining us today. A replay of today's call will be available on the Investor Relations website later today, and we appreciate your interest in Keysight. Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This concludes today's call. You may now disconnect. Have a wonderful day.
Operator: Thank you for standing by, and welcome to the City Chic Collective Limited HY 2026 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Phil Ryan, Managing Director and CEO. Please go ahead. Philip Ryan: Thank you, and good morning, everyone, and thanks for joining us. I'm Phil Ryan, the CEO and Managing Director of City Chic Collective, and I'm joined today by James Plummer, our CFO. This morning, I'll run through the presentation, starting with the business and strategic update. I'll then ask James to do a review of the half's financials, and I will then discuss the trading update before opening up to questions. Moving to Slide 2. Our EBITDA delivered an 86% improvement in the first half, increasing from a profit of $3.5 million to $6.5 million. This performance was underpinned by our strategic actions across customer and product, along with the disciplined execution of our cost-out program. The ongoing growth is another positive step forward for City Chic. Our simplified business model gives us a platform we can leverage to drive profitability as we look to return to stronger revenue growth at sustainable expanded gross margins. We will achieve this through continuing to implement improvements in our fit and quality of product to deliver on our Cut for Curves promise and focusing on our target high-value customers. As I said at the AGM, aligned with our strategy, we have comprehensively overhauled the product development process, including greater rigor across design and quality control. This initially resulted in a slower-than-planned intake of Australia and New Zealand summer product, which impacted revenue in the first half as we bought our factories on the journey with us. Despite this deliberate shift, Australia and New Zealand still achieved a 10.1% increase in trading gross margin dollars, driven by a higher average sell price, which was up 6.1%. The performance of summer product in Australia shows the progress we have made in our assortment as we execute our strategy and deliver on the Cut for Curves promise. We realize there is still a long way to go, and we are evolving our assortment with the learnings we are taking from her. And from this, we expect stronger sell-through in the Australia and New Zealand winter. U.S.A. with very limited inventory investment due to the tariff environment, as we've previously communicated, has performed above expectations and continue to deliver profit at a contribution level. We are now investing in inventory for summer '26. And given the performance of our summer range in Australia and New Zealand, we expect this to drive an improved performance. We delivered $10.1 million in positive operating cash flow for the first half, reflecting disciplined working capital management. We've achieved the clean down covenants for FY '26 and extended our facility until March 2028. In the first 8 weeks of the third quarter, Australia and New Zealand trading gross margin dollars were up 17% on the prior corresponding period, driven by the continued strength in full price sell-through, improved product mix and the sustained benefits of a tighter promotional discipline. Moving to Slide 5. Revenue was $69.2 million, flat with the prior corresponding period with Australia up 7.4%. Our cash position is $5.4 million with an undrawn $10 million bank facility. Our inventory reduced 21%, reflecting our decision to strategically pause purchases in the U.S.A. given the tariff volatility. Our customer base is stable at 503,000, 58% of which are our target high-value customers. To drive revenue growth, our focus is on increasing annual spend through greater purchase frequency. This metric has shown improvement, but remains well below our historical levels. She's remained a loyal CC customer and when the economic environment is more positive, I know she will increase her spend with us. In terms of things we can control to drive our frequency, in Australia and New Zealand, we can achieve the improvements through new lifestyles, and increase in our CCX casual diffusion range with differential ranging and endless aisle in stores and by expanding our new lifestyles and categories online. In the U.S.A., we need to retain and build our customer base, which we are confident will come as we get our new product into the market. Moving to Slide 6. Our website traffic has grown. It's up 9%, and our Net Promoter Score has increased to 74. These results have come from the strategic communication improvements we've made across all of our touch points from stores and websites to our social and digital advertising. But most importantly, this comes from the positive feedback we've received on our product improvements as we deliver on our Cut for Curves promise. Our trading gross margin was up 220 basis points to 62.2%, exceeding our target of 62%. We now need to leverage this as we drive volume growth. At a cost level, we've delivered all of our cost-out programs and achieved a cost of doing business of 51%, down 3 percentage points from 54% in the prior corresponding period. Moving to Slide 8. This shows the 3 strategic pillars that will drive EBITDA growth, and these haven't changed for some time, putting us first, our customer, delivering on our Cut for Curves promise with our product and continually looking at efficiencies to drive down costs in a simplified business. At a customer level, putting her first means making sure we build and protect the emotional connection that's kept the CC customer loyal over so many years. She now has so many more options, especially online than she's had historically, and we need to talk to her in a way that ensures we maintain this connection. We do this through being more authentic in our social presence, making e-mails more personalized to her behavior and continuing to listen through our monthly customer survey. It's actually quite unique to our brand that each month, over 3,000 of our customers give us feedback through the survey. It's invaluable in deepening our connection as we listen to her, and it really demonstrates how invested she is in City Chic. At a product level, our brand promise is to be Cut for Curves always. And we exist to solve her curves, fit and fashion frustrations. Internally, this is more than a slogan. It's our reason for being. It informs every decision we make. We need to understand her frustrations and deliver her solutions. We design with our curves in mind, and we fit with flex from adjustable waste to fabric weight for structure and drape. Our designs are intentional, and we make her feel incredible. Driving efficiencies to ensure that our cost base aligns with revenue is embedded in our business. We understand that if revenue growth does not meet our expectations, we need to continually refine our operating model and deliver more cost out. Moving to Slide 9. At 62% online and partners, our business is truly an omnichannel and is set for the digital future of retail. There are not many retail businesses in Australia with around 80 stores that deliver this online penetration. Moving to Slide 10. We've achieved so much in the last 2 years. We've rightsized the business and evolved our product mix, and we've targeted our high-value customer and achieved results in that. Our focus is now on driving revenue to deliver leverage on our cost base. With stronger gross margins, all revenue increases will deliver material profit growth. In Australia and New Zealand, there are some of the key actions. Firstly, we're increasing our CCX diffusion range, which is more casual in nature to increase the lifestyle options for her at a more value price point, and we will still be maintaining our margins in this area. While our stores have always served the mix of customers, as we've elevated the range, those differences in customer preferences have become more pronounced. In response, we moved to differential ranging. Historically, all stores carried largely the same assortment and relied on replenishment to adjust the sales volumes. Now with a broader online range, we have greater assortment depth and can tailor the initial allocation to better suit each store's customer. For example, some locations performed strongly in our occasion and high-end product, while others see stronger demand in casual and everyday wear. It really is in the center, and we're evolving our business to follow that more. We've also listened to our customer and for that matter, our team. And what they told us that as they've seen the improvement in our assortment, we've created a demand for Cut for Curves product that solves fit and fashion frustrations for ladies that are size 10 and 12. As such, in selected stores and online, we are currently trialing an increase in our size range to include a 10 and 12 with some good initial results. This is capturing a new customer that we can help solve her frustrations and also catering to customers that are on a weight loss journey that still require that curvy fit. In our online business, we've seen a stronger customer response to expanded lifestyle and category assortments such as footwear and swing. We're continuing these expansions. And following a successful sleepwear trial in the first half, we're going to roll out this category more broadly in the second half and beyond. In the U.S.A., the primary driver of our growth will be the reinvestment in inventory, which will start to flow in, in March really, and that's despite what we did in the first half with very limited purchasing, sales have remained above our expectations and the consumer has held up well, which really is very positive for the summer period in the U.S.A. If we look at the U.S.A. market, it has a materially greater addressable market than what Australia has. With the success we've seen of our digital high-value customer acquisition and reactivation strategies in Australia and New Zealand, we have a playbook to drive high-value customer acquisition in the U.S.A. through the fourth quarter and into FY '27. Really, in America, we just need to take a small part of what is a very, very big market. To enhance our credibility in this market, we're talking to numerous partners about a pop-up physical presence or some way of or putting something down in the U.S. that shows that we're really committed to the market. And then focusing on other markets such as Canada, the U.K. and Mexico, we're implementing international shipping, excuse me, through Global-E. We've had a presence in these markets, and we can directly reengage with some of our customers who are already familiar with the brand. Moving to Slide 11. This slide shows a very -- shows really a little snip of our new range and some of the comments from our customer. Our Cut for Curves promise, as I said earlier, aims to deliver on fit and fashion ability for our customer. And it's great to hear them saying in one of the quotes, keeping up with fashion and love the fit. Really, for me, that means we're delivering on this promise and is our platform for growth. Moving to Slide 12. AI is changing the way business is done. Right now, companies are focused on how we can reduce costs. We've been on that journey for a few years and have implemented numerous AI-led initiatives across the business that I'll talk to in a minute. But really, what's more exciting for us is how AI can help us optimize product decisions through leveraging data in our design and buying process. To achieve this, we partnered with a cutting-edge Australian retail AI start-up named SeeStone. Founded by a retail and digital commerce leader and a specialist AI and engineering team, the platform is purpose-built for fashion retail and integrates AI and predictive machine learning into our design, buy and allocation process. What SeeStone enables us to do right now is to assess our new designs from a picture, sketch or pad computer-aided design and provide the team with the probability of success. It estimates the expected sales using all of our historic performance and broader market data to give us a probability of how we think that sell-through will be. It's an amazing tool and helps both planning and design teams make more effective decisions. It also enhances our ranging by store, region and channel and supports the differential ranging strategy that I talked about earlier. What's SeeStone built for us is a machine learning platform with 3 years of our SKU and location level sales data that is updated daily to consistently refine our learnings. It also reviews data from the Internet on what other brands are selling as an indicator of our success. Further to this and as a byproduct, it will help us automate what is currently very manual repetitive processes to improve scalability and free our teams to focus on higher-value decisions. Some of the other areas we're achieving AI more cost-enabled efficiencies are below. We've used Jasper to create and optimize our marketing content. Jasper is a marketing-specific AI agent that over the last 4 years, we trained in the City Chic tone of voice and customer personas. What it gives us is brand-appropriate written content to all of our websites and all of our partners. On our websites, we use AI-driven product recommendations and on-site customer journeys that materially improve the customer experience. We're using our AI to optimize our digital marketing execution and driving an improved return on advertising spend. And to secure our digital networks, we're using AI to actively hunt cybersecurity threats through Sophos. These are just some of the examples of how AI is increasingly being embedded in our operations. I'll now throw to James to discuss the financial slides. James Plummer: Thanks, Phil, and good morning, everyone. As Phil mentioned earlier, we're pleased with the continued improvements in profitability from the prior year. Underlying EBITDA of $6.5 million represents a $3 million improvement on the prior period, rewarding the disciplined execution of our strategy. While group sales were broadly in line with the prior period, the results reflect 2 very different regional performances and demonstrate a continued overall improvement in sales quality. In ANZ, revenue grew 7.4% on the prior corresponding period, with trading gross margin dollars up 10.1%. Our trading margin improved 1.3 percentage points on half year '25 and 6.4 percentage points on half year '24. This demonstrates the continued development of our product ranges, higher sell-through of full-price product and a more disciplined promotional approach. In the U.S.A., revenue was down 31% to $9.7 million. This largely corresponds to our deliberate reduction in purchasing, which was in response to the tariff-related volatility. The impact is most evident in the partner channel that relies heavily on new product launches. Even with the lower sales and fewer new products, the U.S.A. followed the Group's disciplined promotional strategy, driving a gross margin increase of more than 4 percentage points compared to the prior period. This, along with our local variable cost base is what allowed the U.S. business to still make a profitable contribution to the Group even with these lower sales. The overall cost of doing business fell by $2 million on the prior period, benefiting from last year's annualized cost savings, which have largely balanced out the inflationary pressures. We continue to closely manage costs and take appropriate action to ensure the costs aligned with the trading results and the business can remain profitable. Turning to the balance sheet on Slide 15, and this has been a real area of focus during the period. Pleasingly, we have generated $10 million in operating cash flow for the half, reflecting our disciplined working capital management and improved operating efficiency. Inventory as planned, driven by the deliberate reduction in purchases in the U.S.A. In ANZ, inventory remains in good shape with the improved stock turns and a healthy mix of new and seasonably relevant product. Trade payables have moved in line with normal purchasing cycles, reflecting the timing of new inventory arrivals in ANZ ahead of Chinese New Year. This is consistent with normal trading patterns. From a capital structure perspective, we fully repaid all drawn debt during the period and extended our debt facility through to 31 March 2028. All cleaned down covenants have already been met for FY '26. While cash flow discipline remains a clear focus for the business, we're very pleased to have extended the debt facility under the same terms, which provides both stability and flexibility and positions us well to continue to execute our strategy. I will now hand back to Phil to talk through the trading update. Philip Ryan: Okay. Thank you, James. Moving to Slide 17 and the trading update. In the first 8 weeks, we've maintained our trading momentum. Australia and New Zealand gross margin trading is up 17% and the revenue is up 9%, reflecting the continued strength in the full price sell-through and our improved product mix and the sustained benefits of the tighter promotional discipline. Delivering continued year-on-year growth in Australia and New Zealand is another pleasing step forward. However, the performance continues to be impacted by economic pressures and softer consumer sentiment. This impacts demand as interest rates are rising. Recognizing these pressures, we are maintaining a disciplined focus on costs, inventory and execution. In the U.S.A., we've invested in product to relaunch into the summer season, as we've mentioned many times, and we know this will drive profitable growth in the fourth quarter and beyond. The evolving developments regarding tariffs as it currently stands, we estimate will result in a 5% reduction in duty for our goods entering into the U.S.A. from China. We're monitoring the situation closely. And for now, it doesn't impact our current plans or timelines. We've strategically shifted Amazon from a wholesale partner to a marketplace relationship. This allows us more control over the range, price and trading of the business. While this will cause short-term revenue challenge, it will deliver longer-term profitable growth that we can have greater control on. It is now all about leveraging our cost base to deliver profitable revenue growth. I'll now hand over for questions. Operator: [Operator Instructions] The first question comes from Jasper Struwig with Canaccord. Jasper Struwig: Can you hear me all right? Congrats on the results. I know a lot of the numbers have been released, but really good to see the operating momentum, especially in the trading update, and it's good to see, I guess, your core region in ANZ really sort of starting to reaccelerate growth. But could you potentially touch on how things are tracking over in the U.S.? I understand you guys are obviously reinvesting in inventory over there. But just keen to understand how things are tracking. Philip Ryan: Look, yes. Thanks, Jasper. Thanks for the question. Look, the U.S.A. is really a large focus of mine. I think for those of you that were around last year, you'll remember, we were prior to all the tariff stuff, we were really pinning our hopes on getting meaningful market share through there. And what we decided was to really pause our strategy, and we didn't purchase anything into the second half -- well, the first half of the financial year, second half of calendar '25. And the way she held up was way better than I expected. Even right now, she's doing a lot better than what we thought. We have delivered very minimal to basically no newness. We see there's some coming into March as summer launches over there and then really April, May, June as we get into the season. It's always been a much stronger season over there for us now, and we're confident that, that will continue. I mean we still have around that sort of -- we still have almost 50,000 active customers over there, and it has been a lot more than that in the past, and we can reactivate and retarget that. And what we want to do is use our playbook on what we did in Australia over the last 12 months to take the learnings and implement them at a digital marketing and communications level to reengage and reactivate not only the customer we've got, but then to get more of the high-value target customers in what is a much more customer-rich environment. Jasper Struwig: Perfect. And then maybe just quickly touching on the shift in the Amazon operating model. You mentioned on the call that you're sort of expecting near-term revenue, I guess, headwinds. Can you maybe expand on that? Philip Ryan: Sorry, can you say that again, Jasper? Can you say that again, please? Jasper Struwig: Just a question on the shift in the Amazon operating model. Yes. You just mentioned on the call that you're expecting some short-term revenue headwinds. Could you potentially sort of expand on that what the headwind might be, how long it might last that sort of thing? Just your thoughts. Philip Ryan: Very good question. You can see in the first half, our partner revenue was the thing that took the biggest hit through the U.S. I think yes, I think it's over 30% total drop in the market and the partner business had an even bigger drop than that 32% on a constant currency basis. What we've done is Amazon used to order directly through our website and take it into their logistics on a wholesale level, and it was very sporadic, and we couldn't understand what they were doing. We've since worked with the company to drive sales with Amazon. And what we realized is we need to actually control what inventory they are getting in order to really drive it. What it means is really through this first half, we haven't seen a lot of Amazon sales in quarter 3 so far, and we're expecting to ramp it up into quarter 4 in the U.S. The impact will be on the partners' line in the U.S. in the second half. Operator: [Operator Instructions] There are no further questions at this time. I will now hand it back to Mr. Ryan for closing remarks. Please go ahead. Philip Ryan: Thank you, everyone, and I'd like to extend a thanks to everyone for joining today. It's really pleasing to be continuing our ANZ revenue growth, getting double-digit margin growth in a challenging environment shows how much work we've put into product and how much the team here has done to make that happen and focus on our target high-value customer and execute on our strategy, and I want to thank the team. Then to be back in the U.S.A. and trading is exciting for us. We've had a business over there since 2010. And I know that once we get product into market that we will be able to deliver on our Cut for Curves promise in what is a materially larger addressable market. With our simplified business model now in place, really, as I've said a few times, it's all about focus on driving revenue to deliver that profitable growth. Thank you. Operator: That does conclude our conference call for today. Thank you for participating, and you may now disconnect.
Operator: Thank you for standing by, and welcome to the Tyro Payments Limited H1 FY '26 Results Call. [Operator Instructions] I would now like to hand the conference call over to Mr. Nigel Lee, Chief Executive Officer. Please go ahead. Martyn Adlam: Good morning, everybody, and thank you for joining today's call. My name is Martyn Adlam, and I head up Investor Relations for Tyro. I would like to acknowledge that I'm hosting this meeting in Sydney, on the land of the traditional owners, the Gadigal people. I pay my respects to elders, past and present. This morning, we released our FY '26 half year results. All of the documents included in today's presentation have been released through the ASX and are available on our Investor Center. This call is being recorded and transcribed and a replay will be available on our Investor center shortly. On today's call, you will hear from Chief Executive Officer, Nigel Lee; and from Emma Burke, our Chief Financial Officer. There will be time available for Q&A at the end of the presentation. I would now like to turn the call over to Nigel and ask the audience to turn to Slide 4. Nigel Lee: Thank you, Martyn. Good morning, everybody, and thank you all for joining today's call. My name is Nigel Lee, and I am the new CEO of Tyro. I'm really excited to be joining Tyro at this stage in its journey. I've spent much of my career in payments globally. And one thing that stands out is how often domestic champions outperform global players. And they win because they solve for local complexity better than anyone else. And I believe Tyro has exactly what is required to win in Australia. Tyro has built a large-scale integrated payments and banking proposition that's uniquely set up to solve the complex problems Australian businesses face. Today, we support over 76,000 merchants and process more than $43 billion in annual transaction volumes. That level of scale matters. It drives stronger economics and real optionality for merchants. And it's not just rent. We are increasingly becoming the primary financial partner for many merchants, not just their payments provider. And there is so much more that we can do. So why does this matter to you as shareholders? Scale and discipline translate into durable cash generation. And cash generation gives us the capacity to invest to drive the next phase of top line growth. Now before we go into specifics, I want to share what I see are the key takeaways from the first half results. Then I'll step you through the acquisition of Thriday. If you take away one thing from today's presentation, it should be that Tyro is focused on investing in the large growth opportunities that are in front of us. I'll break my summary down into 3 key points. First, on delivery. Product enhancements are driving better customer outcomes. We launched our new banking products to customers in September. And then in December, we announced the acquisition of Thriday. Together, these strengthen our offering and deepen the relationships that we have with merchants. Second, on performance. The top line was driven by growth in payments. After a couple of softer periods in volumes, it's encouraging to see them moving in the right direction. And we've also remained operationally disciplined, translating that into improved profitability and into cash generation. And finally, our focus on growth. We're investing to supercharge growth across multiple opportunities, and I will share more on how we do that later. But now I'd like to tell you about why we're excited about what our acquisition of Thriday will unlock for our customers. Thriday is a really valuable product enhancement for Tyro. At its core, the acquisition deepens Tyro's role as the domestic payments and banking champion for Australian SMEs. Business owners tell us what they want in very simple terms. They want to grow their revenue, they want to get paid for it, and they want to spend more time running their businesses so they can win. That idea is core to how we think about product and investment at Tyro. Tyro brings fast, reliable payments across in-store and e-commerce and integrated banking and lending. Thriday adds automated invoicing, expense management, budgeting, and tax tools, and it's designed to simplify financial management for small businesses. When you put those together, it means we can solve more of the day-to-day problems merchants face through one integrated proposition. And over time, that supports deeper engagement, higher retention, and stronger lifetime value. And it also brings teams that are highly innovative, fast-moving, and deeply customer focused. And that's exactly the mindset that we want to reinforce as we make bold investment decisions to build for the long-term. And one of the things that really stood out with Thriday is how much the customers love the product. We talked about being customer obsessed, but Thriday is an example of what that looks like in practice. Their customers are genuinely evangelical. You see that in the reviews, consistently high ratings, strong word of mouth, and customers actively recommending the products to others. And these aren't marketing lines. These are business owners describing real impact, saving time, reducing complexity, and making it much easier for them to run their businesses. That level of advocacy is powerful. It tells you the product is really solving problems. Our job is now to preserve and scale that customer obsession, and we'll combine it with Tyro's infrastructure, our reach, and our balance sheet and use it to help more Australian businesses succeed. I'll come back later to share more about the areas we're investing in for growth. But for now, I'd like to hand over to Emma for a brief business performance update. Emma Burke: Thank you, Nigel, and good morning to everyone joining the call. I'd like to start with our payments results. A year ago, we reported that total payment volumes were down almost 1% compared to the prior period. It's pleasing to see the momentum shift this half with strong results driven by improved underlying payment trends. Total payment volumes have increased by 4%. This was driven by a 5.6% growth in Tyro core payment volumes. Within Tyro core, growth was broadly consistent at 4% to 5% across the retail, hospitality, and service verticals. This is the result of a general improvement in consumer spending, lower churn, combined with higher levels of new business in FY '25, particularly larger merchants we onboarded who are now contributing more meaningfully. In health, we delivered another half of strong growth at 9.4% as we continue to focus on growing our share in specialist, allied health, and dental. At the end of the half, the government introduced increased bulk billing funding. This has put some pressure on volume growth across general practitioners, and we'll continue to closely monitor how they adapt to this over time. It doesn't, however, impact our outlook for growth in our key health sub-verticals, and we remain confident in the medium-term growth outlook for health. Turning to volumes for our Bendigo merchants. These fell by 10% this half, and we continue to work constructively with Bendigo to identify further opportunities to improve overall performance. In terms of the payment margin, we delivered a 0.8 basis points increase compared to half 1 FY '25, primarily driven by an improvement in scheme and interchange fees, and we have begun passing the benefit of these reduced fees to our customers. The combination of the volume increases, along with margin improvement has led to a 6% growth in our payments gross profit to $104.1 million. Turning now to banking and the continued evolution of our products to drive customer adoption. We were excited to launch our transaction account to new customers in September and it's been well received. The addition of the debit card and instant payments have made a big difference in how merchants can use the account day-to-day. This has helped drive a 38% increase in active users. We will make this functionality available to our existing merchants in the coming months. We also launched the Tyro Flexi loan, our merchant cash advance product to new customers in December. The end-to-end experience is more streamlined and early feedback shows that customers value the simplicity and flexibility it gives them to manage their cash flow and fund growth in their business. Loan originations grew by close to 20% compared to last year, and we also saw a higher average loan size. The continued momentum in our key banking metrics, including the growth in the number of merchants using banking alongside payments supported a 5.4% increase in our banking gross profit. And overall, we saw the net return on banking improve in the period from 11.7% to 12.2%, driven largely by an improvement in the profitability of the lending portfolio. Touching now on our continued focus on financial discipline. While gross profit grew by 5% in the period, operating expenses reduced by 2.9%. This led to our operating efficiency measure improving from 69% to 64%. Expenses will be higher in half 2 due to annual salary increases and the timing of project and marketing spend, along with AML-related compliance investment. Looking back, the progress over the past few years is significant. In FY '22, nearly every dollar of gross profit that we generated was being consumed by OpEx. In half 1 this year, less than 2/3 was. This sustained cost discipline has put Tyro in a fundamentally stronger position as we look forward to the next phase of growth. As we head into half 2 and beyond, we're in the fortunate position of having embedded operational discipline and the capacity to make more growth-focused investment decisions. Reflecting on our overall performance, half 1 was a very strong period in terms of profitability. EBITDA, our core measure of operating performance, increased by 19.8% to $39.5 million, representing an EBITDA margin of 33.6%. Statutory profit of $17.7 million was 72% higher than half 1 last year. And importantly, we generated $13.6 million of free cash flow in the period, 52% up on last year, further strengthening our already solid balance sheet. Tyro has over $140 million in available funds, which demonstrates the strength of our balance sheet alongside the financial capacity we have to deliver our next phase of growth, which Nigel will outline shortly. That capacity gives us flexibility. Organic growth will always be a priority, but we will continue to explore areas where we can accelerate our growth plans via M&A. The Thriday acquisition is an example of this. To close, I'd like to reiterate our guidance for the year. Our target is to deliver gross profit of between $230 million and $240 million and an EBITDA margin of between 28.5% and 30%. We are on track at the half year, and we remain confident on delivery for the full year, noting that there is increased investment in the second half, which will deliver an EBITDA margin within the guidance range. Thanks again for joining today's call, and I look forward to meeting with many of you in the coming weeks. Back to you, Nigel. Nigel Lee: Thank you, Emma. Now earlier, I shared what attracted me to Tyro, and I want to build on this with a view of how Tyro is positioned to win and where we're investing. First, the opportunity. Australia is a large and attractive market. Each year, more than $1 trillion in payments are made in-store or online. And Australia is the home to 2.7 million SMEs. And today, we serve just a fraction of those. So the opportunity ahead is significant. Second, we're operating a fully scaled omnichannel experience across payments, banking, and value-added services. The integration of these capabilities is a real differentiator. In payments, we combine in-store and e-commerce. In banking, we offer transaction accounts, savings products, and lending. And in value-added services, we're investing in tools that help merchants run their businesses better. These include financial management, loyalty, and in the future, others. Third, and this is where we're truly differentiated from our peers, is our local depth. Tyro is one of the most comprehensive integration ecosystems across our key verticals. We're integrated with over 450 point-of-sale providers and all the major PMS providers in health. And this gives us a deep understanding of how different industries operate. That depth is hard to replicate. And one thing that we hear from customers all the time is the importance of local sales and service support. Our teams are based here in Australia, and they're focused on serving businesses and owners with the responsiveness and expertise that they need. Finally, on this page, we start today from a position of strength. We already have nearly 80,000 merchants. We're profitable, operationally disciplined, and our balance sheet sets us up to fund investment growth. So what exactly are we currently focused on? I'll touch on 4 key areas. First, health. Health is an attractive sector with strong fundamentals and higher barriers to entry, and that plays to our strengths. We're already the market leader in GPs, and we will continue to expand in other areas, including specialists, allied health, dental, and some of the newer sub-verticals of aged care and pet. Second, banking. Integrated banking improves customer satisfaction and it increases lifetime value. Our new banking products also allow us to scale more efficiently. And looking ahead, we're exploring additional lending products that will help better serve larger merchants. And I believe that we can significantly increase the level of banking adoption across our merchants because we are focused on solving the real problems that they face day-to-day. Third, e-commerce. There's a structural shift towards online and omnichannel commerce in Australia, and it's a high-growth segment. We have the advantage of already being at scale in card present, and now we can capture the huge potential of adding e-com for our merchants as we invest in our platform capabilities and strengthen our go-to-market. And fourth, larger merchants. This is an opportunity to drive volume and unlock even more scale benefits. We're seeing increasing demand from large merchants and corporate groups for local expertise and a partner that can execute reliably. We delivered some key enterprise wins in FY '25, and we've continued momentum in FY '26 so far. Going forward, we'll keep scaling our enterprise sales and also our go-to-market capabilities. Across these areas, we're already active, but the opportunity is much bigger than where we are today. And that's what makes this an exciting moment in time for Tyro. And we'll do it by being innovative, by moving fast and by being obsessed with customer success. With that, I'd like to hand over for Q&A. Thank you for listening. Operator: [Operator Instructions] And our first question comes from Owen Humphries from Canaccord. Owen Humphries: Just go deeper on the guidance comment there, which is unchanged, $230 million to $240 million and the margin between 28.5% and 30%. Just simple math there implies doing the midpoint of GP and the midpoint of the EBITDA range puts it -- kind of puts EBITDA at around that kind of $29 million for the second half and a big step-up in cost from kind of $78 million to $87 million. Can you just talk us through what the cost growth expectations are given the exit run rates lower as we enter the second half versus the first PCP in the first half? Emma Burke: Thanks, Owen, for that question. When reflecting on costs for the second half, again, I want to reiterate that we're really focused on the right level of operating discipline when it comes to our spend. And what we saw -- we'll see in the second half is largely related to a number of timing investment opportunities. And so I touched on a couple of these during the speech, but probably one of the things is we have further investment in our AML compliance. You would know that there are changes in the legislation that are coming through, and there are costs this year as we set ourselves up for that. The other 2 areas is really around project spend and marketing from a go-to-market as we continue to set ourselves up for the longer-term opportunities and deliver growth going forward. Owen Humphries: Can you maybe quantify those 2 opportunities in dollar terms for the spend? Emma Burke: Could you please repeat that question? Owen Humphries: Could you maybe quantify those 2 initiatives? Because I guess what I'm trying to say is the OpEx in the second half is up $10 million is what the guidance statement is today versus the first half. And I just want to make sure that you're saying there's a $10 million additional OpEx in the second half versus the first half at the midpoint. Emma Burke: As I touched on, we also have some incremental costs in the second half driven by our salary increases that come in, in January of each year. So you'll see that flowing through as well. But there are a number of initiatives that we're focused on. But it's also our investment in marketing is more second half weighted, but there will definitely be a step-up in the absolute cost from an operating perspective in the second half. Owen Humphries: Just a quick one on churn. I know in the last kind of 18 months, churn has been reducing for you guys. Can you maybe talk through whether the -- you're seeing the churn now level out to a level that you're comfortable with? Or are you still kind of running above the long-term trend? Emma Burke: Yes, we have continued to see a positive trend in our TTV churn, and that's been part of the things that have supported our growth in this period. We're probably still not at historical average levels. But given what we're seeing and we've seen a definitely notably lower level in the first half of this year even than last year, we believe that it continues to set us up well for the future. I think the way we like to look at it is we're really more focused from a product perspective and giving merchants the tools that they need to solve more of their problems. And we believe that as we continue to do this from a banking, lending, financial management on top of our payments, that this also supports our ongoing customer retention. Operator: And at this time, I'm showing no additional questions, I'd like to turn the floor back over to Mr. Lee for closing remarks. Nigel Lee: Well, thanks, everybody, for taking the time to listen in. And Owen, thank you very much for your questions. I look forward to meeting you on over the next several weeks in order to talk more. We're very grateful for the team at Tyro for delivering the results we delivered. And we'd like to thank everybody for taking the time to listen to us today to talk about them. Thank you very much. Operator: That does conclude our conference for today. We thank you for participating. You may now disconnect your lines.
Paul Ruedige: Hello, and welcome to the Mercury Interim Results 2026 Investor call. We've got Stewart Hamilton, Chief Executive; Richard Hopkins, CFO presenting and will be followed by questions. Stew? Stewart Hamilton: [Foreign Language] everybody. Welcome to the presentation of our interim results for FY '26. Very excited to be here with Richard to be presenting a strong set of results. This slide, I'll cover off really talks to our strong first half '26 performance shows that we're investing at scale and growth and that we're performing very well. The 3 themes you'll see across the results for the first half are resilient earnings, our disciplined growth and our strong balance sheet management. This all brings together our strategy of being better today, building tomorrow and brighter together. Starting with resilient earnings. For the first half, we have delivered an EBITDAF of $337 million (sic) [ $537 million ]. That's up 28% on the prior comparable period, driven primarily by higher renewable generation and a very good cost discipline. From a customer perspective, we now have 40% of our customers with multi products continuing to show the strategy since we have merged and acquired with Trustpower. From investing in our core assets, we're pleased to communicate that we have reached final investment decision for $590 million investment back into the next 3 hydro stations on river that will take place over the next decade, adding additional 76 megawatts of capacity. From a growth perspective, our geothermal OEC5 unit at Ngatamariki near Taupo has commissioned and that commenced in January 2026. It's delivered on time and on budget. Our 2 wind projects, the first 1 at Kaiwera Downs 2 in Southland, second 1 at Kaiwaikawe in Northland are both under construction and tracking to deliver and basically by the first part of FY '27 and the second part of this calendar year. Those 2 projects combined will deliver enough power for 140,000 homes, which is the equivalent of Christchurch City. Also moving towards the next consent for our next wind farm project that has a project that many will know as Mahinerangi Stage 2. We have named it Puke Kapo Hau, which means the hill that catches the wind. And that is targeting final investment decision in the first quarter of FY '27, so the middle of this calendar year. And from a balance sheet perspective, we've got strong financial guardrails in place with our debt-to-EBITDA ratio, giving liquidity and headroom to support investment and further investment at scale. We have an ordinary interim dividend up 4% to $0.10 and importantly, have invested just around half of the EBITDAF of $270 million into new and existing assets. And looking ahead to the full year of -- the financial year of '26, our guidance remains on track to deliver our EBITDAF guidance of $1 billion, deliver our OpEx of $370 million, deliver our stay-in-business CapEx of $150 million and deliver our guided dividend of $0.25. Overall, shows delivering for shareholders and also delivering for New Zealand. This covers off the progress against our strategic priorities. Our 5 key aspirations. I won't go into detail of it, except to say that this is the strategy we shared in June 2025 at our Investor Day. The target 5 objectives shown in blue through the middle there are all progressing well. The scorecard shows traffic light performance for each of those. I'll touch briefly on a couple. So starting with generation development. I'll talk a bit more to geothermal pipeline coming up. We now have a team in place to keep delivering in that space, and there's a slide later in the pack on that. In terms of capturing energy transition growth, we've commenced a number of long-term contracts with Fonterra, with Whakatane Mill, with Visy, which is very exciting in terms of capturing the electrification growth. And we're also progressing with further smart hot water control programs that bring more, another 20 megawatts of control under management, which supports increasing flexibility. In terms of rebuilding sector confidence, there's no doubt that we have been doing well in the space but still have a way to go. There's confidence growing. There's still a lot for us to be done, and we'll keep pushing on that area as we progress this year, particularly as we hit towards the Trilemma, which is making sure we have affordable, sustainable and secure electricity for New Zealand. And final point I'll cover on that slide, just under earning transformation is the work we're doing around cost discipline and cost management. Very pleased to say that we're on track to deliver our reduced OpEx target of $370 million for this year. Over the second half of 2021 or the first half of financial year '26, we welcomed 2 new executives to the team. Suraiya Phillimore-Smith joins us most recently from Suncorp and to the Chief Customer Officer role and has had the team running really well, and I look forward to hearing her over the next little while, sharing with you the work that we're doing around transforming our retail business. Catherine Thompson also joined us in the last part of 2025. Catherine joins as the Chief Sustainability Officer, having the executive roles at a couple of other gentailers in the past, enormously experienced and adding enormous amount of value to Mercury already. And then as we head into April, I also welcome Michele Mauger to the team. Michele is joining from Vocus in Australia. She'll be joining Mercury as the Chief People Officer. We continue to make really great progress in the maturity of our health, safety and well-being systems. We've been implementing a number of world-class programs, and those programs are starting to deliver results. Results show up ultimately in our total recordable injury frequency rate, TRIFR, and for the calendar year, it's at 0.39 and showing just a consistently better result over time with the number heading further down, which is great. We also have teams and talents that are developing skills in a number of areas. The key areas that we are developing strength is really on the strategic opportunities ahead of us. So in the retail, the technology, the generation development and the asset resilience areas. I'll hand over to Richard to cover some of result information. Richard Hopkins: Thanks, Stew. Look, you've seen the half year '26 delivery scorecard that is off and our progress against our strategic priorities. What I'm going to take you through is what drove the results, what it means for cash and investment capacity and how we're staying disciplined on balance sheet while continuing to grow our dividends. Look, the sector has been under a fair bit of scrutiny since the low hydro year in 2024, and our response is really simple to deliver and keep on delivering. From my side, it comes down to cash conversion and disciplined fund growth within guardrails and let delivery do to the talking. Looking at the slide, look, Stew and I are really proud of what the team has delivered in the first half. We've delivered a record EBITDAF of $537 million and an operating cash flow of $531 million. And what matters to me is the quality of the earnings, earnings converting to cash and the cash funding delivery and dividends. And when you sort of look high level across the slide as a whole, you see everything is moving in the right direction. So trading margin up, OpEx down, EBITDAF up, NPAT up, operating cash flow up, stay-in-business CapEx pretty much in line, growth investment up and dividends up, doesn't get much better than that. Look, so we've invested $208 million in growth during the year, $64 million in stay-in-business CapEx and declared a $0.10 interim dividend. The NPAT was $20 million, and that's driven by the negative noncash fair value movements on electricity derivatives across the existing long-dated contracts and 3 new contracts signed during the period, including the Huntly HFO. So the story is really simple, resilient earnings, disciplined growth and balance sheet strength. Moving to the drivers of EBITDAF. The bridge from $418 million to $537 million is mainly higher generation volumes, so plus $113 million and lower OpEx plus $24 million. Generation volume was up 0.5 terawatt hour, and hydro really did the heavy lifting there and we converted conditions into earnings and earnings into cash. Customer yields were modestly positive. Our mass market VWAP up $11 a megawatt hour, 7% and C&I VWAP at $1.2 per megawatt hour. Look, our net position reflects lower wholesale prices and our net CfD position with higher generation, and it moves with conditions and portfolio settings. On to the next slide, cost and cash discipline. Look, OpEx was lower and what's that been driven by? Well, we talked at year-end about the savings and the initiatives that we've put in place. So the main savings were through people, through a little bit on maintenance, which is mainly timing and other operating costs as major projects completed and consulting reduced. We're tracking to the FY '26 OpEx guidance of $370 million, so down from $396 million last year. So easing inflation. And it's all been around delivering through the operating model and tied to cost control. Despite investing at pace, you can see our net debt moved only $60 million. So up to $2.243 billion in December, 50% of our EBITDAF went into investing. And that's the discipline point, funding delivery without stretching the balance sheet. Turning to stay-in-business CapEx, we sort of break down what's been going on there. Stay-in-business CapEx is all about reliability and protecting long-term earnings quality. The mix includes geothermal drilling, hydro rehab and resilience, Arapuni Left Abutments and Taupo Control Gates plus other sustaining CapEx. Surplus $64 million versus $73 million last year, mainly lower drilling and major hydro resilience spend, such as Karapiro completed. The Rotokawa drilling progressed as well. So the key point is planned sustainable investments and not maintenance being cut. And next slide, please. So here, hydro, look, the hydro inflows were elevated at the 85th percentile hydrogeneration was really strong during the year with -- during the 6 months with record generation in July. We've set out what's been going on with the spot prices there, and we've managed a reasonable amount of spill, over 400 gigawatt hours. Hydro is increasingly our flexibility engine supporting the systems through volatility. We've committed, as Stew touched on to more hydro rehabs investing there. So $590 million has gone through FID, all approved by the Board, which is protecting the long-term future of those assets and also generating more power as well. So look, I'll hand you back to Stew now to run through the hydro investment program in a bit more detail. Stewart Hamilton: Richard, as you mentioned, definitely, the hydro system on the Waikato River is the core of our portfolio. And I believe it's one of, if not the most flexible renewable asset in New Zealand. And so it's great to see the work we're putting into this very valuable asset. Firstly, we completed the upgrade of our Karapiro Hydro station. That was a 3-year program that's completed and Karapiro is now fully operational and operated from that. We've now got a strong team in place and really strong supplier relationships from that 3-year program. They're well established and that sets us up to move into the next 10 years of the program. We have now, as Richard mentioned, committed to 3 further hydro upgrades with the FID approved for $590 million. That will enable the upgrade of Maraetai I, Ohakuri and the Atiamuri stations. The design and print work for that is now underway over FY '26, '27, '28, that will include the procurement of early lead items and the design and construction manufacturer of various parts, including turbine and generator. We'll then kick into the actual replacement process through the late part of FY '28 into FY '29. And then overall, that program will take us through to about FY '34 and provide increases in capacity by 76 megawatts spread across the 3 power stations. We're also maintaining a resilience of the core set of assets. That's really vital to deliver our strategy. Part of that is the approval of the FID investment to strengthen the Arapuni dam with construction underway, and you'll see a big part of that coming in, in the next half. This is really about reducing risk, strengthening asset resilience and Arapuni Left Abutment is a key component of that. The Arapuni dam is our oldest operational dam, constructed in 1927. And so for us, it's making sure that, that asset is resilient for the next century ahead of us. Also, over the last couple of years, we've reestablished our geothermal development capability. The focus has been on rebuilding our capability and the design, the build and the commissioning of geothermal power stations that includes and is demonstrated through the successful commissioning of our 50-megawatt Ngatamariki plant. We also now have a team that's successfully been executing on a drilling program. And so over the last couple of years, we've completed the 8-well geothermal program, which has spread wells across Kawerau, Ngatamariki and Rotokawa. And we'll also combine that with the project capability and the project management that we are supporting in the supercritical project that's being driven by the government. So with that capability in place and the delivery of new production and drilling team, we'll now turn our attention to the future and how we can utilize those teams to deliver future growth and build into the potential 5 terawatt hours that we've identified. We'll provide more detail on that plan in May, and all of you are welcome to join us at that investor event. Mercury's wind development team, I think, are the leading wind farm growth team in New Zealand, if not Australasia. We've developed 5 of the last 6 wind farms in New Zealand, and the team is doing a great job at the 2 current projects underway, both are on track for delivery on time and on budget. If you look at Kaiwera Downs, we now have -- I think actually today, we might have nearly 12 of the 36 turbines up in the air, which is fantastic. First generation is expected in May and then that will flow through to the end of the year with all those turbines coming on stream. And then up at Kaiwaikawe, the first parts have been delivered to site earlier this week and first generation for that project is expected in August. And our generation pipeline continues to grow as well as the team continues to explore, identifies and develop these prospects. So our total pipeline has expanded further by another 2 terawatt hour. The bulk of our pipeline options exist in the North Island, as you can see from sort of third blue bar along on that chart on the first chart there. That's great to have those options located near the load in New Zealand. Our team has a job of progressing those various projects through a disciplined set of stage gates really making sure that most valuable projects are progressing, so we can make the right choice for a final investment decision at the right time. And overall, if we come back to the projects that are nearer term and those that are in construction and closer to the final investment decisions, we still remain on track to deliver the 3.5 terawatt hours by 2030. We've got the balance sheet capacity to do that, and we've got the team capability to deliver. Our project pipeline is critical to make sure that we had our FY '30 EBITDA expiration of $1.15 billion to $1.25 billion. As I mentioned, we have a pretty disciplined project gate process to take these projects through. We have about 55 Mercury team members in the generation development team embedded across Mercury and their role is to make sure that we're bringing the best projects to the fore and then delivering on those. So our fully renewable asset base does require firming to support our -- not only our current set of assets, but also our growth ambitions. Part of our wholesale team and our generation development team inside Mercury, big part of their focus is on developing the firming to support our renewable growth assets and our aspirations. We have several diversified solutions currently in place shown on the chart and the bottom there. But also, we're looking out to the future, particularly as we head towards our 2030 and what's required to support our growth plan to 2030. We are as part of that targeting battery energy storage solution or BESS. We have a consented BESS at Whakamaru, and we're targeting a final investment decision around about this time next year. Moving through to the regulatory and political part of our ecosystem. There's been extensive focus in this area and a market review that was conducted late last year. Ultimately, that independent advice confirms that the electricity sector is performing well. However, further evolution is required, particularly with the declining indigenous gas situation in New Zealand and the requirement to firm dry years. Sort of key themes that we take away from the various reviews that have taken place. The first is that electrification continues to grow and with that comes demand growth. We also see strong theme around security of supply. And of course, the final one, which is a major focus for New Zealanders, both businesses and households is an affordability. So our approach and the choices we're making around those 3 areas include when it comes to demand growth and electrification. The delivery of our renewable generation pipeline through that process. We are committed to developing those projects in consultation with EV communities and stakeholders, always considering environmental impact through the consenting process. We're also seeking to help increase demand by supporting large industrials to transition and to electrify. When it comes to security of supply, we've been supporting market mechanisms and that includes entering into the firming supply agreements with the Huntly Firming Option. And then from an affordability perspective, the 3 key areas we are focusing on. Firstly, around delivering greater clarity and transparency of our bills and our pricing. Secondly, providing consumers with control, and that includes the work we're doing over the next 6 months for time of use products for our customers. And finally, making sure we have care in place for those customers that are in situations of hardship and vulnerability. I'll hand back now to Richard just to touch on the customer work that we've got underway. Richard Hopkins: Yes. Thanks, Stew. Look, I just think that's an awesome program of work we've got going on. It's so exciting to be part of Mercury and delivering for New Zealand. When we look at the customer side of things, just a couple of key points from me. So multiproduct continues to build. So about 40% of our customers now are multiproduct, that's 2 or more products and that's improving value per customer. Our connections are up at 30,000 versus prior calendar period. Our -- fiber is now ticked over 150,000 and we're over 94% of the broadband base. OpEx per connection is down and there's -- you can really see that in the yellow bars at the bottom chart. So yes, it's really great to see down 4% versus prior calendar period and 16% below HY 2024. So big, big progress there. Unit economics are improving through multiproduct pricing actions and customer value initiatives and really disciplined cost to serve. Making some good progress on time of use, and it's good for customers, good for system resilience, and we're on track to have that delivered by the end of the FY '26. And lastly, we've got a great new leader in Suraiya, leading the customer business. We're really excited to see what she can achieve, and you should be looking forward to hearing more from her as we talk to you going forwards. On the next slide, look, we're disciplined and we're careful with our money and the choices that we make. We target a debt-to-EBITDA of 2 to 3x, S&P adjusted, and that's consistent with the BBB+ rating. At half year '26, we're at 2.2, and net debt has gone up slightly to $2.243 billion. And so it's really well within the guardrails while we invest $1 billion across OEC5, KD2 and Kaiwaikawe and get those online and delivering money and cash to the bottom line. Look, we've got undrawn facilities of $465 million, and we're proactively considering the refinancing options for our $200 million green bond, which matures in September. Looking to go to market and get that done during March. We've got $1 billion, as I mentioned, committed into new wind and geothermal, and we're also investing significantly in hydro, including the $590 million rehab program that Stew mentioned, 76 megawatts, 87 gigawatt hours per year. But the big point here is that we can deliver the program on balance sheets with conservative debt-to-EBITDA settings with liquidity headroom to manage volatility. So we're in a good place. In terms of dividends, look, interim dividend is $0.10 at 4% and dividend guidance remains $0.25. The payout is towards the low end of the range because we're in peak investment period and balancing progressive dividends and our long track record of growth with funding, value-accretive growth and maintaining balance sheet resilience. Our half year operating cash flow supported dividends and growth investment with balance sheet headroom and portfolio flexibility. And 2026 guidance, this is pretty simple, unchanged. Full year EBITDAF remains at $1 billion. It's based on 4.4 terawatt hours of hydro generation. And obviously, subject to hydrology and wholesale market conditions going forward. We're confirming our OpEx guidance of $370 million, our SIB CapEx guidance of $150 million and dividend guidance of $0.25, so up 4% on last year. We're starting the second half in a strong storage position, but there's still a long way to go to 30th of June. And the key point here for us is discipline. That's the point we want to keep on executing, stay conservative on guidance and build confidence through delivery. We'd rather let delivery do the talking. So with that, I'll hand back to you, Stew, to run through the final slide, and then we can open up for Q&A. Stewart Hamilton: Thanks, Richard. Yes, absolutely. So to summarize our half year '26 interim results, we are very much demonstrating the delivery of our strategy with strong performance in terms of better today, building tomorrow and brighter together. That's showing up through our resilient earnings, through our disciplined growth and through our balance sheet strength. So we're leveraging our strength in wind and geothermal in particular, we've got a superior project pipeline ahead of us and a strong financial position to start with. That will enable us to make smart, disciplined investment decisions focused on the delivery of our performance, and I look forward to sharing the continued delivery of those results as we get into the second half. And with that, I'll hand back to Paul to open up for questions. Paul Ruedige: Okay. Thanks, Stew. Thanks, Richard. Okay, I'm just going to bring Grant Swanepoel on from Jarden. Grant Swanepoel: Is that working? Sorry. First question, just on this hydro spend. Do we think of it as the maintenance CapEx going from $150 million to $209 million for the next 10 years? And on that investment, the 76 megawatts and 87 gigawatt hours on your long-run wholesale expectations, what does that deliver you in terms of extra EBITDA? Richard Hopkins: Yes. So look, in terms of the investments, Grant, that's all sitting between -- in our stay-in-business CapEx and even the sort of growth element, we don't do anything cunning there and call that growth. We just call that stay-in-business. So it's all within the $150 million, and we continue to expect to stay within the $150 million going forward. This was all baked in when we've been talking about our sort of forecast and the guidance out to FY '30, this is all baked into that. And so when we look through. We still remain very confident of the range that we've provided for FY 2030. We still remain confident that we'll be picking our debt-to-EBITDA at 2.6x, which is what we talked about at the Investor Day last June and then leverage will be falling away from there. So look, we've got plenty of funding capacity to do everything that's in our pipeline and to do more. Equally, we can see what others are doing as well. So we're going to be disciplined about that to make sure only the best things make it through that have great LRMCs and deliver great returns to shareholders. Stewart Hamilton: Sorry, on the value part of your question, Grant. Very much that additional megawatt capacity really feeds into the firming part of our portfolio. So that kind of slide that shows where our capacity requirements are. So it will enable us to have the firming, which means we can continue with confidence to keep building our wind portfolio out, for example. And then if we look at sort of our expectations of where the gigawatt hours show up, has it really changed in terms of our expectation of the long-run marginal price being somewhere between that sort of 110 to 125 region? So as these projects come online, that's what we're considering them against. Grant Swanepoel: That's very clear. Then you did mention that you will be watching all the others build programs with Contact and Genesis now having raised a bit of capital and accelerating their programs. Do you have enough of a culture in your company that you can shift from just growth, growth, growth to something that's a bit more subdued? Stewart Hamilton: Yes, absolutely. So plan of our pipeline is -- and Matt Tolcher and the generation development team are to bring these projects so they are execution ready, ready to go. And then that's for us, we take these projects through a pretty disciplined process with our Board to make sure that when we do head to FID or final investment decisions for those projects, we're considering where the project is and what the demand and supply situation is in New Zealand before we actually press the button on those projects. And a big part of that is also looking at our wholesale part of the business to try and work through developing a load or a long-term supply agreement that actually back to back with the supply that we're going to provide. So you see that a little bit with the Kaiwera Downs 2 project. That largely came off the back of a long 20-year contract with the Tiwai Point aluminum smelter, and that's something which we watch very closely as well. Grant Swanepoel: And my final question is just a short-term one. Your OpEx improved materially first half, great outcome and not material improvements set for the second half. But there's no run rate in that OpEx out in the first half, that would see you reducing the $370 million for FY '26 outlook? Richard Hopkins: Yes. So look, there's -- when we look at this Grant, there's -- a lot of it was -- has come through in that first half, but there. There are swings and roundabouts as we go through the year. So it's always interesting to look at the first half, but there's other overs and unders as we go through. So look, we think $370 million is a good number to be hitting. We still got a way to go. And what's the risk? Well, the risk is something goes bang and creates a bit of a maintenance blip for us. We've got contingencies in place for that, if it happens. So look, we think the $370 million is the right number to be guiding on. If we -- if everything goes really well, can we come in lower? Yes, a bit, but not materially. Wouldn't be doing anything well on that front. The main thing for us is to be setting ourselves for this -- setting ourselves up for this year and for the next 2 years as well. Grant Swanepoel: And I wanted to ask you about your conservatism in not changing your $1 billion forecast for this year, considering that was such a good first half. But thank you for answering my other questions. Paul Ruedige: Okay. I'd like to bring Vignesh Nair onto the screen, if you can unmute. Vignesh is from UBS. Vignesh Nair: Stew and Richard, well done on a really strong result today. Couple of questions. First one, just can we get a bit more color? I think you can sort of -- so you snuck in a geo project of 30 megawatts in the pipeline. Understandably, you're probably providing more details on the 14th of May. Can you sort of talk to that a bit? Is this the only project from a geothermal perspective in the pipeline that can be delivered pre FY '30 potentially? Or are we still talking to post '30 new geothermal? Stewart Hamilton: Yes. Thanks, Vignesh. Good question. So we have, I think, previously talked about a GEO project 1 which is the most likely project which we will deliver before 2030. So whilst we have a really strong pipeline of opportunities ahead of us, and we'll share a bit more of the detail of those projects when we get to May. The target for us is to deliver a project before 2030, whilst we continue to grow the potential projects, which will likely be delivered in the 2030s. So that 5 terawatt hours, the bulk of that will require us to do exploration, including drilling and development over the next few years that will lead into then the execution and delivery of those projects beyond FY '30, but we are certainly going to be pushing pretty hard to get the first one of that project in place and operational before 2030. Richard Hopkins: Yes, that project wasn't new, though. That's something we had in our investor stuff back in June last year. But yes, there's a few different options behind that. So we just need to see which of the options we can get done in time. But yes, we just think geo is great, it has got really attractive. We understand it well. If you look at what's happened on OEC5, delivered on time and on budget, LRMC when we've been talking about H2 before, it's going to -- touching wood because we're just in sort of final reliability testing now, but it's going to come in below that. So yes, show me someone else is delivering any sort of value like that. Vignesh Nair: Awesome. And secondly, I can see that you've changed your stance on the Whakamaru BESS slightly from 150 megawatts to a range of 100 to 150 megawatts. Just keen to hear your maybe broader thoughts on the New Zealand battery markets. Many of your peers are sort of obviously quite bullish on it medium to longer term? Stewart Hamilton: Yes. Yes. So much to cover in that question. So from our perspective, when we look at batteries, there's sort of 3 broad areas that we see the value show up. And firstly is in the area of arbitrage from an electricity pricing perspective. The second is in reserves and the third is in portfolio benefits. From the first -- the kind of the portfolio benefit is the one that's most likely to drive us looking at construction of a battery and our portfolio of assets. That's sort of what we tried to show a bit on that Slide 18, where we've got enough in our current portfolio to support what we are currently operating in our gen dev pipeline at present. But as we head towards bringing on stream the next set of wind farms, we will need batteries in our portfolio to help firm that. And so that's largely our thinking around the value show up for us in terms of the portfolio benefits and firming the other projects. So that's why we're sort of working through the best size of that project and the best time to stagger that investment. So we might stagger that up. We've got a consent for up to 300 megawatts of Whakamaru, but the likelihood is that will be staged potentially 100 megawatts first stage or 150 megawatts and basically staged to make sure it matches the renewable generation projects that we're building at the same time. Richard Hopkins: Yes. So we're not sitting on our hands there. We've done a lot of thinking, a lot of work. We're going to be moving forward into procurement in the not-too-distant future and expect to be building it certainly this side of 2030. We can see some real value in our portfolio to it, but we're just doing it at the right time where it delivers most value. Paul Ruedige: Next, we've got Andrew Harvey-Green from Forsyth Barr. I am just bringing on screen, Andrew, if you can unmute. He did mention he might have some issues with this particular call. So wait a couple more seconds, and then I'll just let go of Andrew, and then hopefully bring you back later. Next, we've got Josh Dale from Craigs, bringing on screen now. Do you want to unmute, Josh? Joshua Dale: First question, just on your FY '30 EBITDAF target, we have visibility on most pieces of the buildup to that with the exception of maybe Waikokowai, Puketoi. Do you have any indication on timing for those? And I guess, are there any risks of not having that generation come online for a full FY '30 contribution? Stewart Hamilton: Yes. So in terms of timing for that, we're progressing at the moment. We are aiming to get consent in place for that project sometime over the next 12 months or so. So that from a Waikokowai perspective, we certainly see that as the most likely next project to get off the ground in terms of consent through the final investment decision. It's a potentially a really valuable project in a great location. So it's really key for us. So that's certainly a project we're pushing pretty hard at the moment. Puketoi is another one, which we've done a lot of work around over the last couple of years, just trying to optimize that. There's already a consent in place for that project, but it's not a consent, which is, I'd say, commercially valuable or viable. And so the key thing for us is to make sure that those projects are progressing at pace. But equally, we won't push the button on those projects if they're not going to deliver good commercial outcomes. So yes, we're still targeting that. We expect that we'll have our aspiration. If those -- 1 or 2 of those projects don't come off, then we have another pipeline of projects, which will fill that gap. So our idea is to push those projects as hard as we can. But equally, we've got a number of options that sit underneath it to plug the gaps. Richard Hopkins: Yes. And when we sort of put up that forecast back in the day, we weren't assuming everything actually happened on this table. So there was some optionality around Waikokowai versus Puketoi. And so you can hear which one we think is the most likely today. But yes, as we look forward, I'll keep on the theme of under promising and over delivering. That's what we think we're doing with the range that we've given for 2030. Joshua Dale: Okay. That's helpful. And on the $590 million of hydro refurbishment spend. I appreciate you've got the phasing on Page 12, which is helpful. Is that CapEx deployed fairly evenly across those rehab periods? Or is it more front or back-end weighted? And I guess adding to that is the 120 for Arapuni as well? Just an indication of phasing would be helpful. Richard Hopkins: Yes. So pretty evenly spread over time. I think the big bits for us is actually -- there's -- I think as you look around the world, there's a lot going on with turbines. We've been working with ANDRITZ for a long time now. And the big bit is to have an agreement in place with them, to have manufacturing slots booked with them to have the long lead time stuff starting to get ordered. And so yes, we're expecting, at least in theory, Josh, are pretty smooth path through all of that within that sort of 150 guardrail that we've been talking about. Yes, we think it's a good place to be committing long term to those things for our own asset resilience, but also committing long term with our key partners as well to make sure that we're at the front, not the back of the queue. Stewart Hamilton: I'd say the Arapuni Left Abutment, definitely, the spend on that will be focused on the next couple of years primarily. And then the hydro upgrades at the Maraetai, Atiamuri, and Ohakuri largely spread out across the next 7, 8 years. Joshua Dale: Excellent. That's helpful. And last question. Out of interest, did you toy at all with upgrading FY '26 guidance given Lake Taupo's full OEC5 has progressed pretty well. Richard Hopkins: Look, we had -- we always have a good look at our guidance and make sure it's in the right place. So we have had some discussions and agreed that this isn't the time to be upgrading. There's -- yes, if only life was as simple as a flat line and what you think is going to happen happens. We've got hydrology, got wholesale prices. Look, we're comfortable with that. And yes, but no, we haven't upgraded the guidance because we think we've made it pretty clear where we stand. And yes, it would be disappointing from here not to be delivering it. Paul Ruedige: Andrew, I'll just bring you back on screen. I'll take your screen again, Andrew. We'll go to Steve Hudson from Macquarie. Stephen Hudson: Just got a couple for me. On your South Island development options, perhaps Stew, should your old employer push go on sort of bringing back potline 4 and perhaps a greenfield potline 5, how well placed are you to further supply into that kind of demand? Stewart Hamilton: Yes. So definitely, if we look at, for example, as I mentioned Kaiwera Downs 2 is largely set up to support baseload at Tiwai. As we look for Puke Kapo Hau or as you know, at Mahinerangi 2, that's a project, which is also in the lower south of the South Island and certainly would make sense to have a load in the South, whether it's a smelter or whether it's a data center or whether it's Fonterra electrification. There are a number of quite large potential opportunities in the South which is why we're still progressing some of those projects because PKH or Puke Kapo Hau is a really good project with a great LCOE. It's obviously in the location, which isn't great. But if we can find loads such as Tiwai's line 4 or line 5 and beyond, all those other things I spoke to, then that's really well suited for those. Stephen Hudson: Yes, makes sense. Richard, maybe one for you, very clear sort of messaging on the balance sheet. You've got a 0.8 turn on EBITDA sort of headroom. I just wondered how the credit rating agencies look as you're going through a significant build phase at some sort of forbearance above the 3x ceiling. Richard Hopkins: Yes, I'm pretty sure that that's not on my bucket list. But look, the credit rating agencies will look through if there's a short-term increase over and above. It sort of varies depending on the reason that you're above as to whether there's sort of a negative outlook or not. So there's -- yes, companies have the possibility of getting into the low 3s for 12 months or so, 18 months if there's a clear plan to get back under over time. But yes, we're a long way away from that peaking. Just the same as what I said back at the Investor Day back in June last year, sort of 2.6x. So we're pretty good and got a good amount of headroom there. My constant thing is to talk to Stew and talk to Matt and say we want to do more because we've got a great pipeline. We don't need to accelerate what we've got. We're moving fast. We're the ones building stuff and having 3 coming online, I would love to build some more. Yes, so we don't need more capital to speed up, we're going as fast as we can. What's slowing us down? Well, it's the normal stuff around consenting, but we're pushing through that as quickly as we can, and we'll keep on building where there's great value. Stewart Hamilton: We sort of look at, Steve, is every sort of terawatt hour to build is around about $1 billion worth of investment. So we look out to our goals in terms of 3.5 terawatt hours by 2030, it gives an idea of the sort of money that we want to be spending and then that's built into the capital headroom, which Richard and the team look at. Richard Hopkins: That's right. Look, it's big assumptions is how lumpy is it? And yes, it's nice and easy to say $600 million a year broadly, and that's what we'll spend this year. But there might be some lumps in that, but even if there's a big lump, 2.6 gigawatts still looks like where we'll be. Stephen Hudson: Just one final one. We've often quizzed you about the GWAP/TWAP factors that we might expect over time from the wonderful Waikato hydro peaking assets that you've got. Do you think you might be in a position to share a little bit more of your thinking around that come your Investor Day? Or do you think it will be largely geothermal focused? Stewart Hamilton: Yes. The idea is very much for the May session is very much geothermal focused and sort of opening the covers a little bit to create a bit more clarity around what that looks like over the next 5, 10, 15 years. But certainly something we can take away, Steve, and think about even for our full year results, if that's something which might add value for us to be presenting to help. Richard Hopkins: Yes. Look, I mean, I think it would be, 5 terawatt hours is a big number as well, but we'll just add that to the wish list. Paul Ruedige: So that's the end of questioning. I pass back to you, Stew. Richard Hopkins: We will talk to Andrew later, will we? Stewart Hamilton: Yes, I look forward to catching up when we talk later on, Andrew. Yes. So thank you very much. I just really wanted to take the chance to thank the Mercury team. It's been a really great start to FY '26, but there's still a lot of work for us to do, whether that's in delivering our new projects, whether it's in the work to support the regulatory and government space, all the way through to the core assets, which include the 1,300 people inside Mercury that are servicing customers and supporting our assets on every day. So thanks very much for your time. Look forward to catching up through the day and over the next few days and sharing the results of the second half of FY '26. Richard Hopkins: Thanks, everyone.
Operator: Thank you for standing by, and welcome to the City Chic Collective Limited HY 2026 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Phil Ryan, Managing Director and CEO. Please go ahead. Philip Ryan: Thank you, and good morning, everyone, and thanks for joining us. I'm Phil Ryan, the CEO and Managing Director of City Chic Collective, and I'm joined today by James Plummer, our CFO. This morning, I'll run through the presentation, starting with the business and strategic update. I'll then ask James to do a review of the half's financials, and I will then discuss the trading update before opening up to questions. Moving to Slide 2. Our EBITDA delivered an 86% improvement in the first half, increasing from a profit of $3.5 million to $6.5 million. This performance was underpinned by our strategic actions across customer and product, along with the disciplined execution of our cost-out program. The ongoing growth is another positive step forward for City Chic. Our simplified business model gives us a platform we can leverage to drive profitability as we look to return to stronger revenue growth at sustainable expanded gross margins. We will achieve this through continuing to implement improvements in our fit and quality of product to deliver on our Cut for Curves promise and focusing on our target high-value customers. As I said at the AGM, aligned with our strategy, we have comprehensively overhauled the product development process, including greater rigor across design and quality control. This initially resulted in a slower-than-planned intake of Australia and New Zealand summer product, which impacted revenue in the first half as we bought our factories on the journey with us. Despite this deliberate shift, Australia and New Zealand still achieved a 10.1% increase in trading gross margin dollars, driven by a higher average sell price, which was up 6.1%. The performance of summer product in Australia shows the progress we have made in our assortment as we execute our strategy and deliver on the Cut for Curves promise. We realize there is still a long way to go, and we are evolving our assortment with the learnings we are taking from her. And from this, we expect stronger sell-through in the Australia and New Zealand winter. U.S.A. with very limited inventory investment due to the tariff environment, as we've previously communicated, has performed above expectations and continue to deliver profit at a contribution level. We are now investing in inventory for summer '26. And given the performance of our summer range in Australia and New Zealand, we expect this to drive an improved performance. We delivered $10.1 million in positive operating cash flow for the first half, reflecting disciplined working capital management. We've achieved the clean down covenants for FY '26 and extended our facility until March 2028. In the first 8 weeks of the third quarter, Australia and New Zealand trading gross margin dollars were up 17% on the prior corresponding period, driven by the continued strength in full price sell-through, improved product mix and the sustained benefits of a tighter promotional discipline. Moving to Slide 5. Revenue was $69.2 million, flat with the prior corresponding period with Australia up 7.4%. Our cash position is $5.4 million with an undrawn $10 million bank facility. Our inventory reduced 21%, reflecting our decision to strategically pause purchases in the U.S.A. given the tariff volatility. Our customer base is stable at 503,000, 58% of which are our target high-value customers. To drive revenue growth, our focus is on increasing annual spend through greater purchase frequency. This metric has shown improvement, but remains well below our historical levels. She's remained a loyal CC customer and when the economic environment is more positive, I know she will increase her spend with us. In terms of things we can control to drive our frequency, in Australia and New Zealand, we can achieve the improvements through new lifestyles, and increase in our CCX casual diffusion range with differential ranging and endless aisle in stores and by expanding our new lifestyles and categories online. In the U.S.A., we need to retain and build our customer base, which we are confident will come as we get our new product into the market. Moving to Slide 6. Our website traffic has grown. It's up 9%, and our Net Promoter Score has increased to 74. These results have come from the strategic communication improvements we've made across all of our touch points from stores and websites to our social and digital advertising. But most importantly, this comes from the positive feedback we've received on our product improvements as we deliver on our Cut for Curves promise. Our trading gross margin was up 220 basis points to 62.2%, exceeding our target of 62%. We now need to leverage this as we drive volume growth. At a cost level, we've delivered all of our cost-out programs and achieved a cost of doing business of 51%, down 3 percentage points from 54% in the prior corresponding period. Moving to Slide 8. This shows the 3 strategic pillars that will drive EBITDA growth, and these haven't changed for some time, putting us first, our customer, delivering on our Cut for Curves promise with our product and continually looking at efficiencies to drive down costs in a simplified business. At a customer level, putting her first means making sure we build and protect the emotional connection that's kept the CC customer loyal over so many years. She now has so many more options, especially online than she's had historically, and we need to talk to her in a way that ensures we maintain this connection. We do this through being more authentic in our social presence, making e-mails more personalized to her behavior and continuing to listen through our monthly customer survey. It's actually quite unique to our brand that each month, over 3,000 of our customers give us feedback through the survey. It's invaluable in deepening our connection as we listen to her, and it really demonstrates how invested she is in City Chic. At a product level, our brand promise is to be Cut for Curves always. And we exist to solve her curves, fit and fashion frustrations. Internally, this is more than a slogan. It's our reason for being. It informs every decision we make. We need to understand her frustrations and deliver her solutions. We design with our curves in mind, and we fit with flex from adjustable waste to fabric weight for structure and drape. Our designs are intentional, and we make her feel incredible. Driving efficiencies to ensure that our cost base aligns with revenue is embedded in our business. We understand that if revenue growth does not meet our expectations, we need to continually refine our operating model and deliver more cost out. Moving to Slide 9. At 62% online and partners, our business is truly an omnichannel and is set for the digital future of retail. There are not many retail businesses in Australia with around 80 stores that deliver this online penetration. Moving to Slide 10. We've achieved so much in the last 2 years. We've rightsized the business and evolved our product mix, and we've targeted our high-value customer and achieved results in that. Our focus is now on driving revenue to deliver leverage on our cost base. With stronger gross margins, all revenue increases will deliver material profit growth. In Australia and New Zealand, there are some of the key actions. Firstly, we're increasing our CCX diffusion range, which is more casual in nature to increase the lifestyle options for her at a more value price point, and we will still be maintaining our margins in this area. While our stores have always served the mix of customers, as we've elevated the range, those differences in customer preferences have become more pronounced. In response, we moved to differential ranging. Historically, all stores carried largely the same assortment and relied on replenishment to adjust the sales volumes. Now with a broader online range, we have greater assortment depth and can tailor the initial allocation to better suit each store's customer. For example, some locations performed strongly in our occasion and high-end product, while others see stronger demand in casual and everyday wear. It really is in the center, and we're evolving our business to follow that more. We've also listened to our customer and for that matter, our team. And what they told us that as they've seen the improvement in our assortment, we've created a demand for Cut for Curves product that solves fit and fashion frustrations for ladies that are size 10 and 12. As such, in selected stores and online, we are currently trialing an increase in our size range to include a 10 and 12 with some good initial results. This is capturing a new customer that we can help solve her frustrations and also catering to customers that are on a weight loss journey that still require that curvy fit. In our online business, we've seen a stronger customer response to expanded lifestyle and category assortments such as footwear and swing. We're continuing these expansions. And following a successful sleepwear trial in the first half, we're going to roll out this category more broadly in the second half and beyond. In the U.S.A., the primary driver of our growth will be the reinvestment in inventory, which will start to flow in, in March really, and that's despite what we did in the first half with very limited purchasing, sales have remained above our expectations and the consumer has held up well, which really is very positive for the summer period in the U.S.A. If we look at the U.S.A. market, it has a materially greater addressable market than what Australia has. With the success we've seen of our digital high-value customer acquisition and reactivation strategies in Australia and New Zealand, we have a playbook to drive high-value customer acquisition in the U.S.A. through the fourth quarter and into FY '27. Really, in America, we just need to take a small part of what is a very, very big market. To enhance our credibility in this market, we're talking to numerous partners about a pop-up physical presence or some way of or putting something down in the U.S. that shows that we're really committed to the market. And then focusing on other markets such as Canada, the U.K. and Mexico, we're implementing international shipping, excuse me, through Global-E. We've had a presence in these markets, and we can directly reengage with some of our customers who are already familiar with the brand. Moving to Slide 11. This slide shows a very -- shows really a little snip of our new range and some of the comments from our customer. Our Cut for Curves promise, as I said earlier, aims to deliver on fit and fashion ability for our customer. And it's great to hear them saying in one of the quotes, keeping up with fashion and love the fit. Really, for me, that means we're delivering on this promise and is our platform for growth. Moving to Slide 12. AI is changing the way business is done. Right now, companies are focused on how we can reduce costs. We've been on that journey for a few years and have implemented numerous AI-led initiatives across the business that I'll talk to in a minute. But really, what's more exciting for us is how AI can help us optimize product decisions through leveraging data in our design and buying process. To achieve this, we partnered with a cutting-edge Australian retail AI start-up named SeeStone. Founded by a retail and digital commerce leader and a specialist AI and engineering team, the platform is purpose-built for fashion retail and integrates AI and predictive machine learning into our design, buy and allocation process. What SeeStone enables us to do right now is to assess our new designs from a picture, sketch or pad computer-aided design and provide the team with the probability of success. It estimates the expected sales using all of our historic performance and broader market data to give us a probability of how we think that sell-through will be. It's an amazing tool and helps both planning and design teams make more effective decisions. It also enhances our ranging by store, region and channel and supports the differential ranging strategy that I talked about earlier. What's SeeStone built for us is a machine learning platform with 3 years of our SKU and location level sales data that is updated daily to consistently refine our learnings. It also reviews data from the Internet on what other brands are selling as an indicator of our success. Further to this and as a byproduct, it will help us automate what is currently very manual repetitive processes to improve scalability and free our teams to focus on higher-value decisions. Some of the other areas we're achieving AI more cost-enabled efficiencies are below. We've used Jasper to create and optimize our marketing content. Jasper is a marketing-specific AI agent that over the last 4 years, we trained in the City Chic tone of voice and customer personas. What it gives us is brand-appropriate written content to all of our websites and all of our partners. On our websites, we use AI-driven product recommendations and on-site customer journeys that materially improve the customer experience. We're using our AI to optimize our digital marketing execution and driving an improved return on advertising spend. And to secure our digital networks, we're using AI to actively hunt cybersecurity threats through Sophos. These are just some of the examples of how AI is increasingly being embedded in our operations. I'll now throw to James to discuss the financial slides. James Plummer: Thanks, Phil, and good morning, everyone. As Phil mentioned earlier, we're pleased with the continued improvements in profitability from the prior year. Underlying EBITDA of $6.5 million represents a $3 million improvement on the prior period, rewarding the disciplined execution of our strategy. While group sales were broadly in line with the prior period, the results reflect 2 very different regional performances and demonstrate a continued overall improvement in sales quality. In ANZ, revenue grew 7.4% on the prior corresponding period, with trading gross margin dollars up 10.1%. Our trading margin improved 1.3 percentage points on half year '25 and 6.4 percentage points on half year '24. This demonstrates the continued development of our product ranges, higher sell-through of full-price product and a more disciplined promotional approach. In the U.S.A., revenue was down 31% to $9.7 million. This largely corresponds to our deliberate reduction in purchasing, which was in response to the tariff-related volatility. The impact is most evident in the partner channel that relies heavily on new product launches. Even with the lower sales and fewer new products, the U.S.A. followed the Group's disciplined promotional strategy, driving a gross margin increase of more than 4 percentage points compared to the prior period. This, along with our local variable cost base is what allowed the U.S. business to still make a profitable contribution to the Group even with these lower sales. The overall cost of doing business fell by $2 million on the prior period, benefiting from last year's annualized cost savings, which have largely balanced out the inflationary pressures. We continue to closely manage costs and take appropriate action to ensure the costs aligned with the trading results and the business can remain profitable. Turning to the balance sheet on Slide 15, and this has been a real area of focus during the period. Pleasingly, we have generated $10 million in operating cash flow for the half, reflecting our disciplined working capital management and improved operating efficiency. Inventory as planned, driven by the deliberate reduction in purchases in the U.S.A. In ANZ, inventory remains in good shape with the improved stock turns and a healthy mix of new and seasonably relevant product. Trade payables have moved in line with normal purchasing cycles, reflecting the timing of new inventory arrivals in ANZ ahead of Chinese New Year. This is consistent with normal trading patterns. From a capital structure perspective, we fully repaid all drawn debt during the period and extended our debt facility through to 31 March 2028. All cleaned down covenants have already been met for FY '26. While cash flow discipline remains a clear focus for the business, we're very pleased to have extended the debt facility under the same terms, which provides both stability and flexibility and positions us well to continue to execute our strategy. I will now hand back to Phil to talk through the trading update. Philip Ryan: Okay. Thank you, James. Moving to Slide 17 and the trading update. In the first 8 weeks, we've maintained our trading momentum. Australia and New Zealand gross margin trading is up 17% and the revenue is up 9%, reflecting the continued strength in the full price sell-through and our improved product mix and the sustained benefits of the tighter promotional discipline. Delivering continued year-on-year growth in Australia and New Zealand is another pleasing step forward. However, the performance continues to be impacted by economic pressures and softer consumer sentiment. This impacts demand as interest rates are rising. Recognizing these pressures, we are maintaining a disciplined focus on costs, inventory and execution. In the U.S.A., we've invested in product to relaunch into the summer season, as we've mentioned many times, and we know this will drive profitable growth in the fourth quarter and beyond. The evolving developments regarding tariffs as it currently stands, we estimate will result in a 5% reduction in duty for our goods entering into the U.S.A. from China. We're monitoring the situation closely. And for now, it doesn't impact our current plans or timelines. We've strategically shifted Amazon from a wholesale partner to a marketplace relationship. This allows us more control over the range, price and trading of the business. While this will cause short-term revenue challenge, it will deliver longer-term profitable growth that we can have greater control on. It is now all about leveraging our cost base to deliver profitable revenue growth. I'll now hand over for questions. Operator: [Operator Instructions] The first question comes from Jasper Struwig with Canaccord. Jasper Struwig: Can you hear me all right? Congrats on the results. I know a lot of the numbers have been released, but really good to see the operating momentum, especially in the trading update, and it's good to see, I guess, your core region in ANZ really sort of starting to reaccelerate growth. But could you potentially touch on how things are tracking over in the U.S.? I understand you guys are obviously reinvesting in inventory over there. But just keen to understand how things are tracking. Philip Ryan: Look, yes. Thanks, Jasper. Thanks for the question. Look, the U.S.A. is really a large focus of mine. I think for those of you that were around last year, you'll remember, we were prior to all the tariff stuff, we were really pinning our hopes on getting meaningful market share through there. And what we decided was to really pause our strategy, and we didn't purchase anything into the second half -- well, the first half of the financial year, second half of calendar '25. And the way she held up was way better than I expected. Even right now, she's doing a lot better than what we thought. We have delivered very minimal to basically no newness. We see there's some coming into March as summer launches over there and then really April, May, June as we get into the season. It's always been a much stronger season over there for us now, and we're confident that, that will continue. I mean we still have around that sort of -- we still have almost 50,000 active customers over there, and it has been a lot more than that in the past, and we can reactivate and retarget that. And what we want to do is use our playbook on what we did in Australia over the last 12 months to take the learnings and implement them at a digital marketing and communications level to reengage and reactivate not only the customer we've got, but then to get more of the high-value target customers in what is a much more customer-rich environment. Jasper Struwig: Perfect. And then maybe just quickly touching on the shift in the Amazon operating model. You mentioned on the call that you're sort of expecting near-term revenue, I guess, headwinds. Can you maybe expand on that? Philip Ryan: Sorry, can you say that again, Jasper? Can you say that again, please? Jasper Struwig: Just a question on the shift in the Amazon operating model. Yes. You just mentioned on the call that you're expecting some short-term revenue headwinds. Could you potentially sort of expand on that what the headwind might be, how long it might last that sort of thing? Just your thoughts. Philip Ryan: Very good question. You can see in the first half, our partner revenue was the thing that took the biggest hit through the U.S. I think yes, I think it's over 30% total drop in the market and the partner business had an even bigger drop than that 32% on a constant currency basis. What we've done is Amazon used to order directly through our website and take it into their logistics on a wholesale level, and it was very sporadic, and we couldn't understand what they were doing. We've since worked with the company to drive sales with Amazon. And what we realized is we need to actually control what inventory they are getting in order to really drive it. What it means is really through this first half, we haven't seen a lot of Amazon sales in quarter 3 so far, and we're expecting to ramp it up into quarter 4 in the U.S. The impact will be on the partners' line in the U.S. in the second half. Operator: [Operator Instructions] There are no further questions at this time. I will now hand it back to Mr. Ryan for closing remarks. Please go ahead. Philip Ryan: Thank you, everyone, and I'd like to extend a thanks to everyone for joining today. It's really pleasing to be continuing our ANZ revenue growth, getting double-digit margin growth in a challenging environment shows how much work we've put into product and how much the team here has done to make that happen and focus on our target high-value customer and execute on our strategy, and I want to thank the team. Then to be back in the U.S.A. and trading is exciting for us. We've had a business over there since 2010. And I know that once we get product into market that we will be able to deliver on our Cut for Curves promise in what is a materially larger addressable market. With our simplified business model now in place, really, as I've said a few times, it's all about focus on driving revenue to deliver that profitable growth. Thank you. Operator: That does conclude our conference call for today. Thank you for participating, and you may now disconnect.
Operator: Greetings. Welcome to the DMC Global Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Geoff High, Vice President of Investor Relations. Please go ahead. Geoff High: Hello, and welcome to DMC's fourth quarter conference call. Presenting today are President and CEO, Jim O'Leary; and Chief Financial Officer, Eric Walter. I'd like to remind everyone that matters discussed during this call may include forward-looking statements that are based on our estimates, projections and assumptions as of today's date and are subject to risks and uncertainties that are disclosed in our filings with the SEC. Our business is subject to certain risks that could cause actual results to differ materially from those anticipated in our forward-looking statements. DMC assumes no obligation to update forward-looking statements that become untrue because of subsequent events. Today's earnings release and our related presentation on our fourth quarter performance are available on the Investors page of our website located at dmcglobal.com. A webcast replay of today's presentation will be available at our website shortly after the conclusion of this call. And with that, I'll turn the call over to Jim O'Leary. Jim? James O'Leary: Thanks, Geoff, and thanks, everyone, for joining us today. Macroeconomic challenges continue to be a major issue at DMC, notably tariffs, both pre and post Friday's turbulence and the general trend in level of interest rates, which have largely been unforecastable, much to the strain of everyone in the building industry. These and other economic challenges weighed heavily on DMC's core oilfield and construction markets throughout 2025 and are persisting into early 2026. Despite these difficulties, we remain focused on our main objective, which we've consistently discussed with you each quarter, strengthening our financial position. And on that front, we continue to make significant progress. We reduced our net debt by another $11.4 million during the fourth quarter. At year-end, our net debt of $18.7 million was down 67% from the end of 2024 and at the lowest level since the Arcadia acquisition was consummated in 2021. However, while we made progress on the balance sheet front, we received little or no cooperation from our end markets, which continued to worsen during the period. Tariffs were a significant headwind for us in 2025, and we're currently reviewing Friday's Supreme Court ruling and the White House's subsequent response to understand what it all means for our businesses. At this point, it appears that the Section 232 tariffs on steel and aluminum will remain in place. We're evaluating what refunds we may be entitled to which the Supreme Court was silent upon in its ruling. With respect to the fourth quarter, consolidated sales declined 6% year-over-year to $143.5 million. Fourth quarter adjusted EBITDA attributable to DMC was negative $1.6 million, which included approximately $7 million in discrete accounts receivable and inventory write-offs at DynaEnergetics, our core oilfield products business as certain of its customers have been negatively impacted by very challenging conditions in the North American unconventional oil and gas market. Arcadia, our building products business, reported fourth quarter sales of $57 million, down 5% year-over-year and down 8% sequentially. Adjusted EBITDA attributable to DMC was $2.4 million, up from $2.2 million in the prior year fourth quarter, but down from $5.1 million in the third quarter. In addition to year-end seasonality, Arcadia's end markets have been impacted by persistently high interest rates and elevated raw material and labor costs, which have collectively slowed architectural activity and led to the deferral of several large projects. The Architectural Billing Index for Acadia's core Western U.S. region is contracted for 12 months, and these conditions have led to a highly competitive bidding environment that's pressured pricing. Most notably, we've experienced a continued increase in the average price of aluminum, Arcadia's primary input, which was up 55% year-over-year and 12% sequentially. In a soft market categorized by project deferrals and delays, this has led to a very price competitive environment. DynaEnergetics reported fourth quarter sales of $68.9 million, an 8% improvement versus the prior year quarter and flat sequentially. Adjusted EBITDA, including the approximately $7 million in write-offs was negative $2.7 million. As mentioned, DynaEnergetics and its customers have been negatively impacted by challenging conditions in the North American onshore market, which has seen volatile and generally declining oil prices, fewer operating frac crews and highly competitive pricing. During the fourth quarter, Dyna paid more than $3 million in tariffs and related duties and has paid more than $10 million since the tariffs were imposed in February of last year. NobelClad, our composite metals business, reported fourth quarter sales of $17.7 million, down 38% from the 2024 fourth quarter and down 15% sequentially. Reduced bookings during the first half of 2025 led to the declines as evolving tariff policies contributed to significant uncertainty in NobelClad's U.S. and international markets. Adjusted EBITDA was $2.1 million down 64% versus the comparable prior period and up 1% sequentially. The year-over-year decline principally reflects lower absorption of fixed manufacturing overhead on significantly reduced sales. NobelClad's order backlog at the end of the quarter was $62.6 million, up 28% year-over-year and up 10% sequentially. The increase reflects a record $25 million order during the first quarter of 2025 for an international petrochemical project. I'll now turn it over to Eric for a closer look at the fourth quarter financials and our guidance for the first quarter. Eric Walter: Thank you, Jim. As previously mentioned, our consolidated adjusted EBITDA attributable to DMC of negative $1.6 million included approximately $7 million in discrete charges at DynaEnergetics and the majority of these charges were related to accounts receivable reserves. As Jim noted, the reduced activity and pricing pressure in the North American unconventional oil and gas sector has created significant challenges for some of DynaEnergetics oilfield services customers. Inclusive of the Arcadia noncontrolling interest, adjusted EBITDA was approximately $61,000 versus $11.9 million in last year's fourth quarter and $12 million in the third quarter. Arcadia's fourth quarter adjusted EBITDA margin before noncontrolling interest allocation was 7.1%, up from 6.2% in the year ago fourth quarter but down from 13.8% in the third quarter. Dyna's adjusted EBITDA margin was a negative 4% compared with 8% in the prior year quarter and 7.1% in the third quarter. NobelClad's fourth quarter adjusted EBITDA margin was approximately 12% versus 20.6% in the prior year fourth quarter and approximately 10% in the third quarter. The year-over-year decline includes a tariff-related slowdown in bookings earlier in the year. Fourth quarter SG&A expense was $29.6 million or 20.6% of sales versus $25.1 million or 16.5% of sales in the prior year fourth quarter. The year-over-year increase principally relates to discrete accounts receivable write-offs at Dyna. Fourth quarter adjusted net loss attributable to DMC was $9.9 million, while adjusted loss per share attributable to DMC was $0.50. With respect to liquidity, we ended the fourth quarter with cash and cash equivalents of approximately $32 million. Strong fourth quarter cash flow enabled us to reduce total debt to $52 million, a 28% decrease from year-end 2024. As Jim mentioned, net debt was $18.7 million, down 67% from the end of 2024. And now the guidance for the first quarter. We expect sales will be in a range of $132 million and $138 million, while adjusted EBITDA attributable to DMC is expected in a range of $2 million to $4 million. Our results will reflect the impact of severe weather across much of the United States that affected our businesses during the first half of the quarter. We expect many of the factors that negatively impacted our fourth quarter and most of 2025 will continue into 2026. We believe Arcadia products will continue to face the broader factors that have weighed on the construction sector, including persistently high interest rates, volatile input prices and acute price competition. Project deferrals and generally lower activity in Arcadia's core West Coast markets are expected to continue through at least the beginning of the year. DynaEnergetics core North American unconventional market remains challenged by margin pressure from both fewer operating frac crews, which has led to a difficult pricing environment and higher input prices that have been inflated principally by tariffs. While NobelClad expects improved performance for the full fiscal year, demand erosion following the imposition of tariffs in early 2025 and the resulting impact on major orders will result in a slow start to the year. As a reminder, our guidance is heavily impacted by macroeconomic conditions, including evolving tariff policies, particularly in our core energy and construction markets. Our guidance is subject to change either upward or downward as these highly volatile inputs evolve in 2026. Now I'll turn the call back to Jim. James O'Leary: Thank you, Eric. So to sum up, while we're pleased with our progress on the balance sheet, we're equally displeased with our overall financial performance. However, we recognize and we expect that many of our constituents recognize that we operate principally in 2 markets, energy and construction, that historically have been highly volatile and can and have been deeply cyclical. While we navigate what currently are tough conditions, what will hopefully be close to trough conditions in both markets, we're keenly aware of the need to find future avenues of growth while we continue to batten down the hatches to maximize operating leverage when business conditions eventually improve. Our businesses are actively pursuing potential growth opportunities that align with their core capabilities. For example, DynaEnergetics is exploring opportunities in the enhanced geothermal sector while we're looking to expand our presence in certain emerging international shale markets. Meanwhile, NobelClad which already supplies mission-critical components to the U.S. Navy is closely monitoring opportunities associated with the recently announced acceleration of the U.S. Naval Readiness program, and expects to be a beneficiary of any increased volume, particularly for future submarine programs. Currently, each of our businesses are assessing the expected impacts of the Supreme Court tariff decision while working on additional tariff mitigation strategies. They're ready to take further cost reduction activity in addition, if business conditions do not improve as we move further into 2026. Finally, I'd like to thank the DMC's associates around the world for their contributions during a very challenging year. The contribution and commitment is greatly appreciated. And with that, we'd be glad to take any questions, operator. Operator: [Operator Instructions] And our first question comes from the line of Gerry Sweeney with ROTH Capital Partners. Gerard Sweeney: I want to start with DynaEnergetics. Obviously, at the end of your prepared remarks, you talked about being keenly aware of growth opportunities. And I was wondering if you could touch upon the geothermal opportunity and the international shale opportunity with... Geoff High: Gerry, are you there? Gerard Sweeney: Did you catch anything? Or did I -- was it just not there? Geoff High: You weren't there? Can you start over? Gerard Sweeney: Yes, I can. I apologize. Jim, you spoke at the end of your prepared remarks about being keenly aware of growth. And I want to see if you could just discuss the opportunities on the geothermal side and the international shale side -- and on the international shale side, how you go to market and what's the opportunity there? James O'Leary: Sure, sure. We'll definitely talk about the growth. But again, we're keenly aware these are cyclical markets, 2 of them are down. So while we've been taking costs out all along, supply chain, variable costs. And if there were further attrition, everything is on the table, head count across the board, spending across the board. So the goal for at least until we start to see the markets improve is make sure we're maximizing operating leverage on the other side. I was at the Builder Show last week, we're not experiencing anything different than anybody else, onshore oil and gas certainly the same, and we're particularly exposed to onshore oil and gas, where the price pressure and volume -- volume has been okay, but the price pressure, particularly the tariff impact on margins has been challenging. So job one is to make sure we have the maximum operating leverage possible on the other side of this. But -- and to your question, our product, particularly for EGS enhanced geothermal, it's exactly the product we use for fracking. If you looked at the One Big Beautiful Bill from a couple of months ago, the renewable technology that was most favored and came out not just intact, but better than it went in before the bill was put up. Enhanced geothermal is the preferred and really, it came out with a halo on it. There are a number of industry players that we're working with right now. They're through. And if you were to look at the CVs of most of the people in leadership positions at EGS companies, they're all former people who were in leadership roles at fracking companies, oil and gas companies. It's very much a similar technology. It's the same sales channels. And it's something that Dyna is extremely good at. And I think we're uniquely well positioned if -- in our opinion, it's when geothermal takes off. It will be principally in North America. But remember, we're one of the few companies with an international footprint as well. So we're exploring that globally, but first and foremost, in North America. The second and particularly noteworthy again because it's in the papers every day, naval readiness, particularly around issues and it's not just in Asia, it's across the world. The state of naval readiness around submarines, battleships, almost anything that has been underinvested in for now decades is something NobelClad is uniquely positioned in. We're sole sourced on a number of things that go into most nuclear subs right now and openly discussed and I believe in the budget for next year is a doubling of sub volume. Now that might be going from 1 to 2 or 1.5 to 2 plus, but doubling our volume has a pretty pronounced impact on NobelClad. We don't want to quote the numbers for an individual for a unique vertical right now. But doubling of sub volume for NobelClad, principally in the U.S., that doesn't include what else might go on elsewhere in the world, which we are looking into actively. Any additional -- particularly on pressure vessels and battleships and some of the additional things that are being talked about by the Trump administration would have a pronounced impact. It won't be 2026 unless it's very late in 2026. But in '27 and beyond, the revving up of the naval readiness program would have a significant impact on us. The third thing, which we talked about, going back to Dyna, international shale principally in South America, Vaca Muerta in Argentina is the one that you see most in the press. But in Saudi Arabia and other parts of the world, again, we think we're uniquely positioned because of our global footprint and our technology, but that's something we're also revving up the efforts on. Gerard Sweeney: Got it. I always like to start with the good things on the growth side, but a little bit different tact Arcadia. And I want to make sure -- I believe I read this right when I was rereading the transcript, but I think you anticipated actually, I think, better margins with the 3Q call in that segment. I'm just curious if that just saw increased pressure in the second half. And as you also said, there's nothing off the table. Anything there that you need to sort of fix or even invest in to help on the margin front? James O'Leary: No, I don't think there's anything obvious that needs to be fixed. We're looking at every discrete physical operation. We're looking at -- and we've continued to look at every product line, whether it's contributing or not. But Gerry, the entire industry just took a leg down from the second quarter going into the first quarter of this year. It worsened more than we expected, more than our management team there anticipated. I think you've heard us talk about the run rate, going from $20 million in sales per month up to $25 million as a pronounced impact on operating leverage. But we dipped below $20 million going into the third -- excuse me, going into the fourth quarter and into the first. And if it were something unique that we were doing poorly or something unique about our footprint, and don't get me wrong. We are concerned, we're looking at everything. But it's not concerned that we're doing anything particularly wrong. You -- I don't know if you have visibility into anybody, but there's one public comp, and I don't like to speak about peers in the press, but there is one public comp. Yes. But there's 2 private comps, both of which are private equity owned, we get to see, and I believe you probably could figure out how their performance has been. Of the 3 or 4 data points we have, 2 private, but pretty prominent debt issuers, 1 public, there's absolutely nothing unique about our performance, which is unfortunate. And I was at the Builder Show earlier this week and it's the gloomiest I remember since 2011. Now I'm hoping the saying, it's always darkest before the dawn holds true. I thought interest rates would kind of break in our way in our favor a bit sooner. I think we're going to have to stay tuned there. The cross currents of inflation, is it caused by tariffs or not, just general stickiness of longer-term interest rates relative to the likelihood that at some point this year, there'll be cuts. Hopefully, that precipitates the darkest before the dawn comment. But right now, it's about the gloomiest I've seen since 2010 and '11, but it's nothing unique to Arcadia. The only thing that may impact us a bit more than some of the peers I just mentioned. We're disappointed. I know the people who live there and are directly impacted are very disappointed, but the rebuilding in Los Angeles is taking a lot longer than I think we anticipated a year ago. It's taken a lot longer than people I talked to at the Builder Show last week have expected. And that's one where it has to be impacting us a bit more pronounced because we're the leader in that market. If you were -- if you've been through Vegas for any trade shows or any of your other coverage universe, I mean, Vegas is not a lot of lapse these days. We're still holding up very well because of our market share. But whereas in an upmarket, our footprint is really beneficial because we continue to be in some of the better MSAs in the country. Right now, at least a number of them, and I'm thinking particularly California and Vegas are a bit gloomier than they normally are in the building market. And again, nothing that's specific to Arcadia and that's borne out by what we see and what we can tell from our comps. But it doesn't make us feel any better about it and doesn't make us any more alert about looking at everything. And like I said, everything is on the table. Gerard Sweeney: Got you. And I saw the read-throughs on some of the competition. So I appreciate that. And you also preempted my question on the [indiscernible] rebuild. My sense is there's a lot of -- there's building frustration that's taken longer than people anticipated and some of it is being held up by some red tape, but that's it for me. James O'Leary: It's incredible and it's disappointing. Operator: The next question comes from the line of Stephen Gengaro with Stifel. Stephen Gengaro: A couple for me. The first on the DynaEnergetics side, it seemed like the fourth quarter revenue was very strong. And I know there was a kind of lower seasonality in the frac business than normal. Did the top line surprise you? And I'm curious if what you're seeing -- I would imagine that would help overhead absorption as to whether there's -- I was trying to figure out kind of the margin performance even absent the discrete items you took. James O'Leary: I wouldn't say surprised because we have reasonably good visibility by the time we announced guidance. On the volume side, principally unit volume, it was as we expected. There was nothing disappointing about it. In fact, given what you read in the press, it was absolutely solid. It did fall off a little bit going into the end and then going into the beginning of the year. So that's why we're even a bit more cautious with the first quarter. It really came down to margins, Stephen. The margin pressure from tariffs and we put in -- we debated whether or not we should put in the exact numbers, but the impact on DynaEnergetics from tariffs has been so significant. We thought it was important for you and your constituents to see the numbers. 3.25% and 10% for the year is pretty impactful for a company the size of DynaEnergetics. The unit volume, and I'm making a clear distinction between unit volume and price. Pricing has been challenging on perforating guns in particular, given it's a narrow universe, it's a subset of the broader equipment market. And I know you cover a lot of our peers, whereas some are seeing the benefits of broadening offshore exposure, some are seeing the benefits of greater penetration, greater activity in conventional particularly in other geographies. We are pretty -- our sandbox is pretty restricted. Is it 70-30? That's probably not a bad number, unconventional in the U.S., principally the Permian and elsewhere. And the price pressure there has been significant. So kind of simplifying it a bit and back to your question. Unit volume was as we expected, and it was fine. Price pressure was pretty significant, and price coupled with -- and it's not just tariffs, labor costs, the friction from having to reverse gears on what tariffs are doing. And we did do a lot of good things on the supply chain side. But the friction of having to reengineer everything a couple of times a year, that has a cost impact as well. So it's mostly margin compression, and it's principally on the cost and a bit on the pricing side. Stephen Gengaro: Okay. And the follow-up to that, this is probably a little kind of higher level. But when we think of DynaEnergetics and like you made the comment earlier, cyclical versus -- I think you mentioned something about cyclical issues. And what I'm trying to understand about Dyna is how much of this is truly cyclical? And how much of this is a structural problem in the U.S. perf business, given what some of the machine shops have done and given maybe a competitive landscape, which is probably better than it was a couple of years ago. I'm struggling with that part of it and trying to figure out what it's really going to take for DynaEnergetics margins to start to expand again at some point? James O'Leary: It's the right question. It's one we're asking ourselves a lot as well. I couldn't give you it's 50-50 or 70-30, but on the volume side, even though unit volumes are fine, rig count has been down, frac spreads have been down, frac crews are down. If you look at some of the industry data, would it be better if oil was consistently over $70. Would it be better in a less uncertain world where is Iran onstream, off stream or the Saudi is going to increase or decrease output. I think a little bit more consistency and just because volumes weren't bad, it doesn't mean they couldn't be a lot better if you had better visibility into the global picture. And again, most of the metrics that do affect us were down. It's just unit volume ended up being okay. So it's clearly not all secular. But it's also not as bad cyclically as it was around COVID in 2015 and '16. I wish I had a better answer in terms of the percentage and when we would see things turn around. We have and we typically don't talk about this level of detail, but we have made some pretty substantial changes at Dyna on the personnel front as far as manufacturing and some inside salespeople that we think will make a difference. We've maybe gotten a little -- I don't want to say fat and happy, but we probably got a little bit too complacent over a long period. The last 2 years, particularly as volume came down, but it didn't plummet. It didn't bring people into action the way probably it should have. I hope that's helpful, and I wish we could give you a better answer on how much is cyclical and how much is secular. On the secular side, though, again, and it's intentionally put this way in the press release. We appreciate that cyclical businesses, but we have to find other avenues of growth. And I think international shale opportunities and enhanced geothermal are the two things we got to be paying attention to until visibility improves and we can better answer the question. Stephen Gengaro: Great. No, that's fine. I appreciate you giving some color. And then just one final one. Like I'm not sure how granular you'll get on this, but when we think about the first quarter and then maybe as '26 progresses, any commentary on the segment puts and takes in the first quarter? And maybe which segments you're probably more or less optimistic about as far as seeing some expansion throughout '26. James O'Leary: Yes. The first quarter is going to be tough. And NobelClad doesn't really pick up. The pickup will largely be driven by that large project we referenced and that's into the year. It's not in the first quarter. It's really too late to say interest rates or anything in the broader economy and Los Angeles or elsewhere in the West, in particular. So I think they're all going to be equally gloomy. And I think the recovery in the pickup has to be back half of the year, maybe as early as the second quarter, but I don't want to jinx those. And again, everything along the lines of interest rates, greater clarity on tariffs. If you just take the 15% that the administration is going to use from Section 122 of the 74 Act, and you superimpose that, we should see a little bit of relief. It's only a small percentage of the 3 and 10 that we referenced in the press release. But we should see some cost improvement. But it is almost the end of February. And I think we've tried to be conservative but not unrealistic about the first quarter. And again, we wish we had a better answer, but I think that's -- the die is kind of cast for the first quarter. Operator: The next question comes from the line of Ken Newman with KeyBanc Capital Markets. Kenneth Newman: Eric, maybe for my first question, I was hoping maybe you could help us bridge a little bit to this first quarter EBITDA guidance. I wanted to get some clarity. First, is there any other carryover write-down impacts or anything else that outside of just the core operations that we should be aware of from 4Q to 1Q? And then also maybe a little bit of help from a gross margin perspective across those segments as we think about the sequential moves there. Eric Walter: Yes. So not aware of any type of carryover write-downs that we would have from Q4 going into Q1 to answer your first question. And I think the second one in terms of gross margins, as we talked about earlier in the prepared remarks, the margins are pressured in both Arcadia and also at Dyna. So the input costs that are coming through for Arcadia the aluminum cost, they continue to increase and through just yesterday -- or sorry, Friday, the aluminum cost had gone up another 10% on a quarter-over-quarter basis. So what Arcadia is seeing is a very difficult -- it's very difficult for them to pass through all of those costs on to their customers. And the other piece of it is that some of the projects that they bid on are starting to get delayed. And so there's an increased level of price competition, it's also impacting them. So in terms of gross margin for Arcadia, I think there's nothing that's going to necessarily return or recover to historical levels in the first quarter, at least from what we see right now. And then, Jim, in answering some of the previous questions, talked about some of the challenges for Dyna. They also have some of the similar challenges from a tariff standpoint. There's no reason to think that the tariff exposure is going to dramatically change from this point through the end of the quarter. And the pricing pressures that they had in the second half of 2025 are going to continue into the first quarter as well. So for both of those businesses, they're getting an impact, whether it's pricing to customers, whether it's the input costs are going to put pressure on margins. And then I guess the last thing that I would say across them as well as NobelClad is to the extent that they have less volume flowing through their plants, they obviously have pressure coming from fixed cost absorption or operating leverage, however you want to think about it. So I think for your second question, I think the pressures that we had in Q4, they're going to continue into Q1 at the gross margin level. Kenneth Newman: Yes. Okay. That's very helpful. And then for my follow-up here. Jim, you gave a lot of great color. It sounds like there's more blood that could be squeezed from the stone here from a cost down and efficiency perspective if the demand remains weak. I know you talked a bit to the opportunities for when that demand recovers. But as you think about this from a higher level, how much of this story you view it as one of just hoping that the end markets improve versus something that you can actively do today to kind of drive that incremental demand? And how much do you have to spend in order to kind of go after those opportunities? James O'Leary: We wouldn't have to spend anything. I mean there's no big capital project. There's nothing that is transformative on the technology front. We talked in the past about automation at DynaEnergetics. We talked about some CapEx projects on a one-off basis here and there in Arcadia. There's no money that has to be spent. But Ken, we did go into -- and it was intentional the discussion on the cyclical businesses. I wouldn't say there's blood to squeeze out of the stone because we are diligent and we continue to look at certain things just adjust with volume over time, temporary labor, traffic, meaning mileage and things that are purely variable. When those don't adjust, even if you're a quarter or two late, you jump all over them, and we've been jumping all over them now. Are there things that we can be a little bit more diligent on and push on a little bit harder? Yes. But I'll see the difference. It will probably be difficult for you to see the difference. The reference and we're looking at other plans and considering other things we can do. Listen, if there's a step function down and I lived through 2007 through 2011 in the building industry, I was the CEO of another industrial company during the great financial crisis. You do have to be diligent about another step function down where you're laying off substantial numbers of people, you're cutting heads, certainly not indiscriminately, but you're cutting heads at a level that you wouldn't do if you didn't have to. I mean, right now, the drop down over the last 4 quarters. I categorize as measured and it hasn't been a slow drip but again, if you look at our peers, if you look at the building industry more broadly, if you take one of the guys who preceded us question on, is it secular? Is it cyclical in onshore unconventional, it's been kind of a slow drip and a steady march downward. What I'm talking about is if there's another drop down and it's precipitous and a step function, we'll be ready. There are other things we can do. But right now, part of this is maximizing operating leverage and being ready if there's a step function up at some point, and I've lived through this, too, when the building industry takes off and we get monthly sales above $20 million and going from $20 million to $25 million, the drop-through in operating margins, the drop-through on gross margins is significant. It's noticeable not just to me, you guys will see it right away. So that's -- it's kind of making sure we're in a position to maximize and harvest all of that. And we also intentionally in the comments said, we're hoping this is the trough, but you can never get complacent about that. I think we've had a little bit of complacency over the last couple of years, which we've run all the complacency out. I think people are paying attention to all the variable costs. We're looking at avenues where if there's a step function down, we're prepared to take the actions that would be necessary. But the flip side of that is if the building industry takes off, you don't want to be the person who can't meet demand. You don't want to be the person who can't be staffed up and in a position to maximize that. I think we're right in that point of balance now. And again, I'm keeping my fingers crossed that it's a leg up at some point this year. It won't be next quarter. And if it is a step down, we'll be prepared. Let's just hope that's not what it comes to. Operator: This concludes the question-and-answer session. I'll turn the call back over to Jim O'Leary for closing remarks. James O'Leary: Operator, thank you and for anyone listening on the call, including the fellows who asked questions. Thank you. All good questions, all provided the color we want you to leave with. And again, just to repeat something, cyclical end markets, we don't see anything that's specific to us that is in desperate need of help. We're trying to maximize the operating leverage on the other side. We're prepared if there's another leg down, which hopefully there won't be. Tariffs and the general level of interest rates have not been kind to us, but they haven't been kind to anybody and not just maximizing the operating leverage, but looking for avenues of growth, which would be geothermal and international with Dyna, certainly, the naval readiness initiative at NobelClad amongst getting back in the game with some of the larger projects that we think now that there's a little bit more stability on the demand front, we should avail ourselves of. We're looking at all the right things. We appreciate your patience, and we're trying like heck to do a better job for you. So with that, thank you, and we're looking forward to talking to you in a couple of quarters. Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Q4 2025 Bed Bath & Beyond, Inc. Earnings Conference Call. [Operator Instructions] I will now hand the call over to Melissa Smith, General Counsel and Corporate Secretary. Please go ahead. Melissa Smith: Thank you, operator. Good afternoon, and welcome to Bed Bath & Beyond, Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today on the call are Executive Chairman and Chief Executive Officer, Marcus Lemonis; and President and Chief Financial Officer, Adrianne Lee. Today's discussion and our responses to your questions reflect management's views as of today, February 23, 2026, and may include forward-looking statements, including, without limitation, statements relating to our future business strategy, goals, financial performance, outlook for the remainder of the quarter or for any other period, anticipated growth, stock price, profitability, macroeconomic conditions, the value of any of our brands and investments, relationships with third parties and agreements we are entering into with them, margin improvement, expense reduction, marketing efficiencies, conversion, customer experience, changes to brands or websites, product offerings, the merger agreement with the Brand House Collective, blockchain efforts and strategies, tokenization efforts and strategies and the timing of any of the foregoing. Actual results could differ materially from such statements. Additional information about risks, uncertainties and other important factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2024, and in our Form 10-Q for the quarter ended September 30, 2025, and in our subsequent filings with the SEC. During this call, we will discuss certain non-GAAP financial measures. Our filings with the SEC, including our fourth quarter and full year earnings release, which is available on our Investor Relations website at investors.beyond.com contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call for questions. A slide presentation with supporting data is available for download on our Investor Relations website. Please review the important forward-looking statements disclosure on Slide 2 of that presentation. With that, let me turn the call over to you, Marcus. Marcus Lemonis: Thanks, Melissa. I'm here with Adrianne as well. I'm sure that some of you are in New York City. For the first time we're experiencing more snow than we have in Salt Lake. So happy skiing to everybody out there. Good afternoon, everyone, and thanks for joining us. 2025 was about stabilizing and building the base of this business. 2026 is about growing that base and expanding it within the framework of our 3-pillar ecosystem architecture. That framework that we announced on January 5 remains unchanged. Over the last 8 quarters, we have delivered consistent year-over-year EBITDA improvement while materially lowering the breakeven level of the company. That discipline continued in the fourth quarter. Revenue declined year-over-year, largely reflecting housing market softness and our deliberate decision to eliminate vendors and SKUs that generated negative contribution margin. We chose margin integrity over headline revenue. That was intentional, and it's also in our past. Importantly, the year-over-year revenue gap narrowed meaningfully in the fourth quarter, while adjusted EBITDA loss improved by more than $23 million or 84% on lower revenue. We also delivered meaningful gross profit margin improvement in 2025 compared to 2024 despite tariff headwinds and an unpredictable sourcing environment. That improvement reflects better vendor negotiations, improved product mix, tighter inventory controls and a more efficient operating structure. Our margin performance is increasingly structural, not cyclical In 2026, our objective is to advance and progress our margins towards 25%, the midpoint of our 24% to 26% framework. Over time, as omnichannel scales increases and ecosystem synergies compound, we believe we can break through 26% and ultimately reset the original range higher. That progression is going to take time. We will not compromise top line growth or customer value simply to form for short-term margin expansion. We believe the true base of the business has now been established in 2025. We are seeing low to mid-single-digit year-over-year increases in revenue growth early in the year and are targeting low- to mid-single-digit revenue growth for the full year 2026 based on current trends. While we're not providing formal guidance, it is important because the company is in an active building phase, growing its base business while layering in complementary acquisitions across each of the 3 pillars, we believe it is important to provide directional clarity, so investors understand how performance should progress quarter-by-quarter and across the full year. This is a build. It is sequenced and it is deliberate, much like the last 8 quarters. We expect continued year-over-year improvement, but that improvement will not be linear. It will follow integration timing and execution milestones. In the first quarter, we expect year-over-year revenue growth and EBITDA improvement of at least 30% compared to Q1 of last year. This reflects stabilization of the base business and continued cost discipline. In quarter 2, we expect to close on the Kirkland's transaction on or around April 1. Q2 will reflect partial ownership and will include transition and integration activity. It will not reflect the full benefit of merger synergies. We expect approximately 90 to 120 days following the closing to execute meaningful integration initiatives, including consolidation of overlapping corporate costs, vendor contract alignment and purchasing leverage, shared services optimization, supply chain integration, technology integration and merchandising alignment. There will be transaction costs and transition costs associated with the merger and integration. Q2 should be viewed as an integration quarter, not a fully synergized quarter. But the base business will have increased revenue and will have improvement on the bottom line as it relates to EBITDA. Quarter 3 integration work should be executed, and Q2 should begin to flow through the financials in a more meaningful way. We expect positive top line growth and improved operating leverage with a stretch objective to approach breakeven. By Q4, assuming integration milestones are achieved, we expect positive top line growth again and improve margin leverage with an opportunity in Q4 for profitability. This framework reflects disciplined execution, not reliance on a housing recovery. Everything we are building fits into one of three defined pillars. I outlined them on my January 5 letter and again today on my February 23 shareholder letter. Nothing sits outside the framework that I've provided. The architecture is the filter through which we evaluate every deal, every acquisition and every decision. We are aggregators, not consolidators. A consolidator requires similar businesses to reduce costs and drive margin through scale. An aggregator, which we are builds a connected system of complementary capabilities that strengthen one another. Later on, you'll be able to check our investor site to see the graphic that we've posted, one sheet graphic that will show you what that ecosystem looks like. We are building integration, not accumulation. The other one is pretty simple. It's our omnichannel business. It includes brands like Bed Bath & Beyond, Overstock, buybuy BABY and Kirkland's upon closing. Including Kirkland's, this pillar approximates $1.5 billion in annualized revenue with an additional omnichannel transaction agreed to in principle with the sellers expected to add an additional $500 million in top line. Look, retail drives engagement, purchasing leverage and customer acquisition. Pillar 2 is our protection advocacy, brokerage and financial solutions pillar. It includes property and casualty insurance, renters insurance, home warranties, product warranties, title services, renovations and renovation financing, mortgages and HELOCs, a credit union partnership and a scaled residential brokerage network. The brokerage platform is critical. We are pursuing the acquisition or development of a scaled residential brokerage network as we speak, of thousands and ultimately, tens of thousands of agents. Protection and advocacy come first. When trust is established, customers give us permission to extend those services. Financial services is an extension of trust, not the starting point. Pillar 3 is our home services installation and maintenance infrastructure. It includes flooring, cabinetry, closets and storage systems, carpeting, renovation services, professional installation, repair and maintenance networks. The differentiator is the installation labor model. Most homeowners cannot self-install flooring, cabinetry or renovation materials, installation is required. By building a professional labor network, we create higher transaction values, stronger attachment rates, greater customer stickiness and ongoing maintenance engagement. This infrastructure converts retail demand into completed projects and allows brokerage origination to flow into renovation activity. For all of this to work, you got to make sure that everything has a unifying layer. Surrounding all 3 pillars is our proprietary loyalty and identity wrapper executed in partnership with BILT. We're also building a broader home operating system. The home operating system connects the homeowner in the home through durable digital records around protection, financing, renovation history, installation records, warranties, public records, surveys, titles, deeds and maintenance events. LifeChain supports this infrastructure by creating durable records around both the homeowner and the home itself on blockchain. Without this layer, these are separate businesses. With it, they become an integrated ecosystem. A key priority in 2026 is accelerated implementation of modern technology across the enterprise. Yes, that includes AI. We are deploying tools that increase conversion, improve inventory productivity, optimize pricing, enhanced marketing efficiency and reduce operating costs. Technology is performance lever designed to drive revenue up and cost down simultaneously. At this point, I'll turn the call over to Adrianne to walk through our fourth quarter and full year financial results in greater detail. Adrianne? Adrianne Lee: Thank you, Marcus, for your insight into the significant financial progress we made in 2025 and our strategic path forward, as you mentioned, outlined in your shareholder letters. I will now turn to our fourth quarter financial results, which highlight the achievement of consistent earnings improvement throughout 2025 and the material progress towards our committed targets to restore our retail operating discipline. Revenue declined 10% year-over-year in the fourth quarter and 6% if you exclude the impact of discontinuing our operations in Canada. AOV improved 7%, driven by our continued focus on improving assortment on the Bed Bath site and an increased sales mix into Overstock. This was partially offset by less orders delivered in the quarter versus 2024. However, I am pleased orders delivered increased 13% in the fourth quarter versus third quarter of 2025. Gross margin landed at 24.6% for the quarter, a 160 basis point improvement compared to the same period last year. For the full year, we improved gross margin by 390 basis points to 24.7%, driven by structural changes in freight contracts and returns economics as well continued pricing and discounting rigor. We expected quarterly gross margin to be in the 24% to 26% range, impacted by seasonality, emerging categories and competitive landscape and delivered just that. Sales and marketing decreased by $15 million or improved efficiency by 350 basis points as a percent of revenue versus last year. It's important to note, our full year spend efficiency improved by close to 350 basis points, another meaningful improvement to earnings power. We continue to navigate the balance of driving revenue and maintaining our ROAS guardrails while improving the site experience and sharpening pricing. We maintained our internal guardrails, launch retention tools, improved own channel and now need to optimize these tools and learnings for growth. G&A and tech expense of $33 million decreased by $15 million year-over-year as a result of our commitment to reduce fixed costs through rightsizing the organization, prioritizing efforts and mandating productivity. I am pleased that we exceeded our commitment to achieve a $150 million annual run rate. All in, adjusted EBITDA came in at a loss of $4 million, an 84% or $23 million improvement versus the fourth quarter of 2024. Full year adjusted EBITDA was a loss of $31 million, a $113 million improvement versus 2024. Reported diluted EPS was a loss of $0.30 per share, an 82% or $1.36 improvement year-over-year. Notably, full year net loss improved by $174 million and reported diluted EPS improved by 75% or $4.15. We ended the quarter with cash and cash equivalents, restricted cash and inventory balance of $207 million. Full year cash used in operating activities improved year-over-year by more than $118 million or 67%, illustrating significant progress against the transformation initiatives and stabilization of the retail operations. 2025's performance reflects significant measurable and importantly swift progress in retaining our core retail operating discipline, and materially reducing the expense to run the business. This is evidenced by the $113 million or 79% improvement in adjusted EBITDA year-over-year. As always, we will remain focused on continuous improvement, finding efficient ways to create a more variable cost structure with an intense focus on driving top line growth. With that, I would like to turn the call back to Marcus. Marcus Lemonis: Let me close with one broader perspective. Thanks, Adrianne. Our current plan does not assume a housing recovery. However, as mortgage rates moderate and transaction volumes return towards historical mid-cycle levels, the ecosystem we are assembling is positioned to benefit from that normalization. When incremental demand is layered on top of a fully integrated platform with merger synergies realized in structural costs aligned, we believe the company has potential over time to generate substantial mid-single-digit to high single-digit EBITDA margins. That expectation reflects disciplined execution and a normal housing environment, not aggressive assumptions. 2025 stabilize the base. 2026 is about expanding the base with a disciplined architectural framework. We are aggregating complementary capabilities. We are integrating talent and expertise. We are building execution and infrastructure. We are connecting the homeowner in the home. We are very deliberate, and we are very confident in our sequencing. I'd like to now turn the call over for questions. Operator: [Operator Instructions] Your first question comes from the line of Steven Forbes at Guggenheim Securities, LLC. Steven Forbes: Marcus, you mentioned a few 2026 growth drivers within the release in prepared remarks, right, AOV being one of them, conversion being another. But as we look at some of the core KPIs that you report, I was curious if you can maybe just walk us through how you're thinking about the active customer base? Like are we reaching a troughing point? Is there visibility within the cohorts to rescale that in 2026? And then also orders per active customer second quarter in a row of stability? Is that indicative of sort of that KPI also bottoming? Marcus Lemonis: Thanks for that question. We don't believe that -- we believe, excuse me, we believe that the trough is behind us. And that everything you see going forward will have growth, growth in revenue, growth in EBITDA performance, growth in the number of active customers. What I want to be careful of is to land on AOV because as Bed Bath & Beyond starts to open up stores again, we believe that there's going to be a disproportionate amount of volume based on the last 12 to 24 months that will lean into some of the historical Bed Bath & Beyond categories. And while we don't expect furniture, patio and rugs to do anything but grow, when you start mixing in higher count items in your basket versus dollars in your basket, it could throw that off a little bit. And as we start stocking a lot of inventory, in our potential Jackson, Tennessee warehouse through the Kirkland's acquisition, we're going to see more towels, more small appliances, more gadgets, more top of bed, more housewares go through our ecosystem online, ultimately driving that AOV down but driving the average customer base up. We will come up with a clean way to delineate historical categories and their performance and legacy Bed Bath categories and their performance because as a reminder, a lot of our online business today is a function of what Overstock did for years. So yes, growth in all cases, I want to be tempered on the AOV just because of the change in mix that could happen through the year. Steven Forbes: And then a follow-up. As we think through the opportunity you expressed via Pillar 2 and Pillar 3, I was curious if you could maybe explore your ability, if you have measured, I guess, interest among your active customer base or intent of utilization of such services, if the demographic profile sort of caters to those -- that services, I guess what gives you conviction and what should give us conviction that the opportunity is addressable to Bed Bath & Beyond? Marcus Lemonis: Well, I think you have to start to think about Bed Bath & Beyond differently and stop thinking about Bed Bath & Beyond is the old Overstock e-commerce business and start to think about the overall housing market. And when I look at the size of the TAM in the trillions, not billions in the overall housing market, we believe that an ecosystem that taps into all the parts and pieces of that is quintessential to our business. The omnichannel business is really the first place we meet the customer. And when you look at Bed Bath & Beyond, Overstock, buybuy BABY, Kirkland, and the pending acquisition that has yet to be announced, we will have rounded out all of the important, what I would call, categories of soft and hard goods inside the home. When I go to the other side of the paper, which is Pillar 3, the home services, we know that for decades, these things have existed independently and whether that's flooring, closets, cabinetry, carpentry, installation services, renovation services, we know those things are going to exist, regardless of what's happening in the general economy. And we believe that the connection between those two is that they're both originators of new customers. What I like about Pillar 3 is its ability to spark larger transactions that call for things like financing or warranties. If I'm putting in all new cabinetry in my kitchen, that could be a $7,500 to $8,000 order. That's going to largely come with financing and maybe some other services along the way. It also gives us the ability to get into the home with a homeowner and build the relationship, putting in new flooring, putting in new carpeting, putting in new closet systems. Don't just apply to a first-time homebuyer. They apply to renovations. They apply to expanding families. They apply to life-changing events. And what we're doing is we're taking the proprietary knowledge we have of why customers shop at Bed Bath and more importantly, when they shop at Bed Bath, and we want to exploit all of those life events by selling them more than towels. The middle section is probably the easiest to understand because we know it's a competitive landscape as it relates to mortgages and HELOCs and insurance and warranties. As a reminder, insurance and warranties are regulated. So it's not easy for people to discount those services. That comes from trust. When it comes to banking and things like banking, whether it's savings, checking, mortgages or HELOCs, we're going to take two avenues. The first avenue is we are launching a partnership to launch what we believe to be the first ever homeowners credit union in America. It's a unique proposition, and it will offer 3 products, market-leading savings rates, market-leading checking rates and what we believe is market-leading mortgages and HELOCs, that's a more traditional buyer. When they see credit union, they know there's value there because the layer of making money between the cost of funds and the retail rate that the banks have to make a profit, credit unions do not have. We want to show our customers that value is squarely there. We signed a new deal with Brown & Brown to launch both a property and casualty insurance agency, a choice model that puts multiple carriers in front of people as well as a full relationship on home warranties and product warranties. Product warranties and shipping insurance are through Extend. The only reason why I'm 100% confident that this ecosystem works is that I did it in my former life, by understanding where origination starts and where all the other tentacles for lifetime value expansion exist. Candidly, what's missing in that middle stack and may be lost on people is brokerage services. As I mentioned in my prepared remarks and in my letter, we are pursuing three large transformative pillar acquisitions. One in Pillar 1, which I disclosed, is a deal in principle that's agreed to for Pillar 1. Pillar 3 is a deal in principle that's been agreed to on the home services side. And in the middle pillar is a deal that's in process, pretty close to being agreed to that I think will give that business the teeth of origination that it ultimately leads. If those 3 acquisitions pan out the way we expect them to, it would be north of $1.5 billion of additional revenue on top of the existing base that I described, that also includes Kirkland's. So you take the 1.5 -- approximately $1.5 billion base of our original e-commerce business, you add the omnichannel business of Kirkland's to it, and then you add these 3 transactions, and you could end up with an annualized run rate of about $3 billion, but one in each of those pillars really providing the foundation for how those businesses will be built. Operator: Your next question comes from the line of Jonathan Matuszewski from Jefferies. Jonathan Matuszewski: Marcus, I had a follow-up question first on just Pillars 2 and 3. And just trying to get a better hold of maybe the trajectory for how you see those 2 mixing into the overall kind of revenue base? And would it be correct to assume that the margin profile of those Pillars 2 and 3 is going to be kind of the overall driving factor of EBITDA margin expansion over the medium term. Is that kind of the next leg in terms of margin expansion? That would be my first question. Marcus Lemonis: Yes. We've talked for a while now about the margin range of 24% to 26%, and that's been on the historical e-commerce business, and we know the retail business is slightly better than that, 2 or 3 points better than that in a normal environment. What we know for certain is that the home services, the cabinets, the flooring, the closets, the installation, the renovation, they all come with far greater margins than that in excess of 40%. And part of our strategy in growing our overall profitability is expanding our overall company consolidated margin through, a, the acquisition of those types of businesses in Pillar 3 and being able to absorb those. We will have work to do to take out some of the merger synergies and lower their CAC so that their EBITDA coincides with our expectations. But from a gross margin standpoint, materially higher than selling towels and couches online. The middle section is probably the one that I'm most excited about. And it takes several years for it to come to fruition. But the acquisition that we have on the table will build the solid, call it, $400 million foundational base of which we'll build stuff on top of. In that particular instance, whether it's the credit unions, the insurance, the warranties, keep in mind that the cost of goods associated with all of those is de minimis. There is no real asset. In many cases, because we are never taking on the liability. We're not acting as a bank. We're not acting as an insurance company. We're not acting as a warranty insurer. We are a marketing and sales organization, making commissions and fees off of those, the margins are explosive, north of 50%. And so over time, as we start to see those mature, we would expect the consolidated margin in the next 36 months pending these acquisitions coming together to expand above and beyond 30% for the overall ecosystem. The key is making sure that we take the costs out of these businesses. And one important distinction that I'm sure many of you are thinking, and I want to address upfront is we are going to operate these pillars individually with their own leaders and their own, call it, CEOs sort of presidents of those businesses. These are people that are foundationally subject matter experts in those disciplines, not taking those businesses and trying to have e-commerce people run them. We believe in having independent for entrepreneurs to be able to operate as subject matter experts. And where consolidation will exist is twofold. One, from a financial and treasury standpoint, wanting to make sure that we're taking out any redundant back-office costs and from a data consolidation standpoint, meaning that each of these businesses are obligated to remit their financials, sign up for our code of conduct and the way we want to do business and contribute data in a form and a manner to the overall ecosystem that matters. We feed that data into a data fabric, which is being operated by a third party. And we partner with a master wrapper loyalty program, functioned and partnered with BILT, B-I-L-T. You can do your research and find out what they do today. We, as you could tell as a company, believe in partnering and buying as opposed to building everything because technology moves so fast. So the operators are really in their own little cocoon and we are acting as aggregators. But the most important aggregation and where we think we're going to get the real cost synergies lowering the CAC for each of them, finding administrative costs that can be eliminated and sharing in treasury management efficiency. And that's ultimately why we are so confident that this business in short order, 3 years can be in a normal mid-cycle environment, could be mid-single digit to high single-digit EBITDA contribution because of those factors. Jonathan Matuszewski: Very helpful. And then CAC is a nice segue just for a follow-up. Would love to just hear how you're thinking about measuring the success of your ads pilot with instant Checkout and maybe the types of customer activation or the volume of activation that you'd maybe need to see to divert more advertising dollars to that experimental channel? Marcus Lemonis: We're talking -- you're talking about chat? Jonathan Matuszewski: Yes. Marcus Lemonis: Yes. It's too early. I mean it's been a couple of weeks and we were one of the pilot programs with them in getting launched, but it's really early in the innings. There's a lot of learnings that have to happen. But one thing that we have noticed in the last several months is that layering in different learning machines and different technologies is allowing us to get better, but let me be really clear. We are nowhere, nowhere near where we need to be in the next 12 to 24 months. And we've started to engage with outside third parties to help us assess our tech infrastructure, look at our overhead, look at the connectivity between everything and look at integrations, we recently engaged with Alvarez and they'll be doing a full study for us particularly in light of all of these acquisitions to make sure that we're squeezing out every last dollar and capturing every last bit of information. Operator: Your next question comes from Bernie McTernan at Needham. Bernard McTernan: Great. Just had a follow-up on Pillar 2 to make sure I understood the right thing. So the large acquisition happening in Pillar 2 for origination. So should we assume then that all those -- whether it's insurance, home warranty, HELOCs, all that will be after the acquisition, you'll be able to offer all of that on a 1P basis and then partnering with big residential brokerage to basically sell those services? Marcus Lemonis: So the way I'd like you to think about it is there's kind of like a 2-funnel approach. Funnel number one is using all of the customer engagement from Pillar 1 and Pillar 3 to offer all of those services in Pillar 2. And that's a little bit harder hill to climb quickly. You can get there over time after you build trust, after you improve your customer service experience, after people understand the connectivity. The acquisition in Pillar 2 around the brokerage services provides instant, I would call it, integration. And I would expect on day 2 of that acquisition that the products and services that we have lined up whether it be with the credit union, whether it be with the insurance companies, whether it be with the warranty companies, whether it be with the titling companies would immediately be embedded. The piece we like most about this potential acquisition in Pillar 2 is that it has already started some of those services and have seen early success but doesn't necessarily, in our opinion, have the technology or the capital to invest in technology that can supercharge that. When you think about that real estate brokerage network, what you're really talking about is thousands, if not tens of thousands of sales agents who are commission based. That's how they sell things. We believe that there is an interesting and proper way to motivate those agents to receive commissions not only from the things they're permitted to inside of their real estate license but also to be able to sell other products and services in the ecosystem for commissions that are compliant with whatever the state regulation is. When you can pick up a 10,000-person army of salespeople who are commission-based who are hungry to provide value to customers only on things they need, you get instant activation. I would expect that within 12 months of making that acquisition, we would be running at relatively full steam looking for attachment in a more traditional manner. Bernard McTernan: Okay. Understood. That's really helpful. And then just a quick follow-up. The -- I know we're not calling it guidance, but directional commentary on '26 for low to mid-single-digit revenue growth. Is that inclusive or exclusive of Kirkland? Marcus Lemonis: So let me take my time here and go very clear. In the mid-single revenue growth numbers that we're talking about, that is omnichannel -- excuse me, that is e-commerce only. Low to mid-single digits is e-commerce only. Kirkland's will have similar growth at the same time. And so when we closed on that acquisition for Q2, we're going to provide you a forecast. But what you can expect out of our base business for 2026 is low to mid-single, hopefully closer to mid-single-digit growth for the full year. Margin expectation for that base business, we were 24.7% in '24 -- excuse me, in 2025. We want to get to 25%, which is the midpoint, and that's a push, particularly with all the noise around tariffs. And the more recent noise as in like Saturday, we want to get ourselves to 25%. On the sales and marketing expense, we're probably going to look maybe flat to similar in 2026 versus 2025, I'm hedging myself a little bit there because I think we have some unlocks that haven't fully been realized. And we expect nice improvement in EBITDA every single quarter over its previous year with the outside [ shot ], stretch, stretch, stretch goal in Q3 of profitability, a little less of a stretch in Q4 for profitability of 2026. That does not include any of the larger acquisitions we're talking about, but I promise you this. The shareholder letter and the amount of disclosures that we've provided, they will continue to be as robust as we're providing them now. So that when we do make an acquisition, you will understand how 1 plus 1 equals 2. There will be no hiding the weenie, you'll understand it full throttle. What we have to tell you, though, in order to make the numbers work long term, it takes from the moment we get the keys because we can't influence change before we close. But from the moment we get the keys, in some cases, 90 to 120 days, in other cases, when you're getting out of leases or getting out of distribution centers or consolidating contracts, it could take anywhere from 8 to 12 months. We will show you that when we lay it out. We'll show you what it looks like. We'll show you what we think the pro forma could look like, and we'll show you maybe like a 2-, 3-year cadence of what that could look like as well. I will tell you, I'm really excited by what we're seeing in the early forecast. And again, none of this contemplates a housing recovery. The housing recovery happens, then we're going to be in much better shape. Operator: Your next question comes from Thomas Forte with Maxim Group. Thomas Forte: Congrats on the improvement in the quarter and the year. Regarding the everything home ecosystem and pillars, the first question, and I'll wait for the answer and then one follow-up. So Marcus, when I look at each pillar, how do you determine when to work with a strategic partner versus when to own and operate an asset? On the surface, it seems like Pillar 1 is all owned and Pillars 2 and 3 are more partnerships or combinations of owned and partnerships? Marcus Lemonis: Pillar 1 is largely owned, but we are working on some larger licensing transactions with both the existing brands we have and some of the brands that we're acquiring. Secondly, we already have the relationship in Canada where we licensed and sold the intellectual property in Canada. We expect them to start opening stores, and they'll be contributory. But for the most part, Tom, you're right. The bulk of it is owned. In Pillar 2, the delineation between when we should be in it and when we shouldn't be in it, is when there's a lot of regulatory complexity to it and a lot of what I would call balance sheet risk. We are not in a position and probably won't be in the near future to take on any balance sheet risk around claims, or around reserves or around insurance or around financing or any of those things. We just don't believe that we are subject matter experts in that result. We are an origination machine, and we expect to make money through all of these different transactions, including the brokerage services in all of those. I would never expect us in the short term to be anything more than an insurance agency, a seller of warranties, a provider of financing. What we like about that is that there's no inventory requirement, there's no capital requirement. There's no reserve requirement and the money flows pretty nicely. But there also isn't a big staff required to execute those. And so while some have said to me, "Oh, you're giving up margin by not being the bank or not being the insurance company." There is truth in that, but what they forget is all of the costs associated with doing that and the regulatory complexity with doing that, that is not where we want to spend our time nor our money. In pillar 3, we want to own as much of that as we can, including providing the home services, installation services and all the products that go with it. We believe that, that is a gateway to meeting the homeowner where they need us most. The margins are explosive and the opportunity to surprise and delight and upsell is easier if we're controlling the journey than a third party is controlling the journey. Thomas Forte: Great. And then for my follow-up, can you walk us through, recognize it's still early, your vision for the home operating system in the home OS? I know you've talked about it a couple of times. Marcus Lemonis: I like in the home operating system similar to how I like in loyalty. It's a wrapper around the entire ecosystem. And many people know home operating systems because they have Alexa or they have a ring doorbell. But at the end of the day, society and homeowners and renters are moving towards a connected home. And while it's nice to connect your lights and your AC and your TV and your radio and all those things, that isn't what we believe is the most important part of the operating system. The most important feature of the operating system, in our opinion, is a real estate ledger, a blockchain ledger that captures all of the important documents for 2 different sets of items. One, the homeowner themselves and all the things that make up everything that they do and the home asset itself, including titled [ Deed ], survey, insurance, maintenance records because we know that the homeowner is portable. They're going to move in and out, and that home stays relatively constant. We like it on blockchain because we think it over time, provides integrity for insurance providers, lenders, home buyers, maintenance providers, warranty providers to see the true health report and the true lineage of that asset giving people an opportunity. No different than if you drive a car and you don't have an accident over time, you get better rates. People have to know what the health is. We think blockchain is a great way to do that. If you look at that particular product being existent back when the Palisades fire happened, and all those folks had no records of anything that happened, we want to solve problems like that, both because people are transient, both because people buy and sell houses every 7 years. And because there's these catastrophic events that caused that to be necessary. You would access that information both through an app and through a touchscreen in your home. As a feature, as a benefit, as a nice to have in addition to the important center of the universe with LifeChain. Of course, you'll be able to handle your lights and handle your alarm and handle your doorbell and your AC and all those other things that we're all used to. But that should be features and benefits, not the core deliverable. We expect to be developing a good chunk of that over the next 12 months and hope to launch something like that in partnership in 2027. Operator: Your final question comes from Seth Sigman from Barclays. Seth Sigman: Can you guys hear me? I wanted to go back to your comment about low- to mid-single-digit revenue growth early this year. Is that meant to say what you're running right now? And if so, can you just bridge us versus, I think it was down 6% in the fourth quarter year-over-year. What is driving the top line improvement maybe across categories, perhaps consumer cohorts. What are you seeing? Because obviously, that would be a pretty meaningful improvement. Marcus Lemonis: Yes. So a couple of things. We have seen positive year-over-year growth starting in January through today. It's low to mid-single digit. It is our goal over the course of the year to push ourselves towards mid-single digit and hopefully even bust through that. Here's what's ultimately changed. We have really done a nice job of cleaning up the assortment online. We've done a nice job, plenty of work to do left on improving the pricing. We've got better at marketing and getting people in our ecosystem to come back for the second and third purchase. We're being very diligent about the kind of marketing dollars that we're spending, spending a little bit more on new technology including a new pilot with chat, new techniques around SMS and we believe that the omnichannel launch will help just create general awareness. We are not pleased, and I know this is going to sound funny, we are not pleased with low to mid-single-digit growth. We want to be conservative. And we want to outperform that in the market, but we also want to build our cash flow and our projections around something we know we can hit. And if you go back and you look at the last 4, 5 quarters, we've been pretty good at saying we're going to do something and delivering it. And I think that's the key to this business. We know we need to earn that trust and earn that confidence. And the only way to do that is set realistic expectations, meet them or exceed them. But so much of itself came from cleansing things, getting rid of vendors with bad margins, getting rid of SKUs with bad margin, getting rid of products on the website that have no relevance to our site, cleaning up how we're presenting brands. Figuring out how we're ultimately going to get the customer back for their second purchase that may have come through on a PLA ad. We can't keep just buying the customer. We have to earn, win and maintain that customer. And that's what we're starting to see happen. When we look at Q1, just to give clarity around it, we are expecting call it, 3% to 5% in revenue improvement in Q1, and we are stretching for about a 30% improvement in EBITDA margin year-over-year from Q1 of last year, we're expecting margins to be -- where they're trending now is where we think they're going to end. They're around 24.5% to 24.7%. That starts to get a little bit of pressure as we start indexing into patio. When we get into Q2, we would expect to see that same 3% to 5% growth. We think there'll be a little bit of pressure on margins because more into patio, probably pushing closer to like 24.1%, 24.2%, but we expect EBITDA improvement again in Q2. And then when we get into Q3 and Q4 is when we think we're going to start to see a little bit more wind in our sales, where we expect that revenue to maybe be 5%, 5.5%, hopefully, forcing it to 6%, getting the margins to stabilize around 25% in Q3 and Q4. And having taken more costs out, which is what's giving us confidence to have a stretch, stretch, stretch goal to make some money in Q3. We know we'll be better in Q3. We don't know if we can get all the way to 0. And then in Q4, as we just reported, I think, a $4.4 million EBITDA loss, getting to 0 or above. And we know we have time and we know we have work to do, but that is something that's really exciting in our company that we're doing it the right way. We're building -- we're growing. We're adding customers. We're generating revenue. We're making acquisitions. We are no longer in holy c*** of places burning down, and we need to cut stuff. We're now in the kind of mode that caused me to leave my old company for this full time. Operator: There are no further questions at this time. I would love to turn the call back to Marcus Lemonis, Executive Chairman and Chief Executive Officer, for closing remarks. Marcus Lemonis: Great. Thank you so much. We look forward to seeing you on our next quarter call. Take care. Bye-bye. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Thank you for standing by, and welcome to Clearway Energy Inc.'s Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Akil Marsh, Senior Director, Investor Relations. Please go ahead. Akil Marsh: Thank you for taking the time to join Clearway Energy, Inc.'s fourth quarter call. With me today are Craig Cornelius, the company's President and CEO; and Sarah Rubenstein, the company's CFO. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today's presentation as well as risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. In particular, please note that we may refer to both offered and committed transactions in today's oral presentation and also may discuss such transactions during the question-and-answer portion of today's conference. Please refer to the safe harbor in today's presentation for a description of the categories of potential transactions and related risks, contingencies and uncertainties. With that, I'll hand it over to Craig. Craig Cornelius: Thanks, Akil, and good evening, everyone. I'll begin on Slide 5, where we summarize our business performance and our progress towards near- and long-term growth objectives. 2025 was a strong execution year for Clearway. We delivered full year cash available for distribution at the top end of our original guidance range, while our enterprise added 1.3 gigawatts of value-enhancing projects to our fleet. These newly commissioned assets, combined with accretive third-party acquisitions, serve as key growth pillars for this year and allow us to reaffirm our 2026 CAFD guidance. Execution across our redundant growth pathways has also allowed us to reiterate our 2027 CAFD per share target of $2.70 or better. We also made continued progress firming up our outlook towards meeting our 2030 CAFD per share target. Our fleet enhancement program remains on track with meaningful further advancement on both repowerings and contract extensions. Hyperscaler demand has been a major driver of sponsor-enabled growth this year. In 2025 alone, we signed approximately 2 gigawatts of new PPAs with hyperscalers and utilities serving data centers and gigawatts more in revenue contracting opportunities are under current discussion. When combined with Clearway's late-stage development projects, this opportunity set provides us with an abundant array of pathways to meet our 2030 objectives. Taken together, we remain on track toward our 2030 CAFD per share target of $2.90 to $3.10 per share, representing a 7% to 8% CAGR from 2025 while also laying the groundwork for sustained growth beyond 2030. Turning to Slide 6. Progress continues along our fleet optimization pathway with repowerings on schedule for 2027 commercial operations. These repowerings totaling more than 900 megawatts are expected to deliver attractive CAFD yields in excess of 11%, while extending the useful life of our wind fleet. In addition to repowerings, we are executing revenue enhancements across our operating ERCOT portfolio, where the value of Clearway's available open operating wind capacity has seen growing value appreciation in the technology and industrial customer community. Building on our momentum from last year with Wildorado, we've been awarded two offtake contracts in Texas, with a prominent hyperscaler with potential to lengthen the contracted life of these projects by as much as 11 years and at a higher power price and more favorable settlement structure than our status quo revenue outlook. Turning to Slide 7. Sponsor-enabled growth continues to bolster our 2030 objectives. All of our CWEN committed projects are under construction and progressing on track through milestones to meet our commercial operations date targets. For the 2027 COD vintage, CWEN has now received an offer for investment in the Royal Slope project, while we have now also identified the second phase of the Honeycomb II battery portfolio as a future potential CWEN investment opportunity as the portfolio has been awarded revenue contracts with an offer expected later in 2026 as commercialization progresses. We first previewed the Honeycomb projects in May 2024. With Phase 1 almost complete in construction now, we are pleased to be on track to execute the second phase, developing and building battery assets adjacent to Clearway's existing Utah solar fleet now with an outlook for hybridizing the entire fleet. Looking to 2028, newly identified opportunities for investment by CWEN at Swan Energy Center and Catamount Energy Center are now in view. both supported by 20-year PPAs with Google, further extending our sponsor-enabled growth runway. Turning to Slide 8. We provide more detail on how commercialization across our development pipeline is translating into a visible and executable pathway towards long-term growth. In our 2026 and 2027 construction vintages, 100% of our planned repowering and new construction projects have been successfully commercialized. With all development preparation now completed and construction dates set, these projects have safe harbor tax credit qualification, advanced interconnection and permitting status, signed long-term PPAs and secured policy resilient equipment supply. Looking further out, our 2028 and 2029 construction vintages are supported by a sizable pipeline that is meaningfully larger than what is required to meet our 2030 CAFD per share goal. With contracting secured for Swan and Catamount, we've contracted nearly 50% of the megawatts classified as late stage within the 2028 COD vintage, firming up our 2030 CAFD per share outlook with high confidence on completion of the remainder of the late-stage projects we are directing to 2028. We have high conviction in our organization's ability to secure additional revenue contracts for the balance of our late-stage pipeline in this vintage as the remaining projects in that vintage are weighted towards projects in California and other Western markets, which have been a long demonstrated core strength of our enterprise and commercialization. We see clear pathways for this vintage to generate substantial CAFD towards our 2030 target given the amount of corporate capital we have line of sight to deploying in that year. Within the 2029 COD vintage, we have built in resiliency with development activity of over 7 gigawatts, substantially larger than the volume needed to meet our 2030 target, and we see pathways to deploy well over $600 million in corporate capital in that year, subject to availability and application of our characteristic prudent capital allocation framework. From this position of strength, we will invest in attractive projects that show clear accretion to CAFD per share, both in the near and long term. Beyond the 2029 COD vintage, we are encouraged by the prospects we have to further extend our growth outlook after 2030 through diverse pathways. Foundationally, we continue to focus our core development activities on proven technologies in geographic markets where renewable projects and storage projects are cost competitive. Our sizable pipeline of storage projects creates an especially compelling value proposition for customers into the next decade. Approximately 90% of our 2030 late-stage pipeline is either located in our strategic core geographic markets where renewable energy will be a least cost best fit resource without tax credits or is a storage project positioned for tax credit qualification well into the next decade. Collectively, this purpose-built growth investment opportunity set provides substantial redundancy relative to the approximately 2 gigawatts per year or more that we expect to develop into the 2030s. Beyond core development activities, Clearway Group continues to develop multi-technology generation complexes across 5 states to serve growing and rapidly escalating data center infrastructure demand. As illustrated in our appendix pipeline reporting materials, the complexes are comprised of diverse technologies configured to provide hyperscalers competitively priced firm power in places where digital infrastructure is set to grow in years ahead. The first-generation resources at these complexes could come online as soon as late 2028 and investment timing for CWEN will be determined by pacing of generator interconnection, customer engagement and our own prudent management of capital deployment capacity of Clearway Energy, Inc. In regards to potential corporate capital deployment tied to both accelerating grid tied project development and large co-located digital infrastructure complexes, we are well placed to deploy at least $650 million of capital incremental to our prior goals over 2028 to 2030, with the optionality to scale that amount higher subject to availability of accretive capital sources and our rigorous underwriting criteria and capital allocation framework. Accelerating progress in our core development pipeline, along with this activity to directly serve data center demand drives our increased conviction in the growth longevity of our platform into 2031 and the years beyond. Turning to Slide 9. We bring together the building blocks that underpin our 2030 CAFD per share target and our outlook beyond 2030. From our 2027 target of $2.70 per share or better, our identified and committed projects provide an increasingly clear pathway to $2.90 to $3.10 of CAFD per share by 2030. Within the 2027 and 2028 time frame, we have identified approximately $1.3 billion of corporate capital investment opportunities tied to commercialized projects that Clearway Energy, Inc. intends to deploy at a 10.5% CAFD yield or better. Given identified growth to date, we are in a prime position to meet our 2030 target. We believe that future milestones will be executed in a manner supportive of hitting our 2030 goal, including through future identified sponsor-enabled growth, potential third-party M&A not embedded in our target and accretive growth financing and refinancing our 2028 and 2031 corporate bonds. As has been our practice in the past, we plan on waiting until later this year to provide a formal long-term guidance update. But given the emerging potential for corporate capital investment around our accelerating core development work and the emerging opportunity for investment in digital infrastructure power supply, we are increasingly optimistic on the ability to grow CAFD per share at 5% to 8-plus percent in 2031 and the years beyond from our 2030 target baseline. With that, I'll turn the call over to Sarah, who will walk through our financial results and funding outlook in more detail. Sarah Rubenstein: Thank you, Craig. Turning to Slide 11. For the fourth quarter, Clearway delivered adjusted EBITDA of $237 million and cash available for distribution or free cash flow of $35 million. In our Renewables and Storage segment in the quarter, wind resource was below median expectations across the fleet, including California, while solar relative to budget expectations was impacted by the timing of debt service related to growth investments. In the quarter, Flexible generation exhibited solid operational execution in line with budgeted expectations. For the full year, our results came in above the midpoint of our original guidance range of $400 million to $440 million with full year CAFD generation of $430 million, which benefited from on-time commercial operations and excellent performance of recent growth investments and was also driven by solid annual fleet performance across the portfolio. With the solid conclusion to 2025, we're reiterating our 2026 CAFD guidance range of $470 million to $510 million. As per our usual practice, guidance incorporates incremental contributions from closed and committed drop-downs and third-party acquisitions. Our guidance midpoint assumes P50 renewable production expectations and the range reflects potential variability in resource performance, energy pricing and timing of growth investments. Turning to Slide 12. We are very proud of how Clearway's operations team has performed with excellence, resulting in high levels of plant availability across all technologies throughout 2025. The team maintains a high level of excellence in both health and safety and plant availability and performance. This was a key driver that allowed us to deliver full year results in 2025 that were above the midpoint of our original guidance. We are extremely proud and grateful for the diligent work by this team to maintain and operate our fleet, in particular, as we manage the challenges of winter storms, where regions with high clean power penetration are able to keep electricity prices lower. Turning to Slide 13. We continue to be in an excellent position to prudently fund our growth and have raised additional capital since our last call, firming up our funding outlook. We continue to target a long-term payout ratio below 70% after 2030, resulting in retained cash flows continuing to become a greater source of funding for accretive investments. Corporate debt continues to be a pillar of growth funding while we remain focused on honoring our commitment to target a BB credit rating. In January, we closed an upsized offering of $600 million in senior unsecured notes due in 2034 at an attractive rate relative to assumptions in our funding plan that supports our longer-term target growth. The spread to treasuries was the second tightest high-yield issuance spread in the broader power sector since 2020, demonstrating the quality of our credit. To round out our funding plan, we expect to continue to use equity issuances as a tool to meet our growth objectives, but only when accretive to CAFD growth. Since our last earnings call, we executed $50 million of opportunistic equity issuances that were the least dilutive issuances in our platform's history, while extending our position of strength to have further flexibility on the timing of future issuances. Since late August, we've now issued $100 million of equity in less than two months of trading days, while our stock price is up over 30%, illustrating our ability to definitely issue equity without price disturbance. Looking further out, and as we outlined last quarter, we will raise additional debt and equity in the coming years to meet our 2030 goals. But to reiterate, we plan to be unwavering in our disciplined approach to meet funding goals and to execute our funding strategy in a transparent manner. similar to what is observed among listed utilities. And with that, I'll turn the call back over to Craig for closing remarks. Craig Cornelius: Thanks, Sarah. To recap progress on the goals we've set, we delivered 2025 results at the top half of our CAFD guidance range and fully funded all sponsor-enabled drop-downs, which are performing extremely well. We also executed value-added third-party M&A that strengthens our fleet and supports long-term value creation. Looking ahead, substantially all projects identified for CWEN investment through 2027 are now commercialized, and Clearway Group's late-stage pipeline is significantly larger than what we need for 2028 and 2029 completion to achieve our 2030 goals. As we look forward, we intend to continue increasing visibility into our growth trajectory, including rolling forward explicit CAFD per share targets beyond 2030 as commercialization progresses later this year. Taken together, these factors make us confident in the longevity of Clearway's long-term growth prospects, enabling us to deliver durable value for our shareholders well beyond 2030. Operator, you may open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Mark Jarvi of CIBC. Mark Jarvi: Lots of good disclosure. I appreciate everything. Clearly, organic growth is ramping here. I'm just curious on the M&A outlook, done some deals over the last couple of quarters. Just curious how that environment looks now. Clearly, you're seeing an attractive cost of capital both on the equity debt markets. Is that changing your approach and position around M&A right now? Craig Cornelius: Yes. Thanks for the acknowledgment on the organic growth front, Mark. We're really proud of the work that the organization is doing to chart that course. And I think with respect to M&A, the environment of today looks quite similar to what the environment looked like last year. as you note, that sets up well for us as an organization that's in a position to help sustain operating assets that are in the market already or to engage on combinations of operating and development assets, which an organization like ours is uniquely positioned to advance. And at the same time, the strength that we are demonstrating in our own organic growth outlook puts us in a position to be every bit as disciplined as we were last year when evaluating opportunities because we're in the luxurious position of evaluating M&A as something that would need to be demonstrably accretive to the outlook that we have already and something that presents a really compelling proposition for our shareholders to fund. So, we like what today's environment does for large enterprises. It's certainly favorable that there is a large universe of subscale peers that need to evaluate whether they're really in a position to successfully compete and grow in our industry in the future. And because our outlook for organic growth is so bright, where we do engage on opportunities like that, we're engaging on them with a high bar and insistence that any potential capital allocation to M&A that would be in exceedance of our existing capital allocation plans and goals would represent a very compelling investment proposition for our company and our investors. Mark Jarvi: Got it. And then just another quick question. Just on Page 6, the PPAs and ERCOT. Can you just comment in terms of when those would kick in and maybe quantify, is that enough to move CAFD by a percentage or contribute to the growth outlook for the company? Craig Cornelius: In each instance where we're working on those, they would be effective this year. And the way we think about those instances is that there are huge quality of earnings enhancements because the settlement structures on each of those revenue contracts are favorable to those that the projects have today and the new unit contingent long-term contract duration for the projects would extend well into the next decade as a result of the recontracting. And for any one project, the magnitude of its contribution in CAFD per share varies from one instance to another. And also, as you look over time into the late 2030s is a function of your point of view on merchant pricing and ERCOT. So when we think about the goals that we set for 2030 and beyond, our successfully completing those recontracting is part of what helps us build confidence that we're really aiming at $3.10 at the top end of our target range or better in those out years and helps us build confidence in our long-term CAFD per share growth goals because of the certainty that we can assign to revenues from those facilities into the future. Mark Jarvi: So it's as much about the quality of the CAFD being enhanced or derisking relative to the increased magnitude of the CAFD. Is that a fair way to think? Craig Cornelius: Yes. I think it reduces the exposure to merchant pricing in other parts of our portfolio in the future. So they will most definitely be helpful to our CAFD expectations in the near term, but not especially material in the context of a business that's targeting what we are in operating CAFD this year and next. So I think single-digit millions in CAFD enhancement. But the very long-term benefit is substantial. And we also like what it signals in terms of the inherent value of an operating fleet like ours and its attractiveness to customers that are trying to plan power for the long term. Operator: Our next question comes from the line of Julien Dumoulin-Smith of Jefferies. Hannah Velásquez: This is Hannah Velasquez on for Julien. Congrats on the quarter and thank you for the update. So I had a similar question, but a bit more about the PPA pricing environment. Can you give us a sense of what you're seeing out in the market? It sounds like ERCOT has been favorable to you. But are there any other markets to identify or call out where you're seeing similar favorable pricing? What's driving that? And then similarly, are you seeing just in the sense of elevated demand, an acceleration in some of your conversations with your offtakers that they're trying to renegotiate or recontract ahead of plan? Craig Cornelius: Yes. Yes, and thanks for the acknowledgment. We're really happy with the work that our team did over the last quarter. Yes, I think we're seeing a supportive pricing environment really across all geographies. For development assets that provide additionality in power markets, whether they're deregulated or regulated, really anything that we can interconnect and construct over the course of the next three years exhibits very significant differentiated value, whether it's through a regulated utility, who's the natural customer in a regulated market or to technology enterprise or another source of growing industrial load in deregulated markets where we can sell directly to those customers. Rough rule of thumb is that pricing on PPAs that we signed this year in comparison to pricing on PPAs in those same comparable markets signed three years ago is about double. We're not seeing pricing necessarily escalate higher observably today than where it was, say, three to four months ago, but it is very much solid and sustained. And we think that's healthy. The attributes of the power plants that we're constructing today are valuable. And all of us across the sector need to be focused on delivering an affordable energy equation for customers. So what we'd say about pricing is it is robust. It is staying strong, and we feel quite good about the return proposition we produce for our investors and the value proposition that we give our customers at these levels. In terms of its influence on operating asset, long-term revenue contracting, we similarly see that, that picture is pretty consistent across geographies. there isn't much motivation either from us as a seller or from customers to be talking about contract extensions on projects that see their PPAs expire later than 2030, say. But where we do have open length that can serve demand in the near term, it certainly creates an opportunity to sell that length well into the 2030s and at a price that is solid and allows us to sustain earnings well into the future. And then in terms of pull forward for demand, we are most definitely seeing that there's a growing focus on how much can be built and how soon it can be built extending out for resources that could COD at least through 2029 today. And I think part of what makes us as confident as we are around the upside in capital deployment opportunity for Clearway Energy, Inc. in excess of the $2.5 billion worth of corporate capital investments that we pointed to just last quarter is the strength of that demand and essentially, as I noted before, the readiness of customers to buy power from pretty much anything that we can interconnect and permit and construct between now and the end of 2029 at this point. Hannah Velásquez: Okay. Got it. Super detailed. And as a follow-up, can you just speak to the permitting landscape? How have things progressed or changed over the past couple of months? How much runway do you have reflected in your pipeline just to the extent that we're hearing about permitting challenges, particularly on the solar front? Craig Cornelius: Yes. I think this is one way we're especially proud of our business and where we are optimistic that you'll see us outperform many of our peers over the quarters and years ahead. As we've noted before, the business plan we've laid out that would allow us to target the top end or better of our 2030 CAFD per share goals and to be able to sustain 5% to 8% plus CAFD per share growth into the 2030s. We need to build about 2 gigawatts a year worth of projects. And at the project sizes that we're increasingly developing, that could translate into, say, something like 6 projects a year on average. And we are finding that we've got a point of view around our ability to do better than that as we look later into the decade. And a lot of that is a function of the very effective work we've done on the ground in the places where we're creating projects. You see on Page 17 of our earnings slides, a map of the late-stage pipeline we're advancing. And in each one of those jurisdictions, we feel quite confident and solid about the work that we're doing in those local communities to enable those resources. And we also feel really great about the relationship that we've forged at the federal level with an administration whose energy policy objectives we fully understand and sympathize with and I think has been able to see in our company an enterprise that respects their goals and is prepared to work on enabling their own. So we feel very good about our ability to execute in the current permitting environment, and we think that, that is a unique differentiator of our enterprise. Operator: Our next question comes from the line of Justin Clare of ROTH Capital Partners. Justin Clare: So just wanted to start on the co-located data center complexes, just how should we think about the return profile of those relative to traditional drop-downs of wind, solar or storage assets and relative to the 10.5% CAFD yields that you've talked about? And then also just curious on the ownership structure we should be thinking about for CWEN for one of these complexes that includes renewables and gas and storage. Would you anticipate CWEN owning the entirety of all of those assets? Or could the gas component be owned by a utility? How should we be thinking about that? Craig Cornelius: Yes. The way these projects are being developed, you ultimately have a collection of individual power plants that are all located in the same place, each of which have their own respective revenue contract, severable electrical infrastructure and in every instance, some phasing of how one unit or another comes online based on the staging of demand from the data center and the ability of an interconnecting utility to serve load enabled by the co-located generation resources that we build. So at least as far as Clearway Energy, Inc. is concerned, our intention is to create a succession of project investment opportunities that look like the other project investment opportunities we routinely create with contract tenors like those you see from us recently measured in multiple decades. and settlement and risk structures that are really the same as well. As we plan these resources today, we expect to deliver an investment return proposition for Clearway Energy, Inc. consistent with what it sees on other comparable long-term contracted assets. And so if you're trying to imagine what these could present an opportunity for Clearway Energy, Inc., you could think of they're presenting similar CAFD yield investment opportunities with similar sort of 20-year type tenor contracts. And as we noted, that investment opportunity is all additional to what our core grid-connected opportunities are targeting today. In terms of ownership of gas resources, this is something that will be a case-by-case consideration based on the unique circumstances and interest of the interconnecting utility at that location. And we think of the gas resources at each one of these locations as being an essential part of the puzzle of assuring that firm capacity can be delivered. And what corporate entity is the best owner of that will vary from instance to instance. But where Clearway Energy, Inc. makes any investment, it would do so into some structure that's a long-term toll like the one that we have in Carlsbad Energy Center. And those are great investments for CWEN. That's actually one of our highest reliability sources of cash flow within the fleet. So we look forward to illustrating what these different opportunities could translate into for Clearway Energy, Inc. in the future and are especially mindful of the importance of fitting them into its own capital allocation environment. And you could think of these as additional ways for us to accelerate CWEN's investment tempo, but into the same type of assets that it owns already today. Justin Clare: Okay. Got it. No, that's really helpful. And then just as a follow-up, you had raised $50 million in equity in Q4, $50 million in Q1. So I think a total of $100 million here. So just how should we think about with this additional capital, how should we think about your ability to deliver on the 2030 goals or potentially above those goals at this point in time? Craig Cornelius: Yes. First, I think we're quite pleased with the execution of our organization and its capital markets activity, both in the bond issuance we completed earlier this year and each one of the two equity issuances that we've already completed through our at-the-market and direct stock purchase programs. And we've looked at those as a useful proof of concept to our investors that we can return to being a regular issuer of securities and we can successfully issue them at a pricing level that makes the investments we're making today at 10.5%. CAFD yields very accretive on a CAFD per share basis for our investors when accounting for how we fund those investments. And it's our -- we are building confidence based on that demonstrated execution that allows us to think about the potential for accelerating the investment tempo at CWEN based on the opportunity set that we've previously described. And certainly, if CWEN is in a position to invest at a higher cadence than the $2.5 billion worth of capital deployment we previously noted would take us to the top end of our $2.90 to $3.10 in CAFD per share goal for 2030. That increased investment cadence would bring with it modest amounts of additional funding requirement, but we would only undertake those commitments in that funding plan if we thought it was going to lead us to substantially better outcomes than we've already committed to our investors today. So, bottom line, we're quite proud of the quality of execution in our capital markets work thus far. We hope it builds confidence amongst our investors that we, like some of the premium utilities we compare ourselves to can really enter into what is a potential super cycle for growth investment opportunities and that we can do so assuring that an increased cadence of investment activity will be highly accretive to our existing shareholders. Operator: Our next question comes from the line of Angie Storozynski of Seaport. Agnieszka Storozynski: So, I have a question about the drop-downs from your sponsor because I'm just wondering, given the strong performance of your stock and the reduction and implied reduction in the cost of funding, is it fair to assume that those future drop-downs still happen at this, say, 10.5% plus CAFD yield? Or is it that we should think about it more as a spread over your cost of financing, i.e., the stock performance would be sort of potentially weighing on the future CAFD yield from the drop-downs? Craig Cornelius: Yes. I think what we've said in our last few long-term planning calls is that we are planning our business around an average of 10.5% CAFD yields on new capital allocation, and we might see some projects capitalized and completed below or above that level. And as you can see from the disclosure we've most recently provided and also drop-down commitments that were reached last year, we've had some instances where we've been able to deliver at levels above that kind of 10.5% level. And every time we're able to do that, we're pleased about what that means for the shareholders of Clearway Energy, Inc. I think we see that giving Clearway Energy, Inc. the opportunity to participate in the rising return environment is core to assuring that the flywheel of success in our business continues. And as we plan our projects, as we price new revenue contracts at Clearway Group, as we capitalize them and prepare them for offerings for CWEN, we are looking to deliver a consistent growth algorithm, and we've communicated that, that growth algorithm anticipates deploying CWEN's capital between 10% and 11% in CAFD yields, and that's what we're continuing to plan for. Agnieszka Storozynski: Right. Because we're hearing all of these announcements coming from Clearway Group, right? And they're definitely bullish for the sponsor. I'm just debating if you guys will share some of the benefit, not just coming from the scale of projects or the megawatts being developed, but also the margins. Again, I'm debating if there is some improvement in margins for you guys? Or is that the benefit of the digital infrastructure pipeline more accrues predominantly to the parent and then you guys are more of a financing arm. And so it all comes down to the spread versus your cost of financing. And again, I'm not trying to impute it. Craig Cornelius: No, no, I totally understand the question. Well, I mean, I think what you see in the existence proof of the recent offerings from Royal Slope and Swan, which were made in the course of the current month, certainly after we've seen a share price increase for CWEN, each of those were offered within that same 10% to 11% CAFD yield range where assets were being offered last year. And because you carefully pay attention to our story over time, Angie, I know you've noticed that, that CAFD yield has increased over where assets were being dropped down, say, 18 months ago and certainly 36 months ago. So I think there's a clear existence proof that the Clearway Group sponsor entity is providing the opportunity for Clearway Energy, Inc. to participate in the rising return environment and deliver an improving return proposition for its investors as a result. And as far as the -- so as Clearway Group's originating new projects and capitalizing them, it certainly is planning on continuing to sustain that equation for CWEN. And as far as the digital infrastructure campuses are concerned, I think for us, the easiest rule of thumb for the time being is to assume that each one of these assets exhibits a return and contract proposition similar to what we do in traditional grid tied projects today. As we get to know what's possible in those complexes, we will see whether it's possible to do even better than that. But in our minds, and I think probably in yours, we should recognize that whether power resources are co-located with a data center or they're delivering power to data centers through the grid, there is still some cost of ownership equation that we need to satisfy for the owner of that digital infrastructure. And mindful of that cost equation, we would not want to overpromise about the potential for doing even better than what's already a great return for CWEN on the projects that we're deploying already into it. So, bottom line, we think the investment proposition for Clearway Energy, Inc. has been improved over the course of the last 18 months. It's certainly been sustained even while its cost of capital has declined. And we understand that part of what's allowed for that cost of capital to decline is the confidence our investors have that we're going to sustain a strong investment proposition for the company. Operator: Our next question comes from the line of Heidi Hauch of BNP Paribas. Heidi Hauch: I just have two follow-ups. With respect to the $650 million to $800 million in investment upside kind of incrementals of the $2.5 billion, I know you had mentioned potentially issuing equity if it's accretive to fund that. But should we be expecting that the funding strategy or the percent kind of funding breakout that you had highlighted last quarter with the 5% to 15% equity, 20% retained cash flow and the remaining corporate debt, is that kind of the strategy you would use to fund even the incremental investment? Or would this incremental investment require a different kind of corporate capital funding strategy? Craig Cornelius: I think that same approximate strategy is how we imagine running the business into the future. When we think about the particular constraints and factors that we are trying to optimize for in building a long-term plan for Clearway Energy, Inc. The things we think about are our intention of running the business to the same 4x to 4.5x leverage ratio that we have historically run it at. Our goal to drive our payout ratio down to 70% or lower in the long run so that we can create a strong base of recurring cash flow that can be reinvested in growth at a growing absolute level over time, sustaining a payout -- dividend per share growth rate that is compelling in its alignment with that of other premium utilities. And once we have accounted for each one of those constraints, then optimizing the balance of corporate debt issuance and equity issuance based on what maximizes CAFD per share for our owners. So I think you could think of that as kind of that approximate percentage of sources as being sustained in the funding plan we're building for ourselves and that we would increase as additional investment opportunities present themselves. But again, really, when we plan the business, we're thinking about those constraints and those goals of maintaining a prudent leverage ratio, driving to a payout ratio of 70% or lower and assuring that we're going to be able to compound our dividend per share growth rate at some level that's similar to what you'd see from other premium valued fast-growing utilities. And then the particular mix of equity and debt issuance in any given year would be something we optimize based on the long-term CAFD per share impact that we would expect to see. Heidi Hauch: Great. And then just a follow-up. Thanks for the helpful commentary on the revenue enhancement opportunities in Texas. Just want to make sure I'm understanding. So are these PPAs that were set to expire this year or rather PPAs that customers are kind of proactively recontracting years before expiration? And if that's the case, is there any further upside to this kind of 617-megawatt number as power demand continues to kind of increase and demand for kind of long-term agreements increase as well? Craig Cornelius: Yes. Actually, what we're executing in the instance of these projects is a little bit more like what we've done with the Mount Storm repowering in PJM, where the level of interest from hyperscaler customers and other corporate customers in ERCOT for the shape of generation that's available from wind projects in the market allows us to terminate existing bank hedges that are on those projects, replace them with a new long-term unit contingent power purchase agreement and what was previously a combination of hedged and merchant capacity at the projects now becomes fully contracted. And where we do have some existing commercial and industrial customers for those projects as their existing power purchase agreements roll off, the new customers' contracted quantity increases over time. So what we end up with is a fully contracted project with a very favorable risk profile on our settlement structure that allows us to now look at this as a contracted asset well into the next decade. Operator: Our next question comes from the line of Nelson Ng of RBC Capital Markets. Nelson Ng: So first question is, can you just talk about whether there's excess interconnection capacity at your existing portfolio and whether we should expect like a broader trend in terms of co-locating battery storage at a number of sites. Because I know, Craig, you mentioned earlier on the call that you're potentially hybridizing the entire fleet, and I'm not sure whether this is what you were referring to. Craig Cornelius: Yes. Thanks. I think that reference was the entire fleet of solar projects that we had in Utah. And it's a great test case for what you're asking about where for those projects, the ability to provide a firming capacity resource, making use of existing interconnection and the faster path towards interconnecting batteries versus filing interconnection queues for new batteries that would be built elsewhere, created a really compelling value proposition for the utility in the state that needs to serve growing demand. There is most definitely the opportunity to do something like that in other projects in our fleet, and we continue to examine what the optimal timing, location and instance of that would be. It tends to be most valuable at solar projects and the bulk of our solar fleet is either in California or is interconnected to deliver energy and capacity attributes into California. And something we like about that opportunity is that we've got the ability to take our time with it. Much of that solar fleet is contracted well into the next decade. And the ability to install hybridizing battery resources that qualify for tax credits based on the provisions of the Big Beautiful Bill extends well into the next decade. So in the Honeycomb program through which we've installed batteries or aim to install on the remainder of the fleet batteries in its entirety, we've got a good proof point for what it looks like when a market creates an opportunity for that kind of hybridization, and we think we'll be in a position to be able to do things like that well into the next decade. Nelson Ng: That's great color. And then just one another quick question. So, just regarding the pending Deriva acquisition, do you have an updated time frame of when you expect the transaction to close? I think your previous guidance was like the first half of this year. And obviously, we're near the end of February. Craig Cornelius: Yes. We are on a very solid track towards concluding that acquisition imminently. And we expect to be able to close well in advance of the end of the first half of this year. And you could see in some of our disclosures that the first phase of the financing that -- the nonrecourse financing that will be employed to fund the acquisition actually already was put in place by Clearway Energy, Inc. So the closing of the transaction is imminent. Operator: I would now like to turn the conference back to Craig Cornelius for closing remarks. Sir? Craig Cornelius: Yes. Thank you, everyone, for joining us today and for your ongoing support of Clearway. We're proud of the work we're doing to deliver new generating capacity in markets across our country with an array of diverse energy resources that are critical to our country's needs. In the quarters ahead, we're looking forward to continuing to execute with operational excellence and fulfilling our bright outlook for robust financial growth at best-in-class levels for you, our valued investors. Operator, you may close the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Scentre Group 2025 Full Year Results Update. [Operator Instructions]. Please note that this conference is being recorded today, Tuesday, the 24th of February 2026, at 9:00 a.m. Australian Eastern Daylight Time. I would now like to hand the conference over to Mr. Elliott Rusanow. Please go ahead. Elliott Rusanow: Thank you, and good morning, everyone. Welcome to Scentre Group's 2025 Full Year Results Briefing. I'd like to begin by acknowledging the traditional custodians of the land I am on this morning and pay my respects to their elders, past and present. I'm joined on the call today by our Chief Financial Officer, Andrew Clarke; our Chief Operating Officer, Lillian Fadel; and John Papagiannis, Group Director of Businesses. At the end of 2025, we made some changes to establish a structure to effectively pursue our growth ambitions. Lillian was appointed Chief Operating Officer with her accountabilities expanded from customer community and destinations to also now include asset management, development, design and construction as well as data and analytics. Andrew's role and responsibilities were expanded to include leadership of our strategy to broaden the economic activities and usages across the group's substantial and unique land holdings as well as the development of Scentre Group's long-term strategic plan. Our strategy is to grow the economic activity that occurs at each of our 42 Westfield destinations located throughout Australia and New Zealand. This strategy continues to deliver strong operating performance with continued growth in earnings. Our focus is to attract more people to our destinations and give them reasons to stay longer when they are with us. By doing this, we continue to improve our ability to attract a broader range of businesses to partner with us at our Westfield destinations. Our strategy is also focused on how we better utilize our substantial and unique landholdings at our destinations to create additional long-term growth for the group. Our results in 2025 represent now our fifth consecutive year of earnings and distribution growth in absolute dollars and in per security terms, and we expect this to continue to grow in the years ahead. For the year, our earnings as measured by funds from operations increased by 4.9% to $1.18 billion. On a per security basis, funds from operations was $0.2282 per security and was ahead of guidance. I would like to thank and recognize our team for their continued focus on bringing our strategy to life each and every day and delivering these results, especially during a period where many of our team have been contributing to the careful and extensive work of the New South Wales State corridor as part of their inquest into the tragedy that occurred at Bondi Junction in April of 2024. In 2025, we welcomed 540 million customer visits, an increase of 14 million compared to 2024. This is the highest visitation we have seen since 2019. In the first part of 2026 up until last Sunday, customer visitation was 79 million, an increase of 3.1% compared to the same period in 2025. Our 42 Westfield destinations are already the most premium and highest quality portfolio in both countries. Our portfolio is irreplaceable. They are located in close proximity to 21 million people. Our destinations welcome on average, over 10 million visitors each and every week. A key driver for why people choose to spend their time at a Westfield destination is the approach we take to activations and events at our destinations. In essence, we work tirelessly to give people the reason to come and to stay longer when they do. During 2025, we held over 21,000 cultural and community events. A key component of this strategy is the partnerships we have with some of the world's leading consumer experience brands. Our strategic and very successful partnership with the Walt Disney Company now in its fourth year, continues to deliver popular events that appeal to multiple generations of our customers -- for our customers and drive even more visitations to our destinations. We are pleased to also partner with Sony Music to bring artists to Westfields for free live performances. We're continuing to build on the unique and compelling experiences we offer customers through our partnership with Live Nation. We have seen strong and ongoing customer appetite for music-led experiences, which extend the excitement and ability to purchase merchandise from major tours beyond the stadium. We also celebrate premier sporting events through activations in our destinations. So far in 2026, we have hosted live sites for the Australian Open tennis through Child 9 Summer of Tennis and events for the 2026 Milano Cortina Winter Olympics. This follows the successful -- the success of our activations for the Paris Olympics in 2024, again, giving people a reason to come and stay with us. And later this year, we have exciting plans to host similar fan activation sites for major sporting events, again, giving fans from all cultural backgrounds the opportunity to enjoy premier events in world sporting events amongst other fans and at the same time, do so at our destinations. We continue to strengthen engagement with our Westfield members and are pleased to see our membership grow by 11% to 5 million during 2025. Our targeted member-led strategies translates to increased frequency of visitation and dwell time. Our data shows Westfield members visit our centers significantly more often, spending more compared to nonmembers. Why giving people -- why giving people a reason to spend their time with us is so important is because it provides the opportunity for other businesses and brands the opportunity themselves to interact, engage and transact with our customers in the most efficient and productive way. For a business that interacts with consumers, our Westfield platform is the place where these businesses want to be. In 2025, our business partners achieved sales of $30 billion, a record for the group. This is $1 billion more or 3.6% higher than in 2024, with the second half of 2025 growing by 4.5%. In fact, the volume of sales our business partners generate today is $5 billion more than in 2019, pre-pandemic, highlighting the importance our physical destinations play in the lives of the customers we serve. And for the month of January of 2026, business partner sales grew by 5.4% on the same comparable period in 2024. As a result of the execution of our strategy, we are seeing continued strong demand by businesses for space in our destinations. With space becoming more scarce, we are focused on identifying and curating the most in-demand and relevant mix of brands, products and experiences to meet the dynamic needs of customers. In 2025, occupancy increased to 99.8%, representing our highest level of occupancy since 2013. During 2025, we completed 3,090 leasing deals with specialty rents increasing by 4.5%. For the year, new lease spreads were a positive 3.2%, and this spread increased to positive 3.5% in the second half of the year. Average specialty leases have a term of 6.8 years and 80% of our leases have annual escalations that are inflation-linked. Portfolio-wide, 45% of consumption occurs on site via experiences, making our destinations extremely productive and profitable for the businesses that partner with us. We remain focused on pursuing more experiential and lifestyle-focused businesses to continue to drive customer interest, engagement, dwell time and ultimately, sales. The group continues to repurpose existing space to enhance the customer experience and productivity of our destinations. During the year, the group completed the expansion of Westfield Sydney, featuring a 2-level Chanel boutique, Moncler and Omega. On behalf of Cbus Property, the group has completed construction of the adjoining commercial space and expects to complete the residential component of that same project in the first half of 2026. We have taken the opportunity to strategically downsize a further 3 David Jones stores, unlocking space that we can then redeploy to more productive brands that consumers want. We completed the $72 million redevelopment at Westfield Southland in Melbourne and the $48 million redevelopment of Westfield Burwood in Sydney, with visitation up 6.5% and 9.3%, respectively, in 2025. We also completed the $28 million redevelopment of Level 1 at Westfield Bondi in Sydney, repurposing existing space into health, wellness and fitness. This contributed to destination visitation growth of 8.5% in 2025. Today, we are excited to announce the commencement of a $240 million investment at Westfield Bondi to redevelop Level 6 into a world-leading lifestyle, entertainment and dining destination. This continues our ongoing reinvestment into our destinations to ensure they remain not only the places where people choose to spend their time, but also having a great experience when they do so, thereby increasing their propensity to spend even more time with us. Importantly, we are able to undertake these investments, continually enhance our Australia and New Zealand's most premium portfolio and experiences and at the same time, continue to grow earnings and distributions for our security holders. The group is one of the largest landholders in the most densely populated areas across metropolitan centers in Australia and New Zealand. Our Westfield destinations are located on more than 670 hectares of land close to major transport hubs and where millions of people live and work. Our destinations have the opportunity to play a far bigger role than retail. We are focused on generating greater economic activity in and around our destinations through the better use of our strategically located land for a multitude of potential usages, residential, student accommodation, health and education, just to highlight some of these potential usages. During the year, the group launched planning proposals at a further 6 Westfield destinations. Carindale, Mt Gravatt, Maringa, Woden, NOx and Southland with the potential to deliver more than 16,000 dwellings. I will now hand over to Andrew to present the financials. Andrew Clarke: Thanks, Elliott, and good morning, everyone. Net operating income for the period was $2.1 billion, reflecting a strong 3.7% increase over 2024 and demonstrating our ongoing growth momentum. On a like-for-like basis, net operating income grew by 4.8%. This figure excludes the partial divestment of Westfield Chermside and the release of the expected credit charge in both 2024 and 2025. Management fee income grew by 6.3% for the period, driven by growth in property revenue and additional fees following the joint venturing of Westfield Chermside. Overheads rose by 2.5%. Net interest expense has increased by 0.6%, reflecting the part period benefit of the various capital management initiatives that we executed during 2025. The increase in tax from $39 million to $44 million is primarily due to our higher management fee income, growth in ancillary income and the impact of higher tax on New Zealand income due to lower interest rates. Project income for 2025 is approximately $2 million. As previously discussed at the group's half year results, this has been impacted by the higher-than-expected construction costs on the commercial and residential project on behalf of Cbus Property at 121 Castle Ray Street. Overall, funds from operations for the 12-month period was $1.18 billion, which grew by 4.9% compared to the prior corresponding period. Operating and leasing capital was $167 million for the year. The group has made significant progress in its capital management, funding and interest rate strategy. During 2025, the group successfully refinanced $2.4 billion of senior notes and subordinated notes, significantly improving the group's weighted average credit margin. In March, the group completed the make-whole redemption of all the remaining non-call 2026 subordinated notes totaling $1 billion, which had a margin of 4.7%. This was funded through a combination of a new issue of $650 million of subordinated non-call 2031 notes at a margin of 2% and $350 million of bank drawings. In September, the group issued $1 billion of 10-year senior notes in the Australian domestic market at a margin of 1.38%. In October, the group issued EUR 500 million or approximately $900 million of 8-year senior notes at a margin of 1.295%, marking a return to the European market. During 2025, the group has executed $3.2 billion of interest rate swaps, increasing hedge coverage to 99% as at January 2026 with an average base rate of 2.98% and 82% at December 2026 at an average rate of 3.01%. Our distribution reinvestment plan continues to be in effect for the February 2026 distribution. The DRP will continue to add to the group's various sources of capital. These capital management initiatives have enabled the group to achieve a weighted average interest rate of 5.6% for the year. Included in this was an average base interest rate of 3.1% and an average margin of 2.5%. This is a significant improvement in the average margin when compared to 2.8% in 2024. At 31 December 2025, the group had $5.2 billion of available liquidity. Following the successful joint venturing of Westfield Chermside in Westfield Sydney during 2025, raising $2.2 billion of funding, the group has today announced its intention to utilize some of this capital to redeem the USD 750 million or approximately $1.15 billion of 2030 senior bonds, which have a credit margin of 4.2%. In addition, the group has announced its intention to increase its investment in Carindale Property Trust with any acquisition of units subject to the prevailing market conditions and governed by the creep provisions of the Corporations Act. These transactions are in line with our capital management investment strategy to deliver long-term growth to our security holders. The statutory result was a profit of $1.78 billion, which includes an unrealized property revaluation increase of $456 million. All properties were revalued during the year. Overall, property valuations increased by 2.5% during the 12-month period, primarily driven by growth in net operating income. The weighted average capitalization rate for the portfolio remains at 5.43% at December 2025. Thank you, and I will now pass you back to Elliott for closing remarks. Elliott Rusanow: Thank you, Andrew. Our strategy to grow the economic activity at our Westfield destinations by attracting more people to our destinations, broadening the businesses that partner with us and better utilizing our substantial land holdings is expected to continue to deliver long-term growth in earnings and distributions. Subject to no material change in conditions, the group's FFO is targeted to grow by at least 4% to more than $0.2373 per security for 2026. Distributions are expected to grow by 4% in 2026 to $0.1843 per security. Thank you, and I will now open the call for questions. Operator: [Operator Instructions]. Your first question comes from Howard Penny at Citi. Howard Penny: Congrats on the results. Just my first question about the subordinated note buybacks. I know you've done a lot of them and refinanced to cheaper versions of the subordinated notes. But could you just give us a little bit of an explanation of what subordinated notes would be potentially something you would consider buying if market conditions were more favorable? Andrew Clarke: Howard, it's Andrew here. Look, I think what we've demonstrated over the last number of years is our strong intention to find opportunities to use the tailwind of refinancing both the subordinated notes and senior notes to provide growth for the group. And we've been very active in terms of doing that. We don't want to be telegraphing transactions in advance of executing on those transactions. But I think if you look at the past and the history and the proactive nature as to how we've gone about that, I think it's fair to say that we have a strategy over the coming years to continue to execute upon that opportunity. The fact that we raised $2.2 billion of funding through the joint venturing of Westfield Chermside and Westfield Sydney last year really creates a very strong balance sheet and credit metrics for the group and provides capacity to look at other opportunities in this space. Today, we've announced the make-whole of our 2030 senior bonds, $1.15 billion worth. So yes, I think it's -- you can see by our actions over the last number of years. And what I'm saying now, we have a strong intention to continue to execute on that tailwind for the group. Howard Penny: And just a second question. Congratulations on your new role and part of that is unlocking the value of the land. Could you please give us just any updates on the residential opportunities that you see playing out in the portfolio? Andrew Clarke: Look, I'll start, Howard, and I'm sure Elliott will have some comments as well. I think the first part is that the opportunity is really significant. And we've got 670 hectares of land, high-quality land located next to transportation nodes where people live and work. So we're really excited by that opportunity. The first part that we're focusing on at the moment has been around seeking planning permissibility changes and rezoning. We've had significant success in the lodgement of those planning permissibility changes. We've spoken about 16,100 potential dwellings that could be added to the sites where we've submitted those planning permissibility lodgements to date, but that opportunity is significantly more than that. I think the other part is that and Elliott highlighted, this is not just about residential. This is about the master planning of the landholdings that we have and how do we maximize the economic activity that's happening on those land holdings over the long term and thinking about densifying that land with much more -- much broader usages. And the other part that's really important is we see this as an opportunity not only to create additional land on the landholdings, but also how does this create this ecosystem that further drives better economic activity within the Westfield destinations as well. So we're really excited by it. We've had significant progress in terms of the planning process that we spoke about. We're also making a lot of progress in terms of our strategy at a group perspective, but also the strategy that we're looking at on an individual asset-by-asset basis. Elliott Rusanow: Yes. And maybe just to add to that, and Andrew has adds to it probably the way I answer as well. So it's not much more to add. The part that I think -- and we purposely use the language of economic activity because it seems that when we talk about densification or anyone talks about densification, people jump to residential. And the reality is that our centers are located at the hub of economic activity, of which residential could be part of, but so many other usages. And so we're looking at how do we bring those economic usages into our landholding, which surrounds and is adjacent to our destinations. So whereas today, we have destinations surrounded by car park to have destinations that are not only surrounded by car park, but other economic usages, which could include -- which will include residential, but could also include other usages as well given their unique location and where they are. So the point being that we all recognize that residential or particularly build-to-rent is a nascent industry in this country and in New Zealand. And the opportunity of focusing on economic activity in a more broader sense, I believe, can actually bring forward the unlocking of those opportunities far quicker than relying purely on a build-to-rent market maturing to a state which becomes economical across the portfolio. Operator: Your next question comes from Tom Bodor with Jarden. Tom Bodor: I was just interested in the plan for the CapEx, $240 million at Westfield Bondi, how should we be thinking about returns on that spend? Elliott Rusanow: Yes. So the way we should be thinking about it, and I think you should be thinking about this for all developments when it comes to retail, not just us, but all our peers. And that is that when often people talk about a stabilized yield of 6% or somewhere in that vicinity, they only have a focus on the new incremental spend and the return you generate on that new incremental spend and for some reason, conveniently forget about the impact on the remainder of the existing center. And we look at it as the total net operating income that we can generate from the entire site, not just the incremental CapEx that we spend. And so yes, we're targeting a very strong addition and a needed addition for Bondi in order to forge into a greater, again, use of economic activity in this state -- in this instance being longer trading hours, entertainment, lifestyle, wellness, food and beverage, obviously, is a big component of that. But the ultimate aim of that is to ensure that Bondi continues to generate superior long-term NOI growth year after year after year because it is the premium asset in Sydney. Arguably, the next one would be the Sydney CBD. So as a suburban center, there is absolutely no question that Westfield Bondi is the best asset from a suburban point of view. And the development on Level 6 will further enhance that, particularly its location in that demographic area. And the point out of that, and I think the proof point out of that is to see what you've witnessed at Carindale whereby the downsizing of David Jones and the repositioning of that has seen very, very strong compound annual growth of net operating income post that redevelopment, which was a downsizing of David Jones, but we've been adding on more and more food and entertainment to that. Obviously, it's a very easy case study to look at because it's a public company as a case study of one. But that notion of what return you're getting over a longer period of time is far more relevant than me telling you should be expecting to get a stabilized 6% yield at some time in the future, which somehow seems to get knocked out year after year after year. And there is no -- there is a reason why when you go back in history, we are able to generate significant growth in FFO per security. I think if you go back to 2022, when we did change leadership roles, our compound growth is in excess of 6% per annum versus our closest competitor who is spending a lot of money doing very large developments, who is actually generating less than 0 growth and is forecast to continue to be generating very low growth in earnings per security. And the reason for that is because we are focused on how we spend our capital to enhance the total growth and income that's generated from the asset so it remains relevant to the customer. So customers come more often, they spend longer with us, and that makes it more attractive for businesses to come. It's a very different strategy that we are undertaking, and it's a strategy that is designed to ensure that we're able to refresh, forge into new territories in terms of where we are taking our business away from traditional inverted commerce retail into other areas, which is businesses to consumer and at the same time, continue to grow in a far superior way our earnings and our distributions to security holders. Tom Bodor: That's great color. If we were to sort of think about that maybe then in terms of numbers, is it fair to say on that spend in a holistic sense, double-digit IRRs on un levered. Is that the way you think about it? Elliott Rusanow: That's absolutely, yes. So we would be expecting to deliver an IRR out of that total investment in Bondi. So if you were to take Bondi today, what's going to look like in the next 5 to 10 years, we should be expecting very healthy double-digit IRRs coming out of that asset. Tom Bodor: Okay. Great. And then maybe just another one on capital. Obviously, there's some moving around refinancing senior debt, redeeming hybrids and other initiatives ongoing. How should we think about the balance between really optimizing the debt stack and also preserving financial flexibility and liquidity to execute on these growth plans? Like how do you sort of weigh that balance there? Andrew Clarke: Tom, Andrew here. Look, we -- the way we look at it is that, firstly, every year, we would invest in the operating and leasing capital of the portfolio. That's a fundamental part of the business to make sure that we're maintaining the assets and all the equipment that we have within the centers, plus the leasing of new merchant sites where we do provide -- occasionally provide capital. The other part is that we expect to invest around the sort of $250 million, sometimes up to $300 million in redevelopment opportunities. And so that sort of capital investment, we expect to happen year upon year upon year, and that's how we look to not only maintain the strong performance of our portfolio, but also provide that underlying growth that Elliott just articulated. The second part to your question in terms of capital management initiatives, we look to find ways to self-fund those capital management initiatives through the initiatives that we execute in themselves or other opportunities. So for example, last year, we've raised $2.2 billion from the Westfield Chermside and Westfield Sydney joint venturing. We're looking to use some of that capital to refinance and make whole the 2030 senior notes that we spoke about, and we'll look at other opportunities as well as how do we then maximize the return on that capital as it comes in. So they're sort of looked at separately. Tom Bodor: Great. And can you just confirm what leasing and maintenance CapEx was this year, please, [ Steve? ] Andrew Clarke: It was $167 million for 2025. And for 2026, we expect it to be around the $170 million mark. Operator: Your next question comes from Andrew Dodds with Jefferies. Andrew Dodds: Tom Bodor has covered my questions [indiscernible]. Operator: Your next question comes from Adam Calvetti with Bank of America. Adam Calvetti: Can you just talk through the makeup of guidance for 2026, if you're expecting any new JVs or divesting any assets, just like-for-like numbers and [indiscernible] That were expected? Andrew Clarke: Adam, Andrew here. Look, the underlying portfolio, as Elliott articulated, is performing extremely well. We expect to see that level of growth continue in 2026. We're seeing strong visitation growth in early January and partway through February. Sales growth has continued as well. So we expect that momentum in terms of growth from the underlying portfolio to continue. We'd expect around circa 4% growth in NOI. We also have the benefit of the make-whole transactions and netting off against the joint venturing that we did last year. So that's a positive tailwind for the business. We do have -- the ECC was an amount, I think, circa $17.7 million in 2025. We don't expect that number to repeat in 2026. And those are probably the key parts. We have obviously developments that -- the smaller developments where we're repurposing space and bringing in more productive brands and retailers. We don't expect that to -- we have some of those projects completing, but we also have some new projects commencing. So we spoke about Level 6 at Westfield Bondi as an example. So those are probably the key moving parts at a macro level. Adam Calvetti: Okay. Great. That's pretty clear. And then just on the 4,000 dwelling approvals that you have, I mean, what stage are you at in conversations with capital partners? Is that -- have you gone out to capital partners? How do we think about time line to actually putting shovel into the ground? Andrew Clarke: Yes. I think the way that we're looking at it at this stage is the first part is we're looking to maximize the opportunity. And by going down the path of focusing on the rezoning focus and potential development approvals really maximizes the scale of the opportunity across the entire portfolio. It's fair to say that we've had a lot of inbound inquiries from potential capital partners that are very excited and interested in opportunities to partner with us. However, what we need to focus on first is maximize the opportunity while there's this window to work with the state governments and councils on these -- on the scale opportunity. And then the second part is we'll then start to look at, okay, well, how do we want to monetize that opportunity over the longer term. At the very least, the first phase is as you get rezoning and you get scale, the land value of the -- of the land that we're sitting on can increase quite significantly. So that's an opportunity that we're looking at in the South. The second part, which I think is where you're getting at is how do you then want to monetize not just the land value, but the overall opportunity. We're still working through that strategically. We want to make sure that we maximize the opportunity for the long term, not just try and realize a short-term benefit to the group. Adam Calvetti: That makes sense. Maybe just to follow up with that. We sound like Hornsby, what -- when you talk about maximizing the opportunity, how much more, I guess, zoning or upside to FSR and internal floor space can you get? Andrew Clarke: Well, we've spoken about the number of units or dwellings that potentially can be built on Hornsby, I think it's in excess of 2,000 potential dwellings across the site. If you have to extrapolate that across our 42 destinations, there are very few with the 42 destinations that cannot add that sort of capacity. So if you think through that, the scale is significant. So that's sort of the opportunity that we're looking to maximize at this stage. The other thing I should add to your previous point is one of the key parts of our strategy is we're not looking to use Scentre Group's balance sheet to necessarily build this. We see this because there is so much appetite from third-party capital to be involved in this opportunity. It's highly likely that we would realize the opportunities in a very capital-light manner. Elliott Rusanow: Yes. I mean the reality of that is our capital is already invested -- it's just in the form of a car park. And so it's -- in many respects, the shareholder already owns that land and it's how do we utilize the shareholders' already invested capital in a way that sees this built out in a monetized way over a medium to longer term. Operator: Your next question comes from Solomon Zhang with UBS. Solomon Zhang: First question was just on NOI margins. Do you expect NOI margins to be flat up or down next year? And can you call out whether security costs would be a material drag in that number given, I guess, some of the security incidents in Sydney and beyond? Elliott Rusanow: Yes. So thank you for the question. I think that what you've seen in this year is that our NOI margin has actually improved. We did have the uptick in security costs, which we called out in 2024. The reality is that we adopted what was already considered and stated by the New South Wales corridor as being world-leading security arrangements we had already started to improve that in light of what did occur, unfortunately, and tragically at Bondi in 2024. But we adopted those improvements in that hindsight very, very quickly. So we've done that. I think the better question would be to ask the others, what are they doing because we've already ingested that. You see that in our numbers. And I think that what you're now hearing is others are now having to play a bit of catch-up to get to a security posture, which is now, I would say, expected by the community in terms of these security arrangements in place at destinations countrywide. Solomon Zhang: Maybe next question for Andrew. If you triggered the make-whole provision for the subnotes today, the original 2030 is noncore, what premium to par do you estimate you'd be paying today with the sort of 4 to 5, 4.5 years to run? Andrew Clarke: Look, the subnotes today are trading at a slight premium to par, and then the make-whole would be over and above that, any make-whole premium. So through today's lens, there would be a decent premium relative to some of the other transactions that we've done in the past where we've been able to buy the subnotes back at a discount to par. So you can -- it's not pretty obvious which type of market we would prefer to be executing those types of transactions. Solomon Zhang: Yes. Would it be circa 10% given the 4.5 years to run and I guess, where the base rates are for the U.S. Andrew Clarke: It's not as simple as that, and maybe the IR team can take you through later. But you've got to look at, firstly, the premium that you need to pay to where the notes are trading. And then you've also got to look at the cost to unwind the cross-currency swaps as part of that transaction. So there's 2 sort of key parts to the transaction, and they both can change depending on market dynamics. But I think I'll say it looks relatively more expensive through today's lens than what we've seen or what we've executed in the past. But the market... As you can see, the markets can change overnight very quickly. So our job is to monitor those opportunities. Solomon Zhang: Great. But I guess if you look at the past 6 months, the AUD has appreciated versus the USD. So presumably, unwinding that cross-currency swap if you hedged at $0.73 per AUD has improved. So I guess, is it looking more attractive versus 6 months ago? Andrew Clarke: No, I just said no before. So I think you're getting lost into the detail there. I think it's probably best to take it off the call. The cross-currency swaps that we enter into the time swap fixed U.S. dollar coupons into floating Aussie. So -- but I'll leave it there and the team can take you through that. Operator: Your next question comes from Callum Bramah with Macquarie. Callum Bramah: Just maybe going back to the assumptions around guidance. Are you able to just clarify, so the 4% NOI, was that like-for-like that you're talking about? And can you just give me an idea of where you see net debt at the end of the year maybe in dollars and your weighted average cost of debt trend as you've sort of benefited, I guess, over the last 12 months, what you're thinking weighted average cost of debt will be for fiscal '26? Andrew Clarke: Yes. So the first part to your question, we would expect the underlying like-for-like NOI to be around that approximately 4% mark. The second part to your question is on the weighted average cost of debt. So we're forecasting around 5.4% weighted average cost of debt compared to the 5.6% that we had in 2025. And then the last part of your question, Yes. We -- basically, in terms of the amount of capital that we're looking to invest, as I said before, we're looking to invest about $170 million on operating leasing capital and then somewhere in the range of $250 million to $300 million for redevelopment capital. And then the add-on to that is any capital management initiatives that we execute on that. We obviously pay a distribution, which we've spoken about today with 4% growth in the guidance, plus any retained earnings that we have through the DRP and retained earnings from FFO less the distribution will help fund the majority of that CapEx. Callum Bramah: And any assumption in relation to Carindale? Andrew Clarke: There's nothing included in our guidance, no. As we said that we will be looking to execute that purchase of units under the creep provisions, which effectively means you can buy up to 3% every 6-month period. So I would expect it to be very gradual. Callum Bramah: And maybe just one follow-on, just in relation to the development opportunity that you've talked about on the land. And if I heard correctly, and apologies if I didn't, a lot of that land is existing car parks. I just wondered how much of that is tied up in leases with anchor tenants? Andrew Clarke: Yes. Look, I'd say that the opportunity is across the entire site. If you look at a typical Westfield shopping center. Some centers have vacant land, then they will also have on-grade parking. And then there's also air rights over and above the shopping center. In terms of ease of execution, it obviously starts with the vacant land. The next opportunity is then you'd look at on-grade parking and then the harder to execute is then looking on top of the shopping centers. So it's fair to say that if you look at the opportunities, that's the way -- it's probably the way that we'd look to prioritize it. Elliott Rusanow: I think if you look at the compendium when it comes out, you'll see site by site, what's built form already versus the land parcel itself. Callum Bramah: Okay. And so if you -- and apologies, maybe it doesn't make sense to ask it this way, but the 670, was it hectares? What portion of that is just vacant available land ready to go. And the [indiscernible]. Elliott Rusanow: So the built form is somewhere between 40% to 50% of that. So yes, so the residual is obviously -- it's used as car parts. So arguably, that's built for them. I think the point I was trying to make is today, its economic use is to house a car. In the future, we see it as housing a car and a lot more above it. Operator: Your next question comes from Simon Chan with Morgan Stanley. Simon Chan: Do you have a specialty occupancy cost number? Andrew Clarke: Yes, it's 17.2%. Simon Chan: Okay. So that hasn't changed over the last 12 months. Andrew Clarke: No, we're seeing really strong specialty sales growth, which is fantastic. It's actually what our strategy is about is growing visitation and helping our business partners perform and grow, and then we're able to grow rents in line, if not better than that sales growth. Simon Chan: Okay. Fair enough. And just a follow-up on your guidance. I think Andrew talked about all the positive points, right? Like comp NOI growth, I know you sold some assets, but then you're going to pay down debt, [indiscernible] is coming down. Why is guidance just 4%? It doesn't add up? It should be more than that. Andrew Clarke: Simon, so I spoke about the 4% in terms of net operating income growth. I did talk about we do have some dilution from the joint venturing of Westfield Sydney and Westfield Chermside. Obviously, we're more than offsetting that dilution with the make-whole transaction that we've spoken about. We do -- there's $18 million of ECC that we had in 2025. We're not assuming that any of that would repeat in 2026. We spoke about -- in my notes, I spoke about the New Zealand exchange rates. So we have -- I'm getting into the detail here. There's lots of moving parts, but things like the New Zealand exchange rate, the Australian dollar has strengthened significantly against the New Zealand dollar. So that's a bit of a drag. We are seeing higher tax expense. A lot of that's driven by lower interest rates in New Zealand, therefore, lower tax deductions. We spoke about some of the active projects, Westfield Bondi -- we've got Tuggerah, the David Jones replacement there. Those... Simon Chan: Sorry. Is that lost rent you're talking about that [indiscernible]. Andrew Clarke: That's exactly right. So you have disruption to the existing space, whereby we're replacing it with more productive retailers over the long term. So those are some of the key moving parts. And it was at least 12%. Simon Chan: So how much is the lost rent incremental in '26 on this year versus last year, about $10. Andrew Clarke: Yes, maybe a little bit more than that, probably $10 to $15. Operator: Your next question comes from James Druce with CLSA. James Druce: Yes, similar to Simon's question on guidance, is there anything for project management income in guidance? Andrew Clarke: No, we expect that to be relatively flat to 2025. James Druce: Okay. And apart from maybe refinancing that long-dated bond you spoke about, is there anything else in the refinancing side of things in guidance? Andrew Clarke: Look, we have assumed that we can do better than where the floating rate currently sits within that guidance number, but it's not -- the material movement is the make-whole. James Druce: Okay. And you've got your cost of debt declining this year from 5.6% to 5.4%. I mean that does feel like a bit of a tailwind despite the ECC dilution we're talking about before. It does sound a bit light to me. Andrew Clarke: Yes. I think the other part, what we've noticed with a lot of the sell-side analyst forecast is we're not seeing a regular updated floating rate curve within those forecasts. So the floating rate increase, although we're relatively highly hedged, that does have an impact on the unhedged part of our debt. James Druce: Okay. I thought you were 99% hedged. What's your hedging. Andrew Clarke: At the start of the year, and then that comes down to 82% at the end of the year. So the average is sort of in the higher 80s. So there is still a component of our debt that's exposed to the floating rates. Operator: Your next question comes from Ben Brayshaw with Barrenjoey. Benjamin Brayshaw: I was wondering if you could comment or perhaps it's a question for Andrew, just the expected credit charge of the lease that's come through, what that relates to, I thought that you might have been through that release of prior allowances that have been made. And just did that come through in the second half? Or how was that recognized over the course of the year? Andrew Clarke: Yes. The expected credit charge release came through in the second half of the year. Really, what it comes down to is the strength of the collections that we've had from a rent perspective and the aging of our debtors. So what you've seen, which you can't see just with the headline numbers, but the quality of our debtors has improved dramatically, where we've been able to collect some of the long-dated debtors that were outstanding and resolve some of the outstanding issues that we had previously provided an expected credit allowance for. We've resolved the issues commercially, and we're able to then collect some of those debtors and then therefore, release the ECC. We're not assuming any further release looking forward. It doesn't mean that we're not pursuing more opportunity in that space. But at this stage, we're not assuming any further upside from that in 2026. Operator: Your next question comes from Richard Jones with JPMorgan. Richard Jones: Another question for you, Andrew, sorry. Just what was the write-down on project income booked in the Market Street development? And then why is there no growth expected in project income in '26? Andrew Clarke: Yes. So we spoke about this at the half year results. There was around a $15 million loss or write-down that we were booked in the first half of 2025. We did have a bit more cost in the second half, but we've been able to offset that or more than offset that by other project income that we had come through on smaller bits and pieces of work that have happened across the portfolio. In terms of 2026 project income, we're not expecting a lot from joint venture assets. So if you look at the major development that we're talking about is Westfield Bondi, which is 100% owned. So therefore, there's no joint venture project income that we generate on that capital investment. And yes, so there's not -- that's why we're assuming that it's relatively flat to 2025. Richard Jones: Okay. And then just a second question for Elliott. Just on Carindale, why would you not just take it out? It's not an overly material transaction for the group. Elliott Rusanow: Try to answer that because I wear 2 hats. I think you could see with the creep provision, we see it as a good value long term for the group. Having said that, the -- it's probably lurching into areas that I shouldn't be talking about in terms of what our intentions may or may not be longer term in terms of whether Carindale remains as is or doesn't. So I am going to avoid that question and because it's probably not prudent for me to actually answer it in that way other than to say that what we've announced today is what we'll be doing, which is creeping. Richard Jones: Okay. Can I maybe ask it another way? So it looks as though the ownership structure in terms of the joint venture partner is likely to change at some point this year. Do you think that provides an opportunity that perhaps wasn't there whilst [ Lendlease ] was the partner? Elliott Rusanow: I don't believe it does because if you recall, Westfield back in when it purchased its interest in Carindale Property Trust bought an existing structure, which was set up by Suncorp and Suncorp had some preemptive mechanics within their documents, which don't mirror necessarily the preemptive mechanics that we would normally see in a Westfield joint venture or a Centre Group joint venture. And so the change of control of APPF doesn't necessarily result in a preemption action. It might, depending on how it's done or what happens. So it's hard to comment on speculation of what may or may not occur other than to say that it does -- that the arrangements that are in place because we were brought into a structure that was pre-existing is different to what you would normally see in a Westfield now Scentre Group joint venture arrangement. Operator: Your next question comes from Claire McKew with Green Street. Claire McKew: Just a quick one on capital allocation as a follow-up to Tom's question. I'm just curious more big picture, how you're thinking about that decision matrix. So clearly, Bondi Junction next have off the rank. Booragoons kind of been put on the back burner. Is that really just a function of the return profile? Or is there more to it? And how are you thinking about the future priorities in terms of opportunities in the development pipeline? Elliott Rusanow: Yes. I wouldn't say that Booragoon has been put on the back burner. I think that the scale and size and how we do Booragoon probably has changed in the last 3 years where we've pivoted away from taking an entire center out of income production and then rebuilding it and hoping people come back and generating some return. Some say it's going to be not Booragoon, but where it's been done somewhere, particularly in Sydney, that it might get to a 6 at some point in time. Rather, we prefer to incrementally add and add to the offer whilst the center keeps trading. And so the opportunity at Bondi presented itself as a more immediate opportunity. We were able to actually make that occur due to the change of control that happened at David Jones that accelerated our ability to bring forward plans, much needed plans, I would say, to ensure that Bondi Junction retains its premium position, not only in our portfolio, but certainly in Sydney and one of the best in the country arguably the world. And so we're taking advantage of that. At the same time, we're still predeveloping work on Booragoon, and we would be expecting that, that would occur sometime either later this year or early next year. But again, in a way which maintains the existing center a little bit disrupted, unfortunately, but in the main with people still being able to come and spend time and transact with businesses during that redevelopment activity. Claire McKew: That's clear. And just another one. Obviously, department store shadow supply is favorable for Centre Group. But just curious, just with David Jones continuing to rightsize their portfolio. Can you just provide -- I know you can't provide specifics on Myer and David Jones, but perhaps just a bit of color around David Jones sort of decision matrix. I mean their productivity is a lot stronger than Myers, generally speaking. Are the stores that they're closing materially underperformers? Or how do those stores compare to the general footprint of the department stores in your portfolio? Just trying to get a sense of the potential phasing of this shadow supply. Elliott Rusanow: Yes. I think -- and the property [indiscernible] will have a lot more detail on this. But what you're seeing, this is not a new phenomenon. This has been going on for decades where department stores have been downsizing we can -- many of us, unfortunately, who have aged in life can remember department stores being somewhere between 25,000 and 30,000 square meters. The right size now is somewhere between 10,000 to 12,000 square meters, maybe even slightly lower. A lot of that has to do with the brands that they're selling, they're actually taking stores, stand-alone stores with us and paying a much higher rent to do so. So the economics for us as Scentre Group is a better economic outcome. What it also means is that we are getting space back, which allows us to redeploy for that higher and better usage. So what is the magic number, I don't think we all know. But what I can say is that the methodic way that this has been dealt with over a long period of time has meant that what might have been a concern around an existential or unusual event of everything going under and having to redo it is being played out differently, which is we're rightsizing and we're doing so in a very economic way that makes money for shareholders. Claire McKew: I guess, obviously, there's a recap coming with David Jones. So just curious to see if we're going to see a much stronger wave of either full closures or reducing rightsizing the actual store size. Elliott Rusanow: Yes. And I think you might part that to bear in mind is that our leases with David Jones are fairly long. So many years of duration is still to go. And unlike our peers, we actually have bank guarantees. So the -- not just a net asset value test. So the ability for someone to come in and Phoenix to get it out and effectively put a gun to our head is actually fairly limited in that scenario because if they -- by doing so, they'll be giving up real cash in the form of the bank guarantees coming back to us. That was something that was a major, I suppose, demands on the right work. A major component of why we gave our consent to the change of control to ensure that we had longevity of security that whoever was trading in that site continue to trade in that site. And if they weren't, it would cost. And so I think we're in a good position vis-a-vis that. Operator: There are no further questions at this time. I'll now hand back to Mr. Rusanow for closing remarks. Elliott Rusanow: Well, thank you, everyone, for making the time today. I'm sure we'll get to see a lot of you in the days and weeks ahead. And if there are any questions in the meantime, then please do reach out to us. And I know there were some very detailed questions on the call, which we will follow up immediately after this to help connect the dots. But thank you for your time today and looking forward to seeing you soon. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Ingenia Communities Group 1H '26 Results Teleconference and Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. John Carfi, CEO and Managing Director. Please go ahead. John Carfi: Good morning, and thank you all for attending. I'm pleased to be presenting our first half results for FY '26 and to confirm we remain on track to deliver the targets and objectives set out in our 5-year plan, including a 10% to 15% compound annual growth rate in settlements. We are now halfway through the second year of our 5-year plan and despite growing competition in the living sector are well progressed in the delivery of improved shareholder returns. Before I get underway, allow me to introduce some of our executive team who are here joining me to present and also to answer questions. Justin Mitchell, our CFO; Donna Byrne, General Manager of Investor Relations and Sustainability; Kristy Minter, EGM Residential Communities; Matt Young, EGM Tourism; and Michael Rabey, EGM, Acquisitions and Development. I'll start on Slide 5. We started this year with a solid foundation in place, having successfully delivered on our year 1 goals, which established a more streamlined business with a clear purpose and focus on improving development returns, operational efficiency, enhanced productivity and industry-leading customer service. Our first half result demonstrates further targeted execution, which puts us on track to deliver our year 3 goals and a full year result at the top of our guidance range this financial year. New home settlements, a key driver of our result are in line with our expectations and are down on first half last year as we revert to a more traditional second half skew. We are seeing ongoing demand for our land lease communities and have increased both occupancy and rate across the Holidays business, underpinning our growth for the second half. Operationally, we are seeing ongoing strong demand from our customers with consistent momentum across all areas of the business, and I'm extremely pleased with our progress in relation to key strategic goals. Key to improving returns is the significant progress made in development, where we have established the foundations for a strong second half, growing lot settlements and improving returns in line with our 5-year plan. Over the half, we commenced 5 new projects and progressed the execution of key project milestones, including facilities delivery, display homes and home production. This timing has driven the second half skew consistent with prior years and puts us on track to deliver our 5-year settlements CAGR target of 10% to 15%, underpinned by sales in hand. With greater financial discipline in place, we are now implementing design and procurement changes across new projects as we cycle through older projects and deliver communities which have been designed with greater efficiency and improved financial goals, including cash generation. Importantly, and despite growing competition in the sector, we have managed to strategically restock and extend our development pipeline, and I look forward to announcing further details as each transaction concludes. Financial metrics will improve this year in line with our year 3 targets as we see higher return projects such as Sanctuary and Latitude One expansion contribute in the second half. Over to Justin now to discuss our financials. Justin Mitchell: Great. Thanks, John, and good morning, everyone, and thanks for joining us this morning. I will start on Page 8 with the key financial highlights. Pleasingly, the group has maintained momentum across our operating businesses, delivering a solid performance for the first half, in line with expectations, and the group is on track to deliver at the top end of guidance. The Holidays business has continued to deliver strong results with tourism revenue increasing 12% on a like-for-like basis. While new home settlements were lower, this is consistent with previous communications with a more pronounced skew to the second half. Development gross margins has remained stable for Ingenia at 46%, while the joint venture pleasingly saw an increase to 53%. We remain focused on delivering enhanced financial returns for development and across our diversified business while maintaining a prudent balance sheet position to fund growth, which I'll talk to in more detail shortly. Now focusing on the financial results. Revenue was flat -- sorry, revenue was flat relative to the prior year. Holidays performed well, driving significant growth in revenue, demonstrating continued momentum with ongoing strategic investment to deliver enhanced value across the portfolio. Together with the growth in rents from our living business, this offset the lower development settlements I referred to before and the impact of DMF recognized in the prior period. Group EBIT reduced 1% to $85 million. This slight decline was in line with expectations, primarily due to the timing of settlements and DMF noted previously, offset by a higher composition of settlements from the joint venture projects. Overall, first half settlements totaled 248, with 29% of those coming from the joint venture. Our underlying profit was $62 million and EPS was $0.152. The decline in these metrics was the result of items noted previously as well as a higher debt cost and the normalization of the effective tax rate. Normalizing for both these tax and DMF, underlying profit was down 3.5%. Our statutory profit increased 11% to $97 million, driven by positive net revaluations across our portfolio with strong underlying earnings growth, coupled with relatively stable cap rates. These valuations uplifts contributed to an increase in our NTA to $4.10. An interim distribution of $0.048 per security has been declared as we move towards alignment of distribution with the taxable earnings from the trust. Turning to Slide 9. Whilst we have seen growth in EBIT across our nondevelopment segments, there continues to be cost headwinds with growth above CPI and in particular, council rates, utilities, waste and volume-related expenses within our tourism business. Lifestyle Rental contributed $25.7 million in EBIT, up 6%, driven by contracted and market rent reviews and new annuity income from settled homes. The Lifestyle EBIT margins have been impacted by lower CPI and legislative changes reducing rental growth in comparison to the prior year, no DMF income recognized and new community scaling as the portfolio expands. Lifestyle Development contributed EBIT of $32 million, impacted by higher marketing costs due to the launch of new projects as well as anticipated second half skew of settlements. Average home prices and gross margin were relatively flat year-on-year, but we do expect these both to improve in the second half, driven by the mix of projects. The development joint venture delivered a 56% increase in operating profit to $12 million, with settlement volumes increasing to 72 for the half, coupled with both average price and gross margin improvement. Holidays delivered a 10% increase in EBIT to $31.5 million. The business has benefited from higher occupancy and rate growth, supported by our strategic investment in new acquisitions and in new cabins. I'll now turn to page or Slide 10. We continue to actively manage capital with discipline and have maintained a prudent balance sheet position. At 31 December, gearing was 31%, comfortably within our target range and providing capacity to fund further investment. The group has circa $200 million of funding headroom, which combined with strong cash flows from lifestyle rental and holidays provides capacity for growth. The group remains well supported by its lenders. In December, we secured an additional $100 million in new facilities, and our weighted average debt maturity is 3.3 years with no expiries before January 2027. Drawn debt was 55% hedged with the weighted average cost of debt at December being 5.03%, which we forecast to increase in the second half. I want to emphasize that the group can fund its existing projects. As opportunities arise to expand our development pipeline and strategic investment in Holidays, we are able to strategically recycle capital from lower growth assets across our Lifestyle and Holidays business. This would facilitate the release of capital, reduce gearing to be invested into higher returning projects. In closing, Ingenia is well positioned, underwritten by stable and recurring income with strong momentum from our existing operating assets. The group has delivered a solid result for the first half in line with expectations and has continued to make good progress on executing our strategic targets. Based on this momentum, we expect to deliver at the top end of our guidance range. We maintain a disciplined capital position while continuing to invest in growth aligned with our strategic objectives. And we have sufficient capital available to fund this growth with multiple capital recycling options available as required. I will now hand over to Michael Bray to discuss the development results. Michael Rabey: Thank you, Justin, and good morning, everyone. Turning now to Slide 15. We are pleased with our development performance for the half, reflecting our continued focus on scaling the business, improving project level execution and embedding a disciplined delivery model shaped by the work completed over the past 18 months. Our EBIT result reflects our expected second half skew and settlements, increased joint venture contribution and significant investment in new projects and marketing activity. We settled a total of 248 homes in the first half. And importantly, sales on hand position us well for full year growth in line with our strategy. Pleasingly, in that time, gross margins have remained stable and within our target range. We're now seeing tangible benefits from our design, cost, construction and efficiency initiatives, positioning the business to move into positive cash generation in the second half as newer, higher return projects contribute. At the same time, we continue to trade out of mature projects, reinforcing capital discipline and establishing a strong platform for scale and efficiency as future projects commence. Despite recent changes in interest rate sentiment, our position remains strong for the full year, underpinned by sustained demand for age-appropriate housing and the structural undersupply in this segment of the living sector. Moving to Slide 16. Joint venture projects contributed 29% of group settlements and are expected to peak in the current financial year. Margins remain strong with net cash generation exceeding $100,000 per lot, supported by resilient pricing, particularly in New South Wales. While these projects continue to deliver strong returns, their proportional contribution will moderate as Ingenia-owned projects increase their share of settlements, driving improved EBIT outcomes in future periods. Moving to Slide 17. We have maintained stable build times across 16 active projects and continue to align delivery tightly with demand. We completed 254 homes in the half, up 17% on the prior corresponding period and closed with limited finished inventory. As at the 20th of February, we have settled 301 homes, in line with the prior corresponding period and have a further 440 deposits and contracts on hand, representing a 23% increase on PCP and cementing our confidence in full year guidance and momentum into FY '27. Improvements to the sales journey have also delivered better sale quality, reduced cancellations and shorter time frames from sale to settlement. Moving to Slide 18. With home selling across 13 projects this financial year, we have the scale and product diversity to optimize performance across markets. In the first half, we saw improving days on market with Queensland continuing to deliver market-leading results. Pricing momentum remains strongest in Queensland, followed by solid growth in New South Wales with promising early signs of improvement emerging in Victoria, where we have seen significant growth in settlements in the first half compared to PCP. I'll finish on Slide 19. We completed final settlements at Nature's Edge during the half, now contributing stable rental returns and are preparing for final settlements at Hervey Bay and Freshwater in the second half. New communities are contributing to settlements growth in FY '26, including Springside in Victoria and the Latitude One extension in New South Wales. We are also restocking our strongest market in Queensland with 5 new communities commencing this year, delivering first settlements from FY '27. These new projects provide the opportunity to meaningfully benefit from the productivity, quality and efficiency initiatives delivered over the past 18 months. Sunbury is a clear example as the first project where we have fully embedded optimized master planning to drive yield uplift alongside cost-efficient slab and frame systems supporting gross margin expansion and disciplined specifications that meet customer needs while enhancing returns. We continue to extend our pipeline following the Townsville acquisition with 7 opportunities with potential for over 1,700 homes currently in due diligence or contract negotiation as we also explore first moves in new geographic markets. In closing, we have delivered a solid first half with strong sales momentum, supporting full year guidance and providing a firm platform into FY '27. Our focus remains on growing the pipeline, maintaining capital discipline and embedding initiatives that support scale, efficiency and returns. I'll now hand over to Kristy Minter to take us through the residential portfolio. Kristy Minter: Thanks, Michael. I'm pleased to present the results for our established residential communities. These outcomes demonstrate the stability of our rental annuities and our focus on delivering high levels of customer satisfaction. I'll start on Slide 20 with a summary of the Lifestyle Rentals segment, which achieved 6% EBIT growth, driven by increases from existing sites and 182 new rent-producing sites. Our stabilized EBIT margin has remained steady despite challenging operational cost escalation. Turning now to our land lease communities on Slide 21. Our land lease site income continued to grow with 2 new communities completed in Queensland. Average weekly rent is up 4.6% on prior year, and we completed 133 resales, generating an additional $2.1 million in commission. Rent growth has been impacted by government legislation with Queensland rents capped at the higher of CPI or 3.5%. And in New South Wales, we have adopted a fixed 4% annual increase. Operating costs continue to exceed CPI with council rates, water and waste disposal rising by more than 20% in the past year. We are managing margin impact by resetting site rent through strategic buybacks and resales and additional focus is being applied in driving more efficiency in the operation of site facilities and services. Our commitment to customer obsession is underpinned by 4 pillars of operational excellence that boost resident satisfaction. This, together with our Ingenia Connect services, ensure our communities stand out as a preferred customer option, helping to drive market share, retention and increased referrals. Moving now to our all-age rental portfolio on Slide 22. Occupancy remains strong at 99%, thanks to continued high demand for rental accommodation in our key markets in Brisbane and Melbourne. We achieved strong rental growth across this portfolio and we will continue to maximize revenue by upgrading accommodation and adding new homes. Consistent with our strategy, we are targeting over 14% yield on future investment in new homes across these communities. Lastly, our Ingenia Gardens communities on Slide 23. Solid financial returns have been achieved through high occupancy, rental increases and diligent cost management. Our commitment to delivering exceptional support and service to our residents is demonstrated by an average 85% satisfaction rate. Ingenia Connect services are highly valued by our residents, and we are seeing a positive improvement through an increase in tenure, which is at an all-time high of 4.1 years. In closing, we have consistently shown operational discipline, strengthened our point of difference and fostered a strong sense of belonging for our residents. Thank you. I'll now pass to Matt Young. Matthew Young: Thanks, Kristy, and good morning. Moving to Slide 26. As Justin mentioned, Holidays has delivered significant growth in EBIT with an increase of 10% for the period. Importantly, the new website has delivered a strong early performance with revenue up 18% and conversion up 32%. This has assisted in shifting approximately 8% of direct bookings that were previously made at Park to now being made via the website, improving booking efficiency, strengthening data capture and reducing pressure on park themes. Variable costs are higher directly correlated with the uplift in occupancy, including linen and wages. With higher occupancy and the average length of stay decreasing by 3%, these costs remain in line as a percentage of revenue. While EBIT growth was significant, margin has declined slightly due to marketing spend incurred as we finalize work on our new website and implemented our AI pricing tool. Ongoing cost increases in nondiscretionary expenditure included lining costs, waste counsel and rates and utilities. Additionally, OTA spend increased, reflecting the recovery in international demand, which is more costly to acquire with our global OTAs. We continue to use these channels deliberately as an acquisition tool, particularly for international and first-time guests. With around 65% of OTA bookings coming from new guests, they remain an important driver of customer growth, supported by a clear strategy to convert these guests into loyal repeat customers through targeted retention initiatives and our direct booking strategy. Moving to Slide 27. Our new acquisition in July, Kinka Beach, South of Yeppoon, has performed strongly since acquisition, with cabin occupancy up 15% and rates increasing materially, supported by improved distribution, pricing discipline and enhanced online visibility. Since going live in December, the new accommodation has generated over $85,000 in bookings with forward bookings up 48% over the next 12 months, demonstrating early outperformance against expectations. In parallel, the Rivershore expansion comprising of 80 additional sites across glamping tents, bell tents, tiny homes and powered sites remains on track for completion in Q2 FY '27. Moving to Slide 28. In summary, the Holidays portfolio enters the second half with strong momentum. Strong demand, improving margins and the early success of our digital initiatives continue to support revenue and EBIT growth, positioning the portfolio to deliver sustainable long-term returns through FY '26 and beyond. Thank you, and I'll now hand back to John. John Carfi: Thanks, Matt. Our disciplined focus on execution continues to yield favorable results as we move into the second half with a clear pathway to projected growth targets, enhanced returns, sufficient capital to fund growth and a business that is laser-focused with a highly disciplined approach to driving efficiency and productivity. As we move into year 3, we expect gains from our initiatives to accelerate. Our people and structure are in place. We have a highly motivated workforce deeply committed to delivering on our strategy and medium-term goals with conviction. The business is generating growing cash flows. Our operating business is performing extremely well with clear strategies, targeted acquisitions and development supporting increase in a growing base of stable cash flows. Development is on track. We are seeing solid demand across our existing projects with the commencement of new projects providing a runway for growth in settlement activity into FY '27. We are on track for planned settlements in the second half, underpinned by sales in hand. We will deliver growth on second half '25 and see the peak of settlements from the joint venture. As new projects benefit from refinement of our designs and procurement, optimized project returns and cash generation will begin to be realized. Assuming no material change in current conditions, we expect settlements to grow this year and our full year result to sit at the top of our guidance range. Capital management supports our 5-year plan. We have sufficient capital for our needs and are deploying in line with our financial and strategic goals. We remain comfortably within our gearing and hedging target ranges and continue to maintain prudent capital settings with balance sheet capacity to support planned investment growth, along with the potential to dispose lower growth assets for opportunities beyond our current plan. With the foundations in place for delivery of our core 5-year plan, we continue to review opportunities to accelerate growth, including pipeline expansion and adjacencies in the living sector, allowing us to capitalize on growing demand and accelerating our scale ambitions. Finally, we have a strong position in a very attractive living sector, which remains resilient, underpinned by the fundamentals of a growing and rapidly aging population and a structural undersupply of suitable housing solutions. With an experienced and motivated team in place, we retain strong conviction in our strategy and our ability to deliver growth, scale and improve returns. That concludes the formal presentation today. But before I go to questions, I'd like to thank the entire Ingenia team for their support and commitment. I'm pleased with the position that the business is in and look forward to updating you on further progress. I'll now open the call to questions. Operator: [Operator Instructions] The first question comes from the line of Adam West with JPMorgan. Adam West: I'm just wondering, so you mentioned in the back of your slides that there was higher incentives across the Victorian projects impacting the development profit per site. I'm just wondering, do you expect this to be persistent? And how are the Victorian incentives sort of comparing to New South Wales and Queensland? John Carfi: Thanks for the question, Adam. I'm not sure we agree. We haven't experienced higher incentives. We budget for incentives at the start of the year, and then we dial them out depending on needs, whether we want to accelerate sales or whether we think we've got difficult projects to move, but there hasn't been a significant increase, if anything, on last year. Adam West: Okay. That's clear. And I'm just wondering, the second one is, I guess, how are you finding competition for sites, particularly in the Queensland region? Have you seen a step-up? Or is it pretty consistent with what you're seeing last year? John Carfi: I think last year, we were already seeing strong competition for sites. And there's probably 2 aspects to that. One is we did a lot of work on strategically looking for areas to focus on and obviously, efficiency and what have you. We've done a lot of work in communicating strategy on the ground to external agents and dealers for one of a different -- better term. So we're getting a lot better deal flow than where we were. The other thing is we've expanded what we're looking for. And I think I've spoken about it in the last 12 months. If we see larger sites that are on the market where perhaps the land lease competitors aren't competing, let's say, a 30-hectare site somewhere, then we'll look to secure that, do 10 to 12 hectares of land lease and either develop out the other component or look for another buyer to take the other component. So pretty comfortable with the deal flow we're getting at the moment. We've got a lot of deals on the table. We're backfilling the pipeline at a rate greater than we're chewing through it. So we're pretty comfortable. Adam West: Yes, that's clear. I guess just final one for me, but in the Holidays business, I guess, sort of mentioned you've got an AI pricing tool. I'm just wondering, can you provide a bit of color to that? And have you seen a better rate coming through since you've implemented it? John Carfi: I'm going to have a go at answering that. But if I can't, I'll throw it to Matt because I'm really out of my depth. So we -- obviously, most tourism business use pricing tools. AI has just been helping us by being able to do it a lot quicker and more frequently on a daily basis. But obviously, we've got to plug in the core assumptions where we want occupancy to land, and it will manage around that occupancy and peak demand. What we found in prior years, we were probably selling peak periods too early. in order to get a high occupancy rate. But as we're moving through, we're able to delay those in some cases or still take the uplift in revenue based on assistance from the AI pricing tool. I'd say it's a work in progress, but probably the biggest takeaways that allow us to reprice more often on a daily basis than what perhaps it would have in the past. Operator: The next question comes from the line of Adam Calvetti with Bank of America. Adam Calvetti: The 1,700 homes that are in DD at the moment, it seems like quite a sizable amount. How do we think about, I guess, the quantum of that and when that potentially might settle? John Carfi: Yes, it's a good question. And I suppose the answer to that is they're all different and over a period of time. So in many cases, our acquisitions are on a structured basis. So they might require some work, some sweat equity on our behalf to unlock, but settlement would be subject to a planning outcome or a satisfactory outcome. In some cases, it's just a deferred settlement to give us time in order to secure that outcome. And I think I've been saying for the last 12 months or longer, most of the pipeline build that we need is in later years. So we're not competing for something that needs to be able to start tomorrow. It's not to say we wouldn't look at it. So we're seeing less competition in that space. But generally, there's an element of unlock required and the consideration is generally deferred to unlock. And that's why we say comfortably we can continue on the 5-year plan without within the current balance sheet constraints. However, if we see opportunities to accelerate that by something that would need capital to settle early because it is unlocked already, then we've got the ability to do that through the sale of lower growth assets. Adam Calvetti: Okay. That makes sense. And then on the 5 projects that are commencing in the second half, how do we think about the price point of those relative to the 646,000 average price point over this first half? John Carfi: I think compositionally, you'll probably see that relatively stable. A lot of those are in regional areas with lower price points. So I think you'll see that relatively stable. As you'll see the JV price point stabilize as we peel off some of the high-priced projects and move more into Morisset. Adam Calvetti: Okay. That makes sense. And then last one for me. Just on council rates and some of those stat charges that have increased. I mean, what proportion of the portfolio has kind of been hit? And what's potentially still up for, I guess, debate or councils to increase those stat charges? John Carfi: I think you've seen in the last 12 months across the entire economy, every council in Australia has taken the opportunity to increase rates. Pretty well all our energy contracts have all but renewed. So I think we've seen the bubble come through, if you like. But the caveat there is who knows? I think there are still councils and regulatory authorities out there still trying to get their hands in everyone's pocket generally. There is a lot of lobbying happening at an industry level to try and where we think councils are getting out of control either on rates or other services. But ultimately, they're all trying to pass through costs that they're copying. But I do think we've seen the lump, and we've probably seen the lump across the portfolio, but there'll be odd battles yet to be had in won. Operator: The next question comes from the line of Solomon Zhang with UBS. Solomon Zhang: Just wanted to just drill into the cash profit on development. It's good to see the improving trends. You're calling out positive cash profits in second half '26 from a swing of, I guess, negative cash profits in the first half. I just want to think a bit longer term, I mean, where are you targeting cash profits on, I guess, completely new developments, which don't have those legacy cost issues, like whether that's a dollar per home or a percentage of the revenue? John Carfi: I'd love to give you an exact number, but I'm not going to. Originally, when we set up the 5-year plan and we reviewed the portfolio of projects, we had ambitions of getting to cash neutral at a project level. We've gone from, I think, negative $25,000. We're currently sitting at negative $10,000 0 or $11,000-ish at the moment, and we've got good line of sight to positive cash flow for the full end of this financial year. I think if you look at the result for this half, it's probably more an issue of both lot settlements and composition. Our second half is skewed severely not just by lot settlements, but also by composition. And that's why confidently, we know we're getting the positive cash flow. So ahead of where we expected to be in terms of the 5-year plan this financial year. We have project composition and some internal design initiatives that we think we can continue to improve on that into FY '27 and probably '28 as we roll through composition of older projects. But I don't want to give out external targets other than to say you can expect ongoing improvement through next -- at least the next 2 years. Solomon Zhang: Makes sense. And you've called out on the sales front, pretty strong momentum. But I guess we have cash rate hikes that have been pushed through and further expectations for more hikes for the rest of this year. Are you seeing any evidence of any slowing sales momentum or metrics? I mean some of your peers are commenting on a little bit more buyer hesitancy and elongated sale to settlement time frames, but just interesting on what you're seeing across the portfolio. John Carfi: Yes. It's a good question. Obviously, we follow commentary coming from everyone else. Some of it gets made up by the newspapers and someone gets quoted for something you didn't actually say. Like everyone else, we're not seeing an impact at our sales suites. In fact, we've seen an increase in uptake in inquiry. The quality of inquiry has improved and our time from purchase to settlement has also decreased. Now in saying that, I wouldn't be reckless enough to expect that, that would continue. But certainly, our buyer cohort so far has not been impacted by either the interest rate increase or the sentiment associated with that. We'll continue to monitor, obviously, all of those things. But at this stage, whether we're growing market share, I'm not really sure, but inquiry levels are elevated and time to settlement has improved. Solomon Zhang: Good to hear. Maybe just a final quick one. So when you look at your 440 deposits and contracts in place, what proportion is Victoria? And what's the settlement profile expected throughout the balance of the year? Is it pretty even? Or is it more fourth quarter skewed? John Carfi: Look, there's a big fourth quarter skew. But let me assure you, having developed and built a lot of housing over the years, we're well placed from a production point of view. In fact, some of the lots in Queensland where we had some weather events, we were worried they would fall over are now back in order. So production is under control. We've got a lot of settlements happening in May, June, but we're geared up. We're comfortable to be able to do that. We're comfortable to be able to monitor our customers during that period of time to make sure that they've done all the things they need to do. to be in a position to settle. So we're pretty comfortable. And as we said, we aim to be at the top end of the guidance because of our comfort associated with that. Most of that is happening in Queensland. There is some Victorian stuff at Parkside and in Lucas, not much out of slower project like Springside. So we are heavily skewed to Queensland where from a production point of view, we're beyond the point where any significant inclement weather would cause a major impact. So we're pretty comfortable. Operator: The next question comes from the line of Tom Bodor with Jarden. Tom Bodor: Just was interested in the stabilized EBIT margins for the lifestyle communities around that 53% mark. How do you think about the gap between that number and the sort of facility or community level margin in terms of your regional overhead? And where could that stabilized margin get to over time as you scale up? John Carfi: It's a great question. We would expect the stabilized margin to improve if we start -- as we scale up based on a lot of initiatives we have in place and obviously, the scale benefits we're getting. But also as we're bringing new projects online, I think we said early on when we produced a 5-year plan, we had some subscale communities. We had some that were just inefficient to operate because of either landscaping or other fundamentals. So as we deliver new things into the portfolio or do expansions like we're doing up at Plantations or Latitude One, we get more efficient as we go because there's less amenity and operational cost per house with rents. And the other thing we're doing to counter that is also despite the fact that we've been restrained in terms of potential rent increases in Queensland and New South Wales and probably likely in Victoria, we have a strategy around strategic rental increases where we believe we're under under-rented or where we might be constrained by a particular regulation that keeps us within the confines of the rental range within the development through buybacks and other initiatives. So we think it's a steady process of continuing to improve. There are some assets where the margins will never improve. And we'll either -- if they're good quality assets, we'll hang on to them. If not, then those are the sort of lower growth assets we might look to dispose of over time. But think of every asset gets worked over on a quarterly basis to see whether there's adjacencies or opportunities to improve margins. So the data is getting a lot better. The team is getting a lot refined, and we're doing a lot of work around efficiency from a development point of view, but also from an operational point of view. So I would see steady improvements consistently for the next 2 or 3 years. Tom Bodor: Could they get to 60%? Or is that too ambitious? John Carfi: Sorry? Tom Bodor: Could they get to 60%? Or is that too ambitious? John Carfi: I think across the portfolio, that's too ambitious. We might get the odd project that outperforms like everyone else, but I think that would be too ambitious across the portfolio. Tom Bodor: Okay. Great. And then just on the Holidays business as well, the margin, it was a little bit lower. Just wanted to get a sense as to your full year expectation and how that might look over time? Was there some impacts from this sort of website and booking system that were in the margin that would be next period? Or I'd just be interested in your comments on that. John Carfi: Look, there's 2 aspects to that. There's some of the marketing and website costs we took through impacting margin. The other thing is we've identified opportunity to chase revenue through taking advantage of the increase in overseas bookings, and that comes at a cost, obviously, but the revenue benefit at an EBIT level is too good to pass up. So we'll continue to chase that. We'll manage the marketing website cost. But if that revenue comes at a slightly greater expense and it's providing an overall benefit, we'll probably continue to chase that. Operator: The next question comes from the line of Suraj Nebhani with Citi. Suraj Nebhani: Just a couple of quick ones from me. Firstly, I guess, John, the confidence around getting to the top end of the guidance and your comments and Michael's comments around improvements in volumes year-on-year. Just keen to understand how you're thinking about that? Can you give me some color around expectations for settlements? John Carfi: Yes, definitely. So I think you've got to look back at the first half of last year as an anomaly, both in terms of the percentage of settlements or the SKU and also the composition of those settlements. This first half has been both low numbers and a composition issue that's driven the result. In the second half, we're pretty well all but bedded down the sales we need. So by the end of March, effectively, we get to a point where there's nothing we can sell this year that will settle this year. The team, we're pretty comfortable that we've secured or all but secured what we need to do to settle this year, and they're high-quality contracts. We obviously identify every single customer, the likelihood that they're going to settle the position they're in to settle and obviously, the production. So we're fairly confident around the number of lots. And obviously, at the same time, we're betting down the composition. So we have great line of sight to both the quantity and the composition, and that is the biggest factor driving our result for the second half, and that's why we've got confidence coming out and saying we're going to be at the top end of the market. The team, for your benefit, is well and truly focused now on securing sales for FY '27 and getting FY '27 production in hand and under control. Suraj Nebhani: Right. So I guess in terms of regular SKU, is there any period that you think might be more representative or like maybe FY '24 or something like that? Like I'm just keen to get a sense. And in terms of growth, like year-on-year, would you say you'd be in the 10% to 15% 5-year target range? John Carfi: We certainly affirm that on a lot settlement basis, we confirm the compound annual growth rate over the 5-year period. Now that's not to say it's a consistent number every year, but over that 5-year period, we expect it. We're certainly targeting to deliver within that range on an annual basis. I don't know that there's a regular first half, second half skew in this industry. So I wouldn't anticipate that we'd end up with a similar skew next year, particularly in terms of composition, but it's hard to predict until we start making the sales. But yes, we're pretty comfortable with the 5-year plan CAGR that we've put out and delivering in accordance with that. Suraj Nebhani: And then maybe just one question on margins more broadly across the various divisions. How do you expect that to change half-on-half, Development and Rental and Holidays? John Carfi: I'm going to throw to Justin to take that one. Justin Mitchell: Sir, Justin. I you're talking about EBIT margins, obviously, in relation to each division. So maybe just quickly step through. As we've previously indicated, with the second half skew, so lower settlements in the first half and obviously, the cost of marketing that we've invested, which would clearly flag. As we see that improve in the second half, you would expect those margins, the EBIT margins to improve half-on-half. So there's upside there. I would suggest that holidays as well would also see some improvement given that typically, January is probably our strongest month from a revenue perspective. And we started to see some of those costs, particularly around electricity already embedded in the first half, whereas in the prior year, we sort of like relative to that, taken a significant uplift. like electricity is something like 40% increase. So I would expect that to see an improvement as well and that Lifestyle will be reasonably flat half-on-half. Operator: The next question comes from the line of Ben Brayshaw with Barrenjoey. Benjamin Brayshaw: I was wondering if you could just talk high level about the outlook for the joint venture over the medium term, whether you're expecting to commit more capital to add inventory. Just how you're thinking about the joint venture in the context of ownership arrangements. You mentioned on the call that the settlement activity, if I heard correctly, would peak in the second half of this year. John Carfi: Good question, Ben. Look, good question. The joint venture hasn't made any acquisitions in the 2 years I've been here. We've offered them every opportunity we've identified. And at this stage, they've declined each one. We are cognizant that they have a new CEO in place and presumably in the process of reviewing strategy. Justin and I are meeting with them in Miami next week to bring on discussions to see what intentions they have. They have a right to participate in acquisitions. And as I said, they've not demonstrated that. So either way, even if they started participating tomorrow, then those new projects probably wouldn't go into production for another 3 years. So either way, you will see a decline in joint venture settlements as a percentage of overall from the end of this financial year or a peak at the end of this financial year. At that point in time, the only joint venture project that will be in production is Morisset, barring 1 or 2 potential sales at Natura or Element. So we're happy to stay in that joint venture. It doesn't need any further capital investment. In fact, it's likely to make a distribution. So it won't burden the balance sheet. We're happy to do more things with Sun if opportunities arise. However, at this stage, we still feel as though we're more opportunity constrained than capital constrained, and we are sourcing enough opportunities to backfill the pipeline on balance sheet. But they do -- I must emphasize, they do have a right to participate, and we have no obligation to take them out of the JV, and they've not indicated any desire to get out of the joint venture. Benjamin Brayshaw: And perhaps a question for Justin. If you could just talk about the operational leverage within the JV and if the settlement rate was to decline in the future, whether that -- whether you expect that would impact the margin? Justin Mitchell: Look, as John said, we've only got one project that will be settling beyond this year. So I'm not particularly concerned around pricing in that joint venture. We have -- really the debt is secured against the passive assets, which are the 3 that will be completed. And we have a small amount of debt. As John alluded to, we're actually taking cash out of that joint venture as we're through the vast majority of infrastructure spend, et cetera, and starting to realize pretty significant returns from -- cash returns from those projects. So it's not something that is a significant concern. Benjamin Brayshaw: In relation to the EBIT margin, you're not concerned about the margin in the future? Justin Mitchell: Of the EBIT margin? No. Benjamin Brayshaw: Okay. John, you mentioned that there was sales momentum, in particular for the months of January and February. I was wondering if the sales momentum also something you've seen come through for the 6 months to December? Or how you describe the sales velocity? John Carfi: Yes. We've definitely had improving -- steadily improving inquiry all the way through for this year. Some of that, Ben, obviously relates to the timing of marketing and project launches. So it's not as steady. It can be sporadic from that point of view. But yes, inquiry levels have been steadily increasing and up. It's hard to pick, is it the market? Is it us? Is it something we've done. But certainly, we have done a lot of work behind the scenes to improve our marketing to improve our website and to improve the pain points for customers to get to an appointment with us. So all of those things, in my view, have converged to increase that activity at a customer level. We've not seen it slowing. We'll continue to monitor. But I would say all those initiatives have played a part. Benjamin Brayshaw: So if I look at the contract and the settlement activity in the last 6 months, it looks like the net sales have been in the order of 250 lots, which is sort of flat on where you've been tracking in the last couple of years. Is that accurate? John Carfi: I'm not sure. I'm going to throw it to Michael on that one, if I can. Michael Rabey: No. We've seen net sales increase on PCP for the 6 months. So new sales in those 6 months grew significantly on the PCP. Benjamin Brayshaw: Are you able to say just approximately in rough terms, what the percentage increase in the sales rate has been? Michael Rabey: Well, I think the sales on hand, as you saw in the presentation, were up a total of 23%. So some of that is obviously going to relate to future periods, but it's in that order, if not a little bit higher for the first 6 months. Operator: There are no further questions at this time. I'll hand back to Mr. Carfi for closing remarks. John Carfi: Well, thank you all for your attendance and for your interest. Justin, Donna and I look forward to meeting with many of you in the coming weeks, and we will be available for any additional request. Thank you once again for attending today. I will now conclude the call. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you.
Operator: Thank you for standing by, and welcome to Clearway Energy Inc.'s Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Akil Marsh, Senior Director, Investor Relations. Please go ahead. Akil Marsh: Thank you for taking the time to join Clearway Energy, Inc.'s fourth quarter call. With me today are Craig Cornelius, the company's President and CEO; and Sarah Rubenstein, the company's CFO. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today's presentation as well as risk factors in our SEC filings. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. In particular, please note that we may refer to both offered and committed transactions in today's oral presentation and also may discuss such transactions during the question-and-answer portion of today's conference. Please refer to the safe harbor in today's presentation for a description of the categories of potential transactions and related risks, contingencies and uncertainties. With that, I'll hand it over to Craig. Craig Cornelius: Thanks, Akil, and good evening, everyone. I'll begin on Slide 5, where we summarize our business performance and our progress towards near- and long-term growth objectives. 2025 was a strong execution year for Clearway. We delivered full year cash available for distribution at the top end of our original guidance range, while our enterprise added 1.3 gigawatts of value-enhancing projects to our fleet. These newly commissioned assets, combined with accretive third-party acquisitions, serve as key growth pillars for this year and allow us to reaffirm our 2026 CAFD guidance. Execution across our redundant growth pathways has also allowed us to reiterate our 2027 CAFD per share target of $2.70 or better. We also made continued progress firming up our outlook towards meeting our 2030 CAFD per share target. Our fleet enhancement program remains on track with meaningful further advancement on both repowerings and contract extensions. Hyperscaler demand has been a major driver of sponsor-enabled growth this year. In 2025 alone, we signed approximately 2 gigawatts of new PPAs with hyperscalers and utilities serving data centers and gigawatts more in revenue contracting opportunities are under current discussion. When combined with Clearway's late-stage development projects, this opportunity set provides us with an abundant array of pathways to meet our 2030 objectives. Taken together, we remain on track toward our 2030 CAFD per share target of $2.90 to $3.10 per share, representing a 7% to 8% CAGR from 2025 while also laying the groundwork for sustained growth beyond 2030. Turning to Slide 6. Progress continues along our fleet optimization pathway with repowerings on schedule for 2027 commercial operations. These repowerings totaling more than 900 megawatts are expected to deliver attractive CAFD yields in excess of 11%, while extending the useful life of our wind fleet. In addition to repowerings, we are executing revenue enhancements across our operating ERCOT portfolio, where the value of Clearway's available open operating wind capacity has seen growing value appreciation in the technology and industrial customer community. Building on our momentum from last year with Wildorado, we've been awarded two offtake contracts in Texas, with a prominent hyperscaler with potential to lengthen the contracted life of these projects by as much as 11 years and at a higher power price and more favorable settlement structure than our status quo revenue outlook. Turning to Slide 7. Sponsor-enabled growth continues to bolster our 2030 objectives. All of our CWEN committed projects are under construction and progressing on track through milestones to meet our commercial operations date targets. For the 2027 COD vintage, CWEN has now received an offer for investment in the Royal Slope project, while we have now also identified the second phase of the Honeycomb II battery portfolio as a future potential CWEN investment opportunity as the portfolio has been awarded revenue contracts with an offer expected later in 2026 as commercialization progresses. We first previewed the Honeycomb projects in May 2024. With Phase 1 almost complete in construction now, we are pleased to be on track to execute the second phase, developing and building battery assets adjacent to Clearway's existing Utah solar fleet now with an outlook for hybridizing the entire fleet. Looking to 2028, newly identified opportunities for investment by CWEN at Swan Energy Center and Catamount Energy Center are now in view. both supported by 20-year PPAs with Google, further extending our sponsor-enabled growth runway. Turning to Slide 8. We provide more detail on how commercialization across our development pipeline is translating into a visible and executable pathway towards long-term growth. In our 2026 and 2027 construction vintages, 100% of our planned repowering and new construction projects have been successfully commercialized. With all development preparation now completed and construction dates set, these projects have safe harbor tax credit qualification, advanced interconnection and permitting status, signed long-term PPAs and secured policy resilient equipment supply. Looking further out, our 2028 and 2029 construction vintages are supported by a sizable pipeline that is meaningfully larger than what is required to meet our 2030 CAFD per share goal. With contracting secured for Swan and Catamount, we've contracted nearly 50% of the megawatts classified as late stage within the 2028 COD vintage, firming up our 2030 CAFD per share outlook with high confidence on completion of the remainder of the late-stage projects we are directing to 2028. We have high conviction in our organization's ability to secure additional revenue contracts for the balance of our late-stage pipeline in this vintage as the remaining projects in that vintage are weighted towards projects in California and other Western markets, which have been a long demonstrated core strength of our enterprise and commercialization. We see clear pathways for this vintage to generate substantial CAFD towards our 2030 target given the amount of corporate capital we have line of sight to deploying in that year. Within the 2029 COD vintage, we have built in resiliency with development activity of over 7 gigawatts, substantially larger than the volume needed to meet our 2030 target, and we see pathways to deploy well over $600 million in corporate capital in that year, subject to availability and application of our characteristic prudent capital allocation framework. From this position of strength, we will invest in attractive projects that show clear accretion to CAFD per share, both in the near and long term. Beyond the 2029 COD vintage, we are encouraged by the prospects we have to further extend our growth outlook after 2030 through diverse pathways. Foundationally, we continue to focus our core development activities on proven technologies in geographic markets where renewable projects and storage projects are cost competitive. Our sizable pipeline of storage projects creates an especially compelling value proposition for customers into the next decade. Approximately 90% of our 2030 late-stage pipeline is either located in our strategic core geographic markets where renewable energy will be a least cost best fit resource without tax credits or is a storage project positioned for tax credit qualification well into the next decade. Collectively, this purpose-built growth investment opportunity set provides substantial redundancy relative to the approximately 2 gigawatts per year or more that we expect to develop into the 2030s. Beyond core development activities, Clearway Group continues to develop multi-technology generation complexes across 5 states to serve growing and rapidly escalating data center infrastructure demand. As illustrated in our appendix pipeline reporting materials, the complexes are comprised of diverse technologies configured to provide hyperscalers competitively priced firm power in places where digital infrastructure is set to grow in years ahead. The first-generation resources at these complexes could come online as soon as late 2028 and investment timing for CWEN will be determined by pacing of generator interconnection, customer engagement and our own prudent management of capital deployment capacity of Clearway Energy, Inc. In regards to potential corporate capital deployment tied to both accelerating grid tied project development and large co-located digital infrastructure complexes, we are well placed to deploy at least $650 million of capital incremental to our prior goals over 2028 to 2030, with the optionality to scale that amount higher subject to availability of accretive capital sources and our rigorous underwriting criteria and capital allocation framework. Accelerating progress in our core development pipeline, along with this activity to directly serve data center demand drives our increased conviction in the growth longevity of our platform into 2031 and the years beyond. Turning to Slide 9. We bring together the building blocks that underpin our 2030 CAFD per share target and our outlook beyond 2030. From our 2027 target of $2.70 per share or better, our identified and committed projects provide an increasingly clear pathway to $2.90 to $3.10 of CAFD per share by 2030. Within the 2027 and 2028 time frame, we have identified approximately $1.3 billion of corporate capital investment opportunities tied to commercialized projects that Clearway Energy, Inc. intends to deploy at a 10.5% CAFD yield or better. Given identified growth to date, we are in a prime position to meet our 2030 target. We believe that future milestones will be executed in a manner supportive of hitting our 2030 goal, including through future identified sponsor-enabled growth, potential third-party M&A not embedded in our target and accretive growth financing and refinancing our 2028 and 2031 corporate bonds. As has been our practice in the past, we plan on waiting until later this year to provide a formal long-term guidance update. But given the emerging potential for corporate capital investment around our accelerating core development work and the emerging opportunity for investment in digital infrastructure power supply, we are increasingly optimistic on the ability to grow CAFD per share at 5% to 8-plus percent in 2031 and the years beyond from our 2030 target baseline. With that, I'll turn the call over to Sarah, who will walk through our financial results and funding outlook in more detail. Sarah Rubenstein: Thank you, Craig. Turning to Slide 11. For the fourth quarter, Clearway delivered adjusted EBITDA of $237 million and cash available for distribution or free cash flow of $35 million. In our Renewables and Storage segment in the quarter, wind resource was below median expectations across the fleet, including California, while solar relative to budget expectations was impacted by the timing of debt service related to growth investments. In the quarter, Flexible generation exhibited solid operational execution in line with budgeted expectations. For the full year, our results came in above the midpoint of our original guidance range of $400 million to $440 million with full year CAFD generation of $430 million, which benefited from on-time commercial operations and excellent performance of recent growth investments and was also driven by solid annual fleet performance across the portfolio. With the solid conclusion to 2025, we're reiterating our 2026 CAFD guidance range of $470 million to $510 million. As per our usual practice, guidance incorporates incremental contributions from closed and committed drop-downs and third-party acquisitions. Our guidance midpoint assumes P50 renewable production expectations and the range reflects potential variability in resource performance, energy pricing and timing of growth investments. Turning to Slide 12. We are very proud of how Clearway's operations team has performed with excellence, resulting in high levels of plant availability across all technologies throughout 2025. The team maintains a high level of excellence in both health and safety and plant availability and performance. This was a key driver that allowed us to deliver full year results in 2025 that were above the midpoint of our original guidance. We are extremely proud and grateful for the diligent work by this team to maintain and operate our fleet, in particular, as we manage the challenges of winter storms, where regions with high clean power penetration are able to keep electricity prices lower. Turning to Slide 13. We continue to be in an excellent position to prudently fund our growth and have raised additional capital since our last call, firming up our funding outlook. We continue to target a long-term payout ratio below 70% after 2030, resulting in retained cash flows continuing to become a greater source of funding for accretive investments. Corporate debt continues to be a pillar of growth funding while we remain focused on honoring our commitment to target a BB credit rating. In January, we closed an upsized offering of $600 million in senior unsecured notes due in 2034 at an attractive rate relative to assumptions in our funding plan that supports our longer-term target growth. The spread to treasuries was the second tightest high-yield issuance spread in the broader power sector since 2020, demonstrating the quality of our credit. To round out our funding plan, we expect to continue to use equity issuances as a tool to meet our growth objectives, but only when accretive to CAFD growth. Since our last earnings call, we executed $50 million of opportunistic equity issuances that were the least dilutive issuances in our platform's history, while extending our position of strength to have further flexibility on the timing of future issuances. Since late August, we've now issued $100 million of equity in less than two months of trading days, while our stock price is up over 30%, illustrating our ability to definitely issue equity without price disturbance. Looking further out, and as we outlined last quarter, we will raise additional debt and equity in the coming years to meet our 2030 goals. But to reiterate, we plan to be unwavering in our disciplined approach to meet funding goals and to execute our funding strategy in a transparent manner. similar to what is observed among listed utilities. And with that, I'll turn the call back over to Craig for closing remarks. Craig Cornelius: Thanks, Sarah. To recap progress on the goals we've set, we delivered 2025 results at the top half of our CAFD guidance range and fully funded all sponsor-enabled drop-downs, which are performing extremely well. We also executed value-added third-party M&A that strengthens our fleet and supports long-term value creation. Looking ahead, substantially all projects identified for CWEN investment through 2027 are now commercialized, and Clearway Group's late-stage pipeline is significantly larger than what we need for 2028 and 2029 completion to achieve our 2030 goals. As we look forward, we intend to continue increasing visibility into our growth trajectory, including rolling forward explicit CAFD per share targets beyond 2030 as commercialization progresses later this year. Taken together, these factors make us confident in the longevity of Clearway's long-term growth prospects, enabling us to deliver durable value for our shareholders well beyond 2030. Operator, you may open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Mark Jarvi of CIBC. Mark Jarvi: Lots of good disclosure. I appreciate everything. Clearly, organic growth is ramping here. I'm just curious on the M&A outlook, done some deals over the last couple of quarters. Just curious how that environment looks now. Clearly, you're seeing an attractive cost of capital both on the equity debt markets. Is that changing your approach and position around M&A right now? Craig Cornelius: Yes. Thanks for the acknowledgment on the organic growth front, Mark. We're really proud of the work that the organization is doing to chart that course. And I think with respect to M&A, the environment of today looks quite similar to what the environment looked like last year. as you note, that sets up well for us as an organization that's in a position to help sustain operating assets that are in the market already or to engage on combinations of operating and development assets, which an organization like ours is uniquely positioned to advance. And at the same time, the strength that we are demonstrating in our own organic growth outlook puts us in a position to be every bit as disciplined as we were last year when evaluating opportunities because we're in the luxurious position of evaluating M&A as something that would need to be demonstrably accretive to the outlook that we have already and something that presents a really compelling proposition for our shareholders to fund. So, we like what today's environment does for large enterprises. It's certainly favorable that there is a large universe of subscale peers that need to evaluate whether they're really in a position to successfully compete and grow in our industry in the future. And because our outlook for organic growth is so bright, where we do engage on opportunities like that, we're engaging on them with a high bar and insistence that any potential capital allocation to M&A that would be in exceedance of our existing capital allocation plans and goals would represent a very compelling investment proposition for our company and our investors. Mark Jarvi: Got it. And then just another quick question. Just on Page 6, the PPAs and ERCOT. Can you just comment in terms of when those would kick in and maybe quantify, is that enough to move CAFD by a percentage or contribute to the growth outlook for the company? Craig Cornelius: In each instance where we're working on those, they would be effective this year. And the way we think about those instances is that there are huge quality of earnings enhancements because the settlement structures on each of those revenue contracts are favorable to those that the projects have today and the new unit contingent long-term contract duration for the projects would extend well into the next decade as a result of the recontracting. And for any one project, the magnitude of its contribution in CAFD per share varies from one instance to another. And also, as you look over time into the late 2030s is a function of your point of view on merchant pricing and ERCOT. So when we think about the goals that we set for 2030 and beyond, our successfully completing those recontracting is part of what helps us build confidence that we're really aiming at $3.10 at the top end of our target range or better in those out years and helps us build confidence in our long-term CAFD per share growth goals because of the certainty that we can assign to revenues from those facilities into the future. Mark Jarvi: So it's as much about the quality of the CAFD being enhanced or derisking relative to the increased magnitude of the CAFD. Is that a fair way to think? Craig Cornelius: Yes. I think it reduces the exposure to merchant pricing in other parts of our portfolio in the future. So they will most definitely be helpful to our CAFD expectations in the near term, but not especially material in the context of a business that's targeting what we are in operating CAFD this year and next. So I think single-digit millions in CAFD enhancement. But the very long-term benefit is substantial. And we also like what it signals in terms of the inherent value of an operating fleet like ours and its attractiveness to customers that are trying to plan power for the long term. Operator: Our next question comes from the line of Julien Dumoulin-Smith of Jefferies. Hannah Velásquez: This is Hannah Velasquez on for Julien. Congrats on the quarter and thank you for the update. So I had a similar question, but a bit more about the PPA pricing environment. Can you give us a sense of what you're seeing out in the market? It sounds like ERCOT has been favorable to you. But are there any other markets to identify or call out where you're seeing similar favorable pricing? What's driving that? And then similarly, are you seeing just in the sense of elevated demand, an acceleration in some of your conversations with your offtakers that they're trying to renegotiate or recontract ahead of plan? Craig Cornelius: Yes. Yes, and thanks for the acknowledgment. We're really happy with the work that our team did over the last quarter. Yes, I think we're seeing a supportive pricing environment really across all geographies. For development assets that provide additionality in power markets, whether they're deregulated or regulated, really anything that we can interconnect and construct over the course of the next three years exhibits very significant differentiated value, whether it's through a regulated utility, who's the natural customer in a regulated market or to technology enterprise or another source of growing industrial load in deregulated markets where we can sell directly to those customers. Rough rule of thumb is that pricing on PPAs that we signed this year in comparison to pricing on PPAs in those same comparable markets signed three years ago is about double. We're not seeing pricing necessarily escalate higher observably today than where it was, say, three to four months ago, but it is very much solid and sustained. And we think that's healthy. The attributes of the power plants that we're constructing today are valuable. And all of us across the sector need to be focused on delivering an affordable energy equation for customers. So what we'd say about pricing is it is robust. It is staying strong, and we feel quite good about the return proposition we produce for our investors and the value proposition that we give our customers at these levels. In terms of its influence on operating asset, long-term revenue contracting, we similarly see that, that picture is pretty consistent across geographies. there isn't much motivation either from us as a seller or from customers to be talking about contract extensions on projects that see their PPAs expire later than 2030, say. But where we do have open length that can serve demand in the near term, it certainly creates an opportunity to sell that length well into the 2030s and at a price that is solid and allows us to sustain earnings well into the future. And then in terms of pull forward for demand, we are most definitely seeing that there's a growing focus on how much can be built and how soon it can be built extending out for resources that could COD at least through 2029 today. And I think part of what makes us as confident as we are around the upside in capital deployment opportunity for Clearway Energy, Inc. in excess of the $2.5 billion worth of corporate capital investments that we pointed to just last quarter is the strength of that demand and essentially, as I noted before, the readiness of customers to buy power from pretty much anything that we can interconnect and permit and construct between now and the end of 2029 at this point. Hannah Velásquez: Okay. Got it. Super detailed. And as a follow-up, can you just speak to the permitting landscape? How have things progressed or changed over the past couple of months? How much runway do you have reflected in your pipeline just to the extent that we're hearing about permitting challenges, particularly on the solar front? Craig Cornelius: Yes. I think this is one way we're especially proud of our business and where we are optimistic that you'll see us outperform many of our peers over the quarters and years ahead. As we've noted before, the business plan we've laid out that would allow us to target the top end or better of our 2030 CAFD per share goals and to be able to sustain 5% to 8% plus CAFD per share growth into the 2030s. We need to build about 2 gigawatts a year worth of projects. And at the project sizes that we're increasingly developing, that could translate into, say, something like 6 projects a year on average. And we are finding that we've got a point of view around our ability to do better than that as we look later into the decade. And a lot of that is a function of the very effective work we've done on the ground in the places where we're creating projects. You see on Page 17 of our earnings slides, a map of the late-stage pipeline we're advancing. And in each one of those jurisdictions, we feel quite confident and solid about the work that we're doing in those local communities to enable those resources. And we also feel really great about the relationship that we've forged at the federal level with an administration whose energy policy objectives we fully understand and sympathize with and I think has been able to see in our company an enterprise that respects their goals and is prepared to work on enabling their own. So we feel very good about our ability to execute in the current permitting environment, and we think that, that is a unique differentiator of our enterprise. Operator: Our next question comes from the line of Justin Clare of ROTH Capital Partners. Justin Clare: So just wanted to start on the co-located data center complexes, just how should we think about the return profile of those relative to traditional drop-downs of wind, solar or storage assets and relative to the 10.5% CAFD yields that you've talked about? And then also just curious on the ownership structure we should be thinking about for CWEN for one of these complexes that includes renewables and gas and storage. Would you anticipate CWEN owning the entirety of all of those assets? Or could the gas component be owned by a utility? How should we be thinking about that? Craig Cornelius: Yes. The way these projects are being developed, you ultimately have a collection of individual power plants that are all located in the same place, each of which have their own respective revenue contract, severable electrical infrastructure and in every instance, some phasing of how one unit or another comes online based on the staging of demand from the data center and the ability of an interconnecting utility to serve load enabled by the co-located generation resources that we build. So at least as far as Clearway Energy, Inc. is concerned, our intention is to create a succession of project investment opportunities that look like the other project investment opportunities we routinely create with contract tenors like those you see from us recently measured in multiple decades. and settlement and risk structures that are really the same as well. As we plan these resources today, we expect to deliver an investment return proposition for Clearway Energy, Inc. consistent with what it sees on other comparable long-term contracted assets. And so if you're trying to imagine what these could present an opportunity for Clearway Energy, Inc., you could think of they're presenting similar CAFD yield investment opportunities with similar sort of 20-year type tenor contracts. And as we noted, that investment opportunity is all additional to what our core grid-connected opportunities are targeting today. In terms of ownership of gas resources, this is something that will be a case-by-case consideration based on the unique circumstances and interest of the interconnecting utility at that location. And we think of the gas resources at each one of these locations as being an essential part of the puzzle of assuring that firm capacity can be delivered. And what corporate entity is the best owner of that will vary from instance to instance. But where Clearway Energy, Inc. makes any investment, it would do so into some structure that's a long-term toll like the one that we have in Carlsbad Energy Center. And those are great investments for CWEN. That's actually one of our highest reliability sources of cash flow within the fleet. So we look forward to illustrating what these different opportunities could translate into for Clearway Energy, Inc. in the future and are especially mindful of the importance of fitting them into its own capital allocation environment. And you could think of these as additional ways for us to accelerate CWEN's investment tempo, but into the same type of assets that it owns already today. Justin Clare: Okay. Got it. No, that's really helpful. And then just as a follow-up, you had raised $50 million in equity in Q4, $50 million in Q1. So I think a total of $100 million here. So just how should we think about with this additional capital, how should we think about your ability to deliver on the 2030 goals or potentially above those goals at this point in time? Craig Cornelius: Yes. First, I think we're quite pleased with the execution of our organization and its capital markets activity, both in the bond issuance we completed earlier this year and each one of the two equity issuances that we've already completed through our at-the-market and direct stock purchase programs. And we've looked at those as a useful proof of concept to our investors that we can return to being a regular issuer of securities and we can successfully issue them at a pricing level that makes the investments we're making today at 10.5%. CAFD yields very accretive on a CAFD per share basis for our investors when accounting for how we fund those investments. And it's our -- we are building confidence based on that demonstrated execution that allows us to think about the potential for accelerating the investment tempo at CWEN based on the opportunity set that we've previously described. And certainly, if CWEN is in a position to invest at a higher cadence than the $2.5 billion worth of capital deployment we previously noted would take us to the top end of our $2.90 to $3.10 in CAFD per share goal for 2030. That increased investment cadence would bring with it modest amounts of additional funding requirement, but we would only undertake those commitments in that funding plan if we thought it was going to lead us to substantially better outcomes than we've already committed to our investors today. So, bottom line, we're quite proud of the quality of execution in our capital markets work thus far. We hope it builds confidence amongst our investors that we, like some of the premium utilities we compare ourselves to can really enter into what is a potential super cycle for growth investment opportunities and that we can do so assuring that an increased cadence of investment activity will be highly accretive to our existing shareholders. Operator: Our next question comes from the line of Angie Storozynski of Seaport. Agnieszka Storozynski: So, I have a question about the drop-downs from your sponsor because I'm just wondering, given the strong performance of your stock and the reduction and implied reduction in the cost of funding, is it fair to assume that those future drop-downs still happen at this, say, 10.5% plus CAFD yield? Or is it that we should think about it more as a spread over your cost of financing, i.e., the stock performance would be sort of potentially weighing on the future CAFD yield from the drop-downs? Craig Cornelius: Yes. I think what we've said in our last few long-term planning calls is that we are planning our business around an average of 10.5% CAFD yields on new capital allocation, and we might see some projects capitalized and completed below or above that level. And as you can see from the disclosure we've most recently provided and also drop-down commitments that were reached last year, we've had some instances where we've been able to deliver at levels above that kind of 10.5% level. And every time we're able to do that, we're pleased about what that means for the shareholders of Clearway Energy, Inc. I think we see that giving Clearway Energy, Inc. the opportunity to participate in the rising return environment is core to assuring that the flywheel of success in our business continues. And as we plan our projects, as we price new revenue contracts at Clearway Group, as we capitalize them and prepare them for offerings for CWEN, we are looking to deliver a consistent growth algorithm, and we've communicated that, that growth algorithm anticipates deploying CWEN's capital between 10% and 11% in CAFD yields, and that's what we're continuing to plan for. Agnieszka Storozynski: Right. Because we're hearing all of these announcements coming from Clearway Group, right? And they're definitely bullish for the sponsor. I'm just debating if you guys will share some of the benefit, not just coming from the scale of projects or the megawatts being developed, but also the margins. Again, I'm debating if there is some improvement in margins for you guys? Or is that the benefit of the digital infrastructure pipeline more accrues predominantly to the parent and then you guys are more of a financing arm. And so it all comes down to the spread versus your cost of financing. And again, I'm not trying to impute it. Craig Cornelius: No, no, I totally understand the question. Well, I mean, I think what you see in the existence proof of the recent offerings from Royal Slope and Swan, which were made in the course of the current month, certainly after we've seen a share price increase for CWEN, each of those were offered within that same 10% to 11% CAFD yield range where assets were being offered last year. And because you carefully pay attention to our story over time, Angie, I know you've noticed that, that CAFD yield has increased over where assets were being dropped down, say, 18 months ago and certainly 36 months ago. So I think there's a clear existence proof that the Clearway Group sponsor entity is providing the opportunity for Clearway Energy, Inc. to participate in the rising return environment and deliver an improving return proposition for its investors as a result. And as far as the -- so as Clearway Group's originating new projects and capitalizing them, it certainly is planning on continuing to sustain that equation for CWEN. And as far as the digital infrastructure campuses are concerned, I think for us, the easiest rule of thumb for the time being is to assume that each one of these assets exhibits a return and contract proposition similar to what we do in traditional grid tied projects today. As we get to know what's possible in those complexes, we will see whether it's possible to do even better than that. But in our minds, and I think probably in yours, we should recognize that whether power resources are co-located with a data center or they're delivering power to data centers through the grid, there is still some cost of ownership equation that we need to satisfy for the owner of that digital infrastructure. And mindful of that cost equation, we would not want to overpromise about the potential for doing even better than what's already a great return for CWEN on the projects that we're deploying already into it. So, bottom line, we think the investment proposition for Clearway Energy, Inc. has been improved over the course of the last 18 months. It's certainly been sustained even while its cost of capital has declined. And we understand that part of what's allowed for that cost of capital to decline is the confidence our investors have that we're going to sustain a strong investment proposition for the company. Operator: Our next question comes from the line of Heidi Hauch of BNP Paribas. Heidi Hauch: I just have two follow-ups. With respect to the $650 million to $800 million in investment upside kind of incrementals of the $2.5 billion, I know you had mentioned potentially issuing equity if it's accretive to fund that. But should we be expecting that the funding strategy or the percent kind of funding breakout that you had highlighted last quarter with the 5% to 15% equity, 20% retained cash flow and the remaining corporate debt, is that kind of the strategy you would use to fund even the incremental investment? Or would this incremental investment require a different kind of corporate capital funding strategy? Craig Cornelius: I think that same approximate strategy is how we imagine running the business into the future. When we think about the particular constraints and factors that we are trying to optimize for in building a long-term plan for Clearway Energy, Inc. The things we think about are our intention of running the business to the same 4x to 4.5x leverage ratio that we have historically run it at. Our goal to drive our payout ratio down to 70% or lower in the long run so that we can create a strong base of recurring cash flow that can be reinvested in growth at a growing absolute level over time, sustaining a payout -- dividend per share growth rate that is compelling in its alignment with that of other premium utilities. And once we have accounted for each one of those constraints, then optimizing the balance of corporate debt issuance and equity issuance based on what maximizes CAFD per share for our owners. So I think you could think of that as kind of that approximate percentage of sources as being sustained in the funding plan we're building for ourselves and that we would increase as additional investment opportunities present themselves. But again, really, when we plan the business, we're thinking about those constraints and those goals of maintaining a prudent leverage ratio, driving to a payout ratio of 70% or lower and assuring that we're going to be able to compound our dividend per share growth rate at some level that's similar to what you'd see from other premium valued fast-growing utilities. And then the particular mix of equity and debt issuance in any given year would be something we optimize based on the long-term CAFD per share impact that we would expect to see. Heidi Hauch: Great. And then just a follow-up. Thanks for the helpful commentary on the revenue enhancement opportunities in Texas. Just want to make sure I'm understanding. So are these PPAs that were set to expire this year or rather PPAs that customers are kind of proactively recontracting years before expiration? And if that's the case, is there any further upside to this kind of 617-megawatt number as power demand continues to kind of increase and demand for kind of long-term agreements increase as well? Craig Cornelius: Yes. Actually, what we're executing in the instance of these projects is a little bit more like what we've done with the Mount Storm repowering in PJM, where the level of interest from hyperscaler customers and other corporate customers in ERCOT for the shape of generation that's available from wind projects in the market allows us to terminate existing bank hedges that are on those projects, replace them with a new long-term unit contingent power purchase agreement and what was previously a combination of hedged and merchant capacity at the projects now becomes fully contracted. And where we do have some existing commercial and industrial customers for those projects as their existing power purchase agreements roll off, the new customers' contracted quantity increases over time. So what we end up with is a fully contracted project with a very favorable risk profile on our settlement structure that allows us to now look at this as a contracted asset well into the next decade. Operator: Our next question comes from the line of Nelson Ng of RBC Capital Markets. Nelson Ng: So first question is, can you just talk about whether there's excess interconnection capacity at your existing portfolio and whether we should expect like a broader trend in terms of co-locating battery storage at a number of sites. Because I know, Craig, you mentioned earlier on the call that you're potentially hybridizing the entire fleet, and I'm not sure whether this is what you were referring to. Craig Cornelius: Yes. Thanks. I think that reference was the entire fleet of solar projects that we had in Utah. And it's a great test case for what you're asking about where for those projects, the ability to provide a firming capacity resource, making use of existing interconnection and the faster path towards interconnecting batteries versus filing interconnection queues for new batteries that would be built elsewhere, created a really compelling value proposition for the utility in the state that needs to serve growing demand. There is most definitely the opportunity to do something like that in other projects in our fleet, and we continue to examine what the optimal timing, location and instance of that would be. It tends to be most valuable at solar projects and the bulk of our solar fleet is either in California or is interconnected to deliver energy and capacity attributes into California. And something we like about that opportunity is that we've got the ability to take our time with it. Much of that solar fleet is contracted well into the next decade. And the ability to install hybridizing battery resources that qualify for tax credits based on the provisions of the Big Beautiful Bill extends well into the next decade. So in the Honeycomb program through which we've installed batteries or aim to install on the remainder of the fleet batteries in its entirety, we've got a good proof point for what it looks like when a market creates an opportunity for that kind of hybridization, and we think we'll be in a position to be able to do things like that well into the next decade. Nelson Ng: That's great color. And then just one another quick question. So, just regarding the pending Deriva acquisition, do you have an updated time frame of when you expect the transaction to close? I think your previous guidance was like the first half of this year. And obviously, we're near the end of February. Craig Cornelius: Yes. We are on a very solid track towards concluding that acquisition imminently. And we expect to be able to close well in advance of the end of the first half of this year. And you could see in some of our disclosures that the first phase of the financing that -- the nonrecourse financing that will be employed to fund the acquisition actually already was put in place by Clearway Energy, Inc. So the closing of the transaction is imminent. Operator: I would now like to turn the conference back to Craig Cornelius for closing remarks. Sir? Craig Cornelius: Yes. Thank you, everyone, for joining us today and for your ongoing support of Clearway. We're proud of the work we're doing to deliver new generating capacity in markets across our country with an array of diverse energy resources that are critical to our country's needs. In the quarters ahead, we're looking forward to continuing to execute with operational excellence and fulfilling our bright outlook for robust financial growth at best-in-class levels for you, our valued investors. Operator, you may close the call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Pacific Current Group Limited 2026 Half Year Results. [Operator Instructions] And finally, I would like to advise all participants this call is being recorded. Thank you. I'd now like to welcome Michael Clarke, Managing Director, to begin the conference. Michael, over to you. Michael Clarke: Thank you for the introduction. Good morning, and welcome to the Pacific Current Group investor presentation call for the first half of the 2026 financial year. By way of introduction, my name is Michael Clarke, and I'm the Managing Director of Pacific Current Group. I joined the Board of Pacific Current in February 2024 as a Non-Executive Director and transitioned to my current role in July of 2024. I'm joined on the call by Ron Patel, the acting Chief Financial Officer of Pacific Current Group. Ron joined Pacific Current over 17 years ago. Also on the call is the recently appointed Chief Operating Officer, Gabe Neri. In our full year update to shareholders in August last year, we highlighted that PAC was committed to taking actions that would unlock shareholder value and to report the progress made to achieve this goal. We are gratified to report that the momentum developed in both of the previous financial year '24 and '25 has continued into this financial year. If we turn to Slide 3 in the presentation pack for the overview, Pacific Current is pleased to update on the company's interim results for the 6 months ending 31 December 2025. Key results included declaring an underlying net profit after tax or NPAT of AUD 6.7 million, down from $15.3 million in the previous corresponding period. NPAT was adversely affected by lower distributions and management fee income from boutiques and lower interest income after the off-market buyback, but was partially offset by continuing cost management initiatives, particularly including debt reduction and corporate cost reduction. Underlying earnings per share declined by a lesser extent to $0.22 a share from $0.29 in the previous corresponding period, supported by a reduction in the number of shares on issue. Statutory profit declined by $11.7 million in the period driven by fair value adjustments to asset valuations. Pacific Current is declaring an interim dividend of $0.20 per share fully franked with a record date of 5 March 2026. This is an increase of 33% on the previous corresponding period and the first fully franked dividend for some time. Declaring an increased fully franked dividend continues the capital management initiatives of the past 2 years aimed at efficiently and effectively returning surplus capital to shareholders. Implementation of further cost-saving initiatives in the half year resulted in a 31% reduction in corporate costs compared to the previous corresponding period. It's also again worth highlighting that although underlying net profit and earnings per share declined year-on-year, the number of ordinary shares on issue was significantly reduced following the off-market and the continuing on-market share buyback, further enhancing capital efficiency and shareholder value. Because of capital management initiatives, asset sales during the period and related considerations, PAC's fair value estimate of net asset value increased to $16.34 per share at 31 December 2025. This estimate exceeds the statutory net asset value by $2.42 per share and compares with a fair value estimate of net asset value of $14.32 per share on 31 December 2024, representing an increase of over 14% from the previous corresponding period. As will be discussed later in the update, fair value NAV per share has increased by over 14% per annum over the past 5 years from $8.40 per share to $16.34 per share or over 95%. Turning to activity. It was another busy period for transactions and other activity with the following significant portfolio transactions completed. First is the partial sale of Victory Park Capital. In September 2025, PAC sold a portion of its interest, specifically 2% of its equity interest in Victory Park and 0.8% interest in Victory Park's Holdco for future carried interest entitlements to CNO Financial Group for USD 5.5 million. Following the transaction, PAC's interest reduced in Victory Park reduced to 9.2% equity, 18.6% future carry and 24.9% existing carry. We also fully repaid the senior debt facility in October 2025. This debt facility, the senior secured debt facility with WH. Soul Pattinson amounted to USD 42.1 million, and the transaction included a USD 0.8 million early repayment premium and USD 0.3 million of interest for October. The facility was settled using the USD 43.5 million restricted deposit account over which WH. Soul Pattinson held security. PAC also commenced an on-market share buyback in October 2025 for up to 2 million shares or 6.8% of issued capital, which will be conducted in the following 12 months and fully funded from existing reserves. Ord Minnett was appointed as execution-only broker. As at 31 December '25, PAC had repurchased just under 200,000 shares for around AUD 2 million. The buyback will commence post the results announcement subject to Board confirmation of material interest. PAC also exited the Janus Henderson Group shareholding in November 2025, selling its entire stake and generating USD 9.4 million in proceeds. Also importantly, PAC conducted growth capital deployment initiatives. And as of December 2025, PAC entered into a $2 million loan facility with an affiliate of Roc Partners, bearing a 10% interest rate and maturing on 30 November 2028. In the period since 31 December, PAC has also completed lending facilities for both Northern Lights Alternative Advisors and Independent Financial Plans, IFP designed to accelerate the growth trajectory of each business. I'd now like to hand over to Ron to cover financials for the year. Ron Patel: Thank you, Michael. Turning to Slide 4, underlying results. The first half of FY '26 reflect a business that continues to transition following the significant portfolio realizations of the past 2 years. Underlying net profit after tax was $6.7 million, down from $15.3 million in the prior corresponding period, driven by lower distribution, management fees and interest income. These impacts were partly offset by lower interest expense following the repayment of the debt facility, together with a 31% reduction in corporate costs. With the balance sheet now debt-free, there will be no interest expense in the second half of FY '26. Despite the decline in net profit after tax, underlying earnings per share fell by a lesser extent, supported by the materially lower share count following the off-market buyback. Pacific Current declared a fully franked $0.20 per share interim dividend, up from -- up 33% on the prior period, reflecting both the strength of the balance sheet and our disciplined approach to capital management. Turning to Slide 5, shareholder value. As at 31 December, statutory NAV was $13.92 per share, while fair value NAV was $16.34 per share, a difference of $2.42 per share. The uplift in fair value NAV reflects mark-to-market gains on financial assets, higher valuations for boutique investments held as associates and the continued impact of portfolio simplification. Fair value NAV has grown at 14% per annum over the past 5 years, increasing from $8.40 to $16.34 per share. Turning to Slide 6, revenue composition. Management fee revenues declined due to the realizations of Banner Oak, Carlisle and partial exit from Pennybacker and Victory Park. Performance fees in the current period were modest and largely from Roc. Financial asset revenues increased, supported by Petershill deferred consideration and dividends from Abacus and Janus Henderson shares. Interest income was lower due to reduced cash balances following the substantial off-market buyback and repayment of debt. Overall contributions from boutiques and investments were lower, consistent with a portfolio that currently has a higher weighting to cash. Turning to Slide 7, alternate balance sheet. The alternate balance sheet provides a clearer view of PAC's corporate net assets and investment exposures. PAC's corporate net assets increased to $164 million, up from $144 million at 30 June. This reflects the full repayment of the WHSP debt facility, which eliminated the associated noncurrent liability, a reduction in deferred tax liabilities and continued simplification of the balance sheet. The reduction in fair value through profit and loss assets reflects the partial realization of PAC's interest in Victory Park and Pennybacker, together with a decrease in the fair value of the remaining minority stakes. Financial assets include Abacus shares and bonds and the Petershill deferred consideration receivable, which remains on track for settlement in May 2026. Turning to Slide 9, NAV breakdown. This table shows the movement in book value and fair value across the portfolio. As part of preparing our statutory accounts, we undertake a valuation exercise to assess whether any assets are impaired and to determine the fair value of financial assets measured at fair value. These valuations are performed in accordance with accounting standards and are not intended to represent the precise value at which an investment would be realized. Further detail on the valuation approach is provided on Page 27. Notable movements include Roc recorded a significant fair value uplift, reflecting stronger growth forecasts. IFP also saw a material uplift supported by an improved growth outlook and Pacific Current senior secured loan facility. Victory Park decreased following the partial sale and a softer business outlook. Astarte increased due to successful fundraising and improved carry expectations. Financial assets reflect the sale of Janus Henderson shares and higher valuations for Abacus bonds and shares. Corporate cash increased to $152 million, driven by the sale of Janus Henderson shares and partial sale of interest in Victory Park. Overall, fair value NAV per share has increased to $16.34, up from $15.51 at 30 June. The significant proportion of this asset base is in cash and financial assets. Thank you, and I will now hand back to Michael. Michael Clarke: Thanks, Ron. Turning to Slide 13 in the presentation pack. Just some more details on the senior loan facility provided by Pacific Current's independent financial planners. This loan is an example of working closely with boutique partners to accelerate the growth trajectory of their businesses. IFP is a Florida-based independent registered investment advisor or RIA platform providing compliance, infrastructure, technology and administration services. Specifically for RIAs, at present, they have USD 16 billion on their platform and are experiencing robust growth, largely propelled by positive trends in the private wealth sector. To accelerate future growth initiatives, PAC is providing IFP with a USD 25 million debt facility on commercial terms. This will facilitate IFP refinancing existing debt and importantly, provide growth capital to fund advisor book acquisitions and advisor recruitment transition packages. Turning to Slide 14 in the presentation pack. Looking at the outlook for the remainder of the financial year, Pacific Current Group management expects to maintain the strong momentum that has been built in the first half by continuing to focus on executing a clear and disciplined plan. We'll do this by following 5 key initiatives. The first is accelerating growth by pursuing potential opportunities within the existing boutique partners and selectively assessing new investments to drive scalable and sustainable growth. Second major dot point or point is to unlock shareholder value by evaluating targeted capital initiatives aimed at enhancing returns and optimizing the group capital structure. Third key point is controlling operating costs by maintaining disciplined cost management to support margin stability and capital efficiency. Fourth dot point is continuing to strengthen the balance sheet by prioritizing balance sheet optimization to enhance financial flexibility and long-term resilience. And finally, continuing to enhance organizational efficiency by embedding and refining the structural and governance changes introduced in the last financial year to improve agility, accountability and decision-making across the organization. In conclusion, we would like to thank our employees and the PAC Board, both past and present, for their work to enhance shareholder value. Though strong progress was made in the first half of this financial year, there is still much to do, and we remain relentlessly focused on achieving the best possible outcome for our shareholders in the remainder of the financial year and beyond. We'd now like to answer any questions you may have. Thank you. Operator: [Operator Instructions] Currently, there are no questions. I'd like to hand back. Michael Clarke: Thank you very much for your time this morning. We look forward to continuing to work hard on the portfolio. And if there are any questions that come to mind, please contact us directly, and we look forward to be able to answer those. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now all disconnect.
Operator: Thank you for standing by, and welcome to the Adore Beauty Group H1 FY '26 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Sacha Laing, CEO. Please go ahead. Sacha Laing: Thank you. Good morning, everybody. My name is Sacha Laing, CEO of Adore Beauty Group. I'm joined today by our new CFO, Marcus Crowe. Thank you for joining us today as we present Adore Beauty's results for the 26 weeks to the ending 28th of December 2025, and we look forward to meeting many of you over the next few days. The group has had a strong start to FY '26 with our maturing omnichannel strategy delivering customer revenue and profit growth in a challenging retail environment. Record underlying profit was driven by operating leverage, disciplined cost management and growing owned brands. Highlights of our half 1 FY '26 results include record underlying EBITDA of $4.1 million on a pre-AASB 16 basis, up 14.5% over the previous year at a margin of 3.7%. This is equivalent to 5.5% under the previous reporting methodology and was in line with our guidance. Marcus will provide more detail on the change in EBITDA reporting methodology later on. Revenue of $111.9 million was up 8.7% compared to the prior corresponding period, and we saw accelerated new customer growth, up 21.8% on the prior year. Gross margin of 35% reflected a strong Black Friday and November, December trading period as we continue to reset our promotional calendar and focus on quality of earnings throughout the balance of the trading period. Turning to our half-year achievements on Slide 3. Alongside improved profitability, we stepped up our omnichannel rollout in half 1 FY '26, opening 10 retail stores across the group. We have 2 further stores opening in half 2 and sites secured and confirmed for a further 4 stores opening in the second half of 2026. Marketing efficiency materially improved as we profitably acquired new customers at the top of the funnel and in-store. In the first half of FY '26, customer acquisition costs more than halved as new customers grew at the fastest rate in over 4 years. Our higher-margin iKOU brand continues to perform well with strong revenue growth and profit growth across all channels and continues to support our long-term profitability targets. We invested in long-term infrastructure to improve our operational efficiency and support our growth ambitions. We've secured a long-term lease for a new semi-automated national fulfillment center, which will be rolling out in the first quarter of FY '27. Through the course of this half, we'll continue with our ERP replacement, which will be live in Q4. And we're developing a custom AI platform to elevate customer experience and internal operational analysis. Slide 4 highlights the group's strong performance across key financial metrics. Our growing retail network, successful promotional events, and the strong performance of our iKOU brand delivered a step-up in revenue. Record earnings reflect operating leverage combined with growing retail media, higher contribution from sales of our own brands, in particular, iKOU, and disciplined cost management. The group achieved a strong profit uplift despite margin pressures arriving from the overperformance and share performance of the Black Friday and Cyber Monday promotional period. The group continues to focus on improved quality of earnings, leveraging growing customer loyalty and app adoption to offset our reduction in broader promotional activity. As shown on Slide 5, Adore Beauty's engaged and loyal customer base is an enduring strength of the business. In the first half of FY '26, members in our Adore Rewards loyalty program contributed 78% of all sales, up from 65% in the prior year, and we have multiple initiatives underway to increase order frequency and share of wallet. Our total active customer base increased by 4.7% over the last year to 850,000 active customers, benefiting from new channels, strong new customer growth, and a targeted customer acquisition strategy. At the same time, we're also growing our contactable database, up more than 14% over the prior year to 1.35 million. This database of qualified potential customers enables us to cost-effectively target and grow our active customer base, supporting marketing efficiency and our FY '27 target of more than 1.25 million active members. Turning to marketing on Slide 6. Profitable new customer growth was a standout for the first half of FY '26, delivering our strongest uplift in new customers in 4 years while significantly reducing marketing spend. New customer growth reflects the success of our retail stores and our refined marketing strategy in introducing Adore Beauty to new customers. New customers increased 21.8% over the prior year as customer acquisition costs more than halved to $33 per customer. As our retail network continues to grow and mature, we expect improved brand awareness and in-store customer acquisition to deliver even further new customer growth as we continue to cycle out unprofitable promotions and therefore, refine our approach to which customers were focusing our acquisition during particularly those high-end promotional periods. I'll now hand over to Marcus to take you through the financials. Marcus Crowe: Thank you, Sacha. It's a pleasure to be here today as the CFO of Adore Beauty Group, and I look forward to meeting with many of you over the coming days. Before I take you through the P&L, I'd like to quickly explain the change in how we're reporting profit. Given our growing retail footprint and the requirements of AASB 16, we've commenced reporting EBITDA on an underlying and pre-AASB 16 basis. This measure takes account of rental costs and best reflects the underlying performance of an omnichannel business. Adore Beauty Group delivered a solid financial result for the first half of FY '26 with record underlying and statutory EBITDA of $4.1 million and $4.9 million, respectively. Profit growth was driven by higher revenue, combined with increased contribution from margin-accretive owned brands and retail media as well as disciplined cost management. Material marketing efficiency improvements reduced marketing costs by almost 30% with marketing as a percentage of sales down 520 basis points over the prior period to 8.6% of sales. Alongside our store rollout, we're continuing to invest in long-term infrastructure projects that lay the foundations of future operational efficiencies, including a new national fulfillment center, generational ERP update, and in-house AI capability. Turning to our balance sheet on Slide 9. The group is generating positive operating cash flows and has a closing cash balance of $8.2 million as at 28 December, reflecting in part the group's investment in its store network during the period. Capital management remains a focus for the business, and we're exploring funding options to support our growth strategy. Higher inventory reflects typical supply closures over Christmas as well as in-store stock. Happy to take questions at the end of the presentation. But for now, I'll hand back to Sacha. Sacha Laing: Thanks, Marcus, and great to have you on board. Slide 11 demonstrates the early success of our omnichannel strategy. Our e-commerce business remains a growth driver for the group with the Adore Beauty app and loyalty program continuing to resonate with customers. In the first half of FY '26, the app represented 35% of online sales, up from 25% mix last year, while our Adore Rewards spend and save -- spend and earn loyalty program grew to 509,000 members. These members contributed 77% of all sales in the first half of FY '26, up from 65% in the same period last year. Our retail network is performing well with significantly higher conversion than the e-com business at 11.1% and just under our target of 12% in the long term, with new customers accounting for almost 30% of in-store transactions. More than 670,000 customers have been through the doors of our stores so far, cost-effectively introducing the Adore brand to a substantially broader customer base, improving brand awareness and enabling us to close the customer journey for existing customers. Importantly, store support improved quality of earnings with customers shopping in this channel typically less promotionally driven, and we see that in the margin of this channel. While early days, we have a growing customer base of omni customers shopping both channels, and this valuable cohort contributed to more than 5% of our revenue in the first half. On Slide 12, we see the growing network of our store channel. We continue to deliver against our strategy at pace. We opened 9 stores during the period as well as an additional store in early January. This brings our national network of stores to 18 across the Adore Beauty and iKOU brands, including our first stores in Queensland and South Australia and more than half of these stores opened in the final months of the reporting period. We'll no doubt see a meaningful contribution of these stores as we move into the half 2 and into FY '27. A further 2 stores are opening in the second half of FY '26 with an additional 4 stores secured for later in the calendar year. We are well on track to achieve our targeted network of 25-plus stores by the end of FY '27. Our national retail network broadly -- materially broadens our addressable market to capture the 87% of transactions that occur in a physical retail store, unlocking material revenue growth and potential for the group. Our Adore Beauty store format product and service offering has evolved since our first store opened in Southland just on a year ago. Slide 13 outlines our evolution, growing from an offering of 60 brands at Southland, our first store to now over 120 brands in every store across the country with dedicated treatment spaces and on-staff dermal therapists. To ensure in-store customers have the same access to product knowledge that Adore Beauty is known and famous for, we've invested extensively in product education for our in-store staff. We've also continued to refine the processes that sit behind efficiently run stores from setup and replenishment through to systems automation, IT integration, and operational support. Stores are expected to reach a level of maturity in the first 12 to 18 months as brand awareness improves, and we learn more about the nuances of individual centers. We expect stores to contribute meaningfully from year 2. And of course, omni customers are already providing us to be an incredibly valued cohort with a lifetime value of spend 20% higher than a single channel customer. We're already seeing the benefit of our retail network on the e-com business with an online halo emerging across all store catchments with the strongest improvement in areas where Adore Beauty's existing customer base was underpenetrated. Moving to our iKOU brand on Slide 14. iKOU continues to strengthen under Adore's ownership, delivering strong revenue growth across all channels. Growth was driven by greater availability, new brand positioning, and investment in infrastructure and customer service. We opened our sixth iKOU store in the Victorian seaside town of Sorrento in November and have plans to open a further 2 to 3 stores through the balance of this calendar year. We're leveraging our group expertise and know-how to grow and mature the brand with significant operational progress achieved in the first half of FY '26. This includes the rollout of a new e-commerce platform, upgrades to e-mail customer flows, implementing a 7-day customer service experience team, and implementing a platform integration across all channels. Our higher-margin own brands, including iKOU, Viviology, and AB LAB are expected to account for more than 6% of total group revenue for FY '26. On Slide 15, we're continuing to invest in our core online business with technology projects that enhance customer experience and operational efficiency. As shown, our recent platform refresh has improved on-site personalization, search functionality, and recommendations. We're also integrating in-house developed AI across our business from product and customer support through to internal workflow automation and business analysis. These projects are designed to streamline our operations, enhancing customer experience and enabling a much more engaged experience for our teams and for our customers. On Slide 16, efficiency gains further reduce cost of doing business. Our disciplined cost management across marketing, inventory, and operations continue across the business. As I mentioned earlier, marketing costs reduced by almost 30% even as we grew new customers, increased sessions, and invested in above-the-line advertising. Reduced promotional activity is delivering a higher quality of underlying earnings. Inventory health continues to be a focus with a record level of inventory efficiency. More than 60% of our inventory is now within a 60-day window, and our stock turn grew 11.7% on the same period last year. Operationally, we partnered with a new group freight provider from October. We're leveraging AI to improve picking processes and reduce labor costs, and we've laid the foundation for the launch of a new ERP system in Q4 to further improve operational efficiencies. Turning to Slide 17. As part of our investment in infrastructure that drives operational efficiency, we've secured a long-term lease for a larger national fulfillment center in the Melbourne suburb of Broadmeadows. The 6,300 square meter facility is expected to be operational from Q1 FY '27 and will include automated picking and replenishment, unlocking significant operational efficiencies and supporting long-term growth plans. Initial capital outlay of approximately $8 million is predominantly funded by a CBA-backed project-based facility with an expected payback in under 4 years. Turning to our outlook on Slide 19. Our solid half 1 FY '26 performance as we ensured we are on track to deliver our targets moving forward as our strategic initiatives continue to drive customer revenue and profit growth. In FY '26, we expect to deliver underlying group EBITDA of 3% to 4% on a pre-AASB 16 basis. This is equivalent to 5% to 6% under the previous reporting methodology and in line with our guidance. Own brands representing more than 6% of group revenue, new and active customer growth to support our FY '27 target of 1.25 million active customers. Loyalty member and app growth continues to be a focus to offset the reduction in promotional intensity, a national retail network of 20 stores by the end of this half, and we'll launch our new ERP and we'll progress our transition to the new national fulfillment center as well as continuing to implement AI deeply across the business. We entered the remainder of FY '26 with strong momentum, and I look forward to updating you on our progress at the full year. I'll now hand back to our operator to open the call for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Leo Armati from Bell Potter Securities. Leo Armati: Just firstly, on gross margin. You've had a history of growing this year-on-year, but obviously, it was down around 120 basis points this half just following that November, December trading period. Just wondering how we view this going into the second half and even further forward just in terms of the need to promote to get that sale. Sacha Laing: Thanks, Leo. Thanks for your question. So I think we've also provided, obviously, that step-up on FY '24 from a margin perspective of 150 basis points as noted in the investor deck. And that's an important frame of reference. Obviously, there isn't the equivalent of a Black Friday promotional period that has that significant spike that we see in half 1 doesn't exist in half 2. So a much more measured and tempered approach to margin management, obviously, in half 2. We're continuing to see loyalty and our app adoption be a fundamental driver of margin improvement as well as our store network, which is predominantly a full price channel. So we'll continue through half 2 to rebase and remove promotions that were unprofitable in the prior year and focus our energy on our loyalty members and on our store network in driving the improvement of full price revenue throughout the half. That's how you should be thinking about this moving forward. And as I said, the Black Friday promotional period only happens once a year. Leo Armati: Great. And then just secondly on stores. So I think your Western Australian stores were outperforming the broader network. Is there anything specific as to why that market outperforms? And will you aim to sort of weight those further openings to that market? Sacha Laing: I'll answer that question in 2 parts. Firstly, from a national footprint perspective, we'll continue to roll out stores in all states. And each state has key targeted centers that we're focused on, and there is a couple more in the West for sure, over time. The West as well as geographic areas outside of sort of the core Victorian metropolitan and New South Wales metropolitan areas where we have really strong penetration today from existing customers online represents significant opportunity for us. And so when we talk about those stores in the West outperforming the balance of the portfolio, which, by the way, continues to meet our expectations, it's really about those markets where there's been an under-indexed penetration of Adore online previously. And those customers are really enjoying the brand in the physical experience sense. So that very much talks to our original methodology, which was -- and strategy, which was to bring the brand to customers to introduce the brand to new customers that haven't experienced the brand before. And certainly, in the West, that's what we're seeing. Operator: [Operator Instructions] Your next question comes from [ Kristina Chareva from Jarden ]. Unknown Analyst: Can you just share how you're seeing more recent trading environment and how your sales performed in January and February and maybe more broadly in second quarter versus first? Sacha Laing: Yes. So you saw from our results today that we haven't provided a trading update, and that's consistent with our approach over the last 2 years or so. We'll obviously lean in detail to performance on a half-by-half basis. In terms of the result for half 1 and how the Black Friday or quarter 2 traded versus quarter 1, again, we don't break up that level of detail for you. But obviously, based on the overperformance of what is a particularly important trading period through the Black Friday, Cyber Monday period, we did see half 2 overperform relative to half 1 in a total revenue sense. But of course, that continues to be a focus for us as we rebalance our promotional activity moving forward. Unknown Analyst: And secondly, how are you seeing change in competitive dynamics? And do you believe you're still holding market share? Sacha Laing: I think more importantly, if I think about our growth at 8.7% relative to the prior period last year, in a market that sees category growth circa 4-odd percent year-on-year compound growth in the beauty industry, our view is that we took meaningful share in the first half at almost a 2x market growth rate. Operator: There are no further phone questions at this time. We'll now move on to address your webcast question. Your first webcast question asks, what -- what's the expected payback on each store? Sacha Laing: So we've previously provided guidance on payback in the 1- to 2-year period. And of course, that's dependent on when the store opens in the calendar year. So a store opening closer to, obviously, the Christmas quarter has typically delivered stronger payback is our expectation, and those opening earlier in the year have a longer payback period. But that's been our market provided guidance before -- between 1 to 2 years. Operator: Your next webcast question asks, is the company on track to achieve its 5% EBIT target in 2027? Sacha Laing: Thanks for that question. So we haven't updated guidance for 2027. So our existing guidance remains in -- at our last provided guidance. We've introduced a number of meaningful new initiatives over the last 12 months, including our national distribution center, our changes in our relationship with our freight providers as well as introducing new operational processes supporting our ERP. So a number of those initiatives sit as an overlay to our existing 3-year plan, and we'll provide at our full year results an extended view on guidance beyond '27. But for now, we have no update on our existing guidance. Operator: Your next question asks, can you please walk us through the cash flow statement? Sacha Laing: Can I ask who the question was from? Operator: It was a question from [ Eduardo Riquelme ], a private investor. Marcus Crowe: Yes, no problem. So look, in terms of the presentation deck, we didn't provide a cash flow statement. So there is a cash flow statement in the Appendix 4D, which follows the usual protocols in accordance with the accounting standards. So cash flows from operating activities are presented, which were $2.4 million for H1 2026. You will see that there was some movement in interest period-on-period as we utilize debt during the first half of the year. I think probably the material change that you'll see period-on-period relates to the lease liabilities and the interest component related to those lease liabilities under AASB 16 as we took on an additional 10 stores during the year. Indeed, to contextualize that, I think the rental cost in H1 FY '25 was circa $665,000. It was approximately $2 million in FY '26. So you'll see that impact through the cash flow. Additionally, you'll see material uplift for payments for property, plant, and equipment as we've invested into that store network. Our investment into intangibles, our website app was measured and pretty consistent with the prior year. Operator: Your next question asks, how is cash going to behave after the iKOU payment, but now with investments in [ VL ] and new store demand? Sacha Laing: Yes. I mean the iKOU payment was obviously due as contracted in the January end period, which has been complete. And we continue to run the business as planned. So that was certainly expected, planned for and no impact to the way we're running the business. So thanks for the question. Operator: There are no further questions at this time. I'll now hand back to Mr. Laing for closing remarks. Sacha Laing: Thanks very much. Thank you, everybody, for joining the call today, and we look forward to meeting many of you with you over the next few days ahead. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Scentre Group 2025 Full Year Results Update. [Operator Instructions]. Please note that this conference is being recorded today, Tuesday, the 24th of February 2026, at 9:00 a.m. Australian Eastern Daylight Time. I would now like to hand the conference over to Mr. Elliott Rusanow. Please go ahead. Elliott Rusanow: Thank you, and good morning, everyone. Welcome to Scentre Group's 2025 Full Year Results Briefing. I'd like to begin by acknowledging the traditional custodians of the land I am on this morning and pay my respects to their elders, past and present. I'm joined on the call today by our Chief Financial Officer, Andrew Clarke; our Chief Operating Officer, Lillian Fadel; and John Papagiannis, Group Director of Businesses. At the end of 2025, we made some changes to establish a structure to effectively pursue our growth ambitions. Lillian was appointed Chief Operating Officer with her accountabilities expanded from customer community and destinations to also now include asset management, development, design and construction as well as data and analytics. Andrew's role and responsibilities were expanded to include leadership of our strategy to broaden the economic activities and usages across the group's substantial and unique land holdings as well as the development of Scentre Group's long-term strategic plan. Our strategy is to grow the economic activity that occurs at each of our 42 Westfield destinations located throughout Australia and New Zealand. This strategy continues to deliver strong operating performance with continued growth in earnings. Our focus is to attract more people to our destinations and give them reasons to stay longer when they are with us. By doing this, we continue to improve our ability to attract a broader range of businesses to partner with us at our Westfield destinations. Our strategy is also focused on how we better utilize our substantial and unique landholdings at our destinations to create additional long-term growth for the group. Our results in 2025 represent now our fifth consecutive year of earnings and distribution growth in absolute dollars and in per security terms, and we expect this to continue to grow in the years ahead. For the year, our earnings as measured by funds from operations increased by 4.9% to $1.18 billion. On a per security basis, funds from operations was $0.2282 per security and was ahead of guidance. I would like to thank and recognize our team for their continued focus on bringing our strategy to life each and every day and delivering these results, especially during a period where many of our team have been contributing to the careful and extensive work of the New South Wales State corridor as part of their inquest into the tragedy that occurred at Bondi Junction in April of 2024. In 2025, we welcomed 540 million customer visits, an increase of 14 million compared to 2024. This is the highest visitation we have seen since 2019. In the first part of 2026 up until last Sunday, customer visitation was 79 million, an increase of 3.1% compared to the same period in 2025. Our 42 Westfield destinations are already the most premium and highest quality portfolio in both countries. Our portfolio is irreplaceable. They are located in close proximity to 21 million people. Our destinations welcome on average, over 10 million visitors each and every week. A key driver for why people choose to spend their time at a Westfield destination is the approach we take to activations and events at our destinations. In essence, we work tirelessly to give people the reason to come and to stay longer when they do. During 2025, we held over 21,000 cultural and community events. A key component of this strategy is the partnerships we have with some of the world's leading consumer experience brands. Our strategic and very successful partnership with the Walt Disney Company now in its fourth year, continues to deliver popular events that appeal to multiple generations of our customers -- for our customers and drive even more visitations to our destinations. We are pleased to also partner with Sony Music to bring artists to Westfields for free live performances. We're continuing to build on the unique and compelling experiences we offer customers through our partnership with Live Nation. We have seen strong and ongoing customer appetite for music-led experiences, which extend the excitement and ability to purchase merchandise from major tours beyond the stadium. We also celebrate premier sporting events through activations in our destinations. So far in 2026, we have hosted live sites for the Australian Open tennis through Child 9 Summer of Tennis and events for the 2026 Milano Cortina Winter Olympics. This follows the successful -- the success of our activations for the Paris Olympics in 2024, again, giving people a reason to come and stay with us. And later this year, we have exciting plans to host similar fan activation sites for major sporting events, again, giving fans from all cultural backgrounds the opportunity to enjoy premier events in world sporting events amongst other fans and at the same time, do so at our destinations. We continue to strengthen engagement with our Westfield members and are pleased to see our membership grow by 11% to 5 million during 2025. Our targeted member-led strategies translates to increased frequency of visitation and dwell time. Our data shows Westfield members visit our centers significantly more often, spending more compared to nonmembers. Why giving people -- why giving people a reason to spend their time with us is so important is because it provides the opportunity for other businesses and brands the opportunity themselves to interact, engage and transact with our customers in the most efficient and productive way. For a business that interacts with consumers, our Westfield platform is the place where these businesses want to be. In 2025, our business partners achieved sales of $30 billion, a record for the group. This is $1 billion more or 3.6% higher than in 2024, with the second half of 2025 growing by 4.5%. In fact, the volume of sales our business partners generate today is $5 billion more than in 2019, pre-pandemic, highlighting the importance our physical destinations play in the lives of the customers we serve. And for the month of January of 2026, business partner sales grew by 5.4% on the same comparable period in 2024. As a result of the execution of our strategy, we are seeing continued strong demand by businesses for space in our destinations. With space becoming more scarce, we are focused on identifying and curating the most in-demand and relevant mix of brands, products and experiences to meet the dynamic needs of customers. In 2025, occupancy increased to 99.8%, representing our highest level of occupancy since 2013. During 2025, we completed 3,090 leasing deals with specialty rents increasing by 4.5%. For the year, new lease spreads were a positive 3.2%, and this spread increased to positive 3.5% in the second half of the year. Average specialty leases have a term of 6.8 years and 80% of our leases have annual escalations that are inflation-linked. Portfolio-wide, 45% of consumption occurs on site via experiences, making our destinations extremely productive and profitable for the businesses that partner with us. We remain focused on pursuing more experiential and lifestyle-focused businesses to continue to drive customer interest, engagement, dwell time and ultimately, sales. The group continues to repurpose existing space to enhance the customer experience and productivity of our destinations. During the year, the group completed the expansion of Westfield Sydney, featuring a 2-level Chanel boutique, Moncler and Omega. On behalf of Cbus Property, the group has completed construction of the adjoining commercial space and expects to complete the residential component of that same project in the first half of 2026. We have taken the opportunity to strategically downsize a further 3 David Jones stores, unlocking space that we can then redeploy to more productive brands that consumers want. We completed the $72 million redevelopment at Westfield Southland in Melbourne and the $48 million redevelopment of Westfield Burwood in Sydney, with visitation up 6.5% and 9.3%, respectively, in 2025. We also completed the $28 million redevelopment of Level 1 at Westfield Bondi in Sydney, repurposing existing space into health, wellness and fitness. This contributed to destination visitation growth of 8.5% in 2025. Today, we are excited to announce the commencement of a $240 million investment at Westfield Bondi to redevelop Level 6 into a world-leading lifestyle, entertainment and dining destination. This continues our ongoing reinvestment into our destinations to ensure they remain not only the places where people choose to spend their time, but also having a great experience when they do so, thereby increasing their propensity to spend even more time with us. Importantly, we are able to undertake these investments, continually enhance our Australia and New Zealand's most premium portfolio and experiences and at the same time, continue to grow earnings and distributions for our security holders. The group is one of the largest landholders in the most densely populated areas across metropolitan centers in Australia and New Zealand. Our Westfield destinations are located on more than 670 hectares of land close to major transport hubs and where millions of people live and work. Our destinations have the opportunity to play a far bigger role than retail. We are focused on generating greater economic activity in and around our destinations through the better use of our strategically located land for a multitude of potential usages, residential, student accommodation, health and education, just to highlight some of these potential usages. During the year, the group launched planning proposals at a further 6 Westfield destinations. Carindale, Mt Gravatt, Maringa, Woden, NOx and Southland with the potential to deliver more than 16,000 dwellings. I will now hand over to Andrew to present the financials. Andrew Clarke: Thanks, Elliott, and good morning, everyone. Net operating income for the period was $2.1 billion, reflecting a strong 3.7% increase over 2024 and demonstrating our ongoing growth momentum. On a like-for-like basis, net operating income grew by 4.8%. This figure excludes the partial divestment of Westfield Chermside and the release of the expected credit charge in both 2024 and 2025. Management fee income grew by 6.3% for the period, driven by growth in property revenue and additional fees following the joint venturing of Westfield Chermside. Overheads rose by 2.5%. Net interest expense has increased by 0.6%, reflecting the part period benefit of the various capital management initiatives that we executed during 2025. The increase in tax from $39 million to $44 million is primarily due to our higher management fee income, growth in ancillary income and the impact of higher tax on New Zealand income due to lower interest rates. Project income for 2025 is approximately $2 million. As previously discussed at the group's half year results, this has been impacted by the higher-than-expected construction costs on the commercial and residential project on behalf of Cbus Property at 121 Castle Ray Street. Overall, funds from operations for the 12-month period was $1.18 billion, which grew by 4.9% compared to the prior corresponding period. Operating and leasing capital was $167 million for the year. The group has made significant progress in its capital management, funding and interest rate strategy. During 2025, the group successfully refinanced $2.4 billion of senior notes and subordinated notes, significantly improving the group's weighted average credit margin. In March, the group completed the make-whole redemption of all the remaining non-call 2026 subordinated notes totaling $1 billion, which had a margin of 4.7%. This was funded through a combination of a new issue of $650 million of subordinated non-call 2031 notes at a margin of 2% and $350 million of bank drawings. In September, the group issued $1 billion of 10-year senior notes in the Australian domestic market at a margin of 1.38%. In October, the group issued EUR 500 million or approximately $900 million of 8-year senior notes at a margin of 1.295%, marking a return to the European market. During 2025, the group has executed $3.2 billion of interest rate swaps, increasing hedge coverage to 99% as at January 2026 with an average base rate of 2.98% and 82% at December 2026 at an average rate of 3.01%. Our distribution reinvestment plan continues to be in effect for the February 2026 distribution. The DRP will continue to add to the group's various sources of capital. These capital management initiatives have enabled the group to achieve a weighted average interest rate of 5.6% for the year. Included in this was an average base interest rate of 3.1% and an average margin of 2.5%. This is a significant improvement in the average margin when compared to 2.8% in 2024. At 31 December 2025, the group had $5.2 billion of available liquidity. Following the successful joint venturing of Westfield Chermside in Westfield Sydney during 2025, raising $2.2 billion of funding, the group has today announced its intention to utilize some of this capital to redeem the USD 750 million or approximately $1.15 billion of 2030 senior bonds, which have a credit margin of 4.2%. In addition, the group has announced its intention to increase its investment in Carindale Property Trust with any acquisition of units subject to the prevailing market conditions and governed by the creep provisions of the Corporations Act. These transactions are in line with our capital management investment strategy to deliver long-term growth to our security holders. The statutory result was a profit of $1.78 billion, which includes an unrealized property revaluation increase of $456 million. All properties were revalued during the year. Overall, property valuations increased by 2.5% during the 12-month period, primarily driven by growth in net operating income. The weighted average capitalization rate for the portfolio remains at 5.43% at December 2025. Thank you, and I will now pass you back to Elliott for closing remarks. Elliott Rusanow: Thank you, Andrew. Our strategy to grow the economic activity at our Westfield destinations by attracting more people to our destinations, broadening the businesses that partner with us and better utilizing our substantial land holdings is expected to continue to deliver long-term growth in earnings and distributions. Subject to no material change in conditions, the group's FFO is targeted to grow by at least 4% to more than $0.2373 per security for 2026. Distributions are expected to grow by 4% in 2026 to $0.1843 per security. Thank you, and I will now open the call for questions. Operator: [Operator Instructions]. Your first question comes from Howard Penny at Citi. Howard Penny: Congrats on the results. Just my first question about the subordinated note buybacks. I know you've done a lot of them and refinanced to cheaper versions of the subordinated notes. But could you just give us a little bit of an explanation of what subordinated notes would be potentially something you would consider buying if market conditions were more favorable? Andrew Clarke: Howard, it's Andrew here. Look, I think what we've demonstrated over the last number of years is our strong intention to find opportunities to use the tailwind of refinancing both the subordinated notes and senior notes to provide growth for the group. And we've been very active in terms of doing that. We don't want to be telegraphing transactions in advance of executing on those transactions. But I think if you look at the past and the history and the proactive nature as to how we've gone about that, I think it's fair to say that we have a strategy over the coming years to continue to execute upon that opportunity. The fact that we raised $2.2 billion of funding through the joint venturing of Westfield Chermside and Westfield Sydney last year really creates a very strong balance sheet and credit metrics for the group and provides capacity to look at other opportunities in this space. Today, we've announced the make-whole of our 2030 senior bonds, $1.15 billion worth. So yes, I think it's -- you can see by our actions over the last number of years. And what I'm saying now, we have a strong intention to continue to execute on that tailwind for the group. Howard Penny: And just a second question. Congratulations on your new role and part of that is unlocking the value of the land. Could you please give us just any updates on the residential opportunities that you see playing out in the portfolio? Andrew Clarke: Look, I'll start, Howard, and I'm sure Elliott will have some comments as well. I think the first part is that the opportunity is really significant. And we've got 670 hectares of land, high-quality land located next to transportation nodes where people live and work. So we're really excited by that opportunity. The first part that we're focusing on at the moment has been around seeking planning permissibility changes and rezoning. We've had significant success in the lodgement of those planning permissibility changes. We've spoken about 16,100 potential dwellings that could be added to the sites where we've submitted those planning permissibility lodgements to date, but that opportunity is significantly more than that. I think the other part is that and Elliott highlighted, this is not just about residential. This is about the master planning of the landholdings that we have and how do we maximize the economic activity that's happening on those land holdings over the long term and thinking about densifying that land with much more -- much broader usages. And the other part that's really important is we see this as an opportunity not only to create additional land on the landholdings, but also how does this create this ecosystem that further drives better economic activity within the Westfield destinations as well. So we're really excited by it. We've had significant progress in terms of the planning process that we spoke about. We're also making a lot of progress in terms of our strategy at a group perspective, but also the strategy that we're looking at on an individual asset-by-asset basis. Elliott Rusanow: Yes. And maybe just to add to that, and Andrew has adds to it probably the way I answer as well. So it's not much more to add. The part that I think -- and we purposely use the language of economic activity because it seems that when we talk about densification or anyone talks about densification, people jump to residential. And the reality is that our centers are located at the hub of economic activity, of which residential could be part of, but so many other usages. And so we're looking at how do we bring those economic usages into our landholding, which surrounds and is adjacent to our destinations. So whereas today, we have destinations surrounded by car park to have destinations that are not only surrounded by car park, but other economic usages, which could include -- which will include residential, but could also include other usages as well given their unique location and where they are. So the point being that we all recognize that residential or particularly build-to-rent is a nascent industry in this country and in New Zealand. And the opportunity of focusing on economic activity in a more broader sense, I believe, can actually bring forward the unlocking of those opportunities far quicker than relying purely on a build-to-rent market maturing to a state which becomes economical across the portfolio. Operator: Your next question comes from Tom Bodor with Jarden. Tom Bodor: I was just interested in the plan for the CapEx, $240 million at Westfield Bondi, how should we be thinking about returns on that spend? Elliott Rusanow: Yes. So the way we should be thinking about it, and I think you should be thinking about this for all developments when it comes to retail, not just us, but all our peers. And that is that when often people talk about a stabilized yield of 6% or somewhere in that vicinity, they only have a focus on the new incremental spend and the return you generate on that new incremental spend and for some reason, conveniently forget about the impact on the remainder of the existing center. And we look at it as the total net operating income that we can generate from the entire site, not just the incremental CapEx that we spend. And so yes, we're targeting a very strong addition and a needed addition for Bondi in order to forge into a greater, again, use of economic activity in this state -- in this instance being longer trading hours, entertainment, lifestyle, wellness, food and beverage, obviously, is a big component of that. But the ultimate aim of that is to ensure that Bondi continues to generate superior long-term NOI growth year after year after year because it is the premium asset in Sydney. Arguably, the next one would be the Sydney CBD. So as a suburban center, there is absolutely no question that Westfield Bondi is the best asset from a suburban point of view. And the development on Level 6 will further enhance that, particularly its location in that demographic area. And the point out of that, and I think the proof point out of that is to see what you've witnessed at Carindale whereby the downsizing of David Jones and the repositioning of that has seen very, very strong compound annual growth of net operating income post that redevelopment, which was a downsizing of David Jones, but we've been adding on more and more food and entertainment to that. Obviously, it's a very easy case study to look at because it's a public company as a case study of one. But that notion of what return you're getting over a longer period of time is far more relevant than me telling you should be expecting to get a stabilized 6% yield at some time in the future, which somehow seems to get knocked out year after year after year. And there is no -- there is a reason why when you go back in history, we are able to generate significant growth in FFO per security. I think if you go back to 2022, when we did change leadership roles, our compound growth is in excess of 6% per annum versus our closest competitor who is spending a lot of money doing very large developments, who is actually generating less than 0 growth and is forecast to continue to be generating very low growth in earnings per security. And the reason for that is because we are focused on how we spend our capital to enhance the total growth and income that's generated from the asset so it remains relevant to the customer. So customers come more often, they spend longer with us, and that makes it more attractive for businesses to come. It's a very different strategy that we are undertaking, and it's a strategy that is designed to ensure that we're able to refresh, forge into new territories in terms of where we are taking our business away from traditional inverted commerce retail into other areas, which is businesses to consumer and at the same time, continue to grow in a far superior way our earnings and our distributions to security holders. Tom Bodor: That's great color. If we were to sort of think about that maybe then in terms of numbers, is it fair to say on that spend in a holistic sense, double-digit IRRs on un levered. Is that the way you think about it? Elliott Rusanow: That's absolutely, yes. So we would be expecting to deliver an IRR out of that total investment in Bondi. So if you were to take Bondi today, what's going to look like in the next 5 to 10 years, we should be expecting very healthy double-digit IRRs coming out of that asset. Tom Bodor: Okay. Great. And then maybe just another one on capital. Obviously, there's some moving around refinancing senior debt, redeeming hybrids and other initiatives ongoing. How should we think about the balance between really optimizing the debt stack and also preserving financial flexibility and liquidity to execute on these growth plans? Like how do you sort of weigh that balance there? Andrew Clarke: Tom, Andrew here. Look, we -- the way we look at it is that, firstly, every year, we would invest in the operating and leasing capital of the portfolio. That's a fundamental part of the business to make sure that we're maintaining the assets and all the equipment that we have within the centers, plus the leasing of new merchant sites where we do provide -- occasionally provide capital. The other part is that we expect to invest around the sort of $250 million, sometimes up to $300 million in redevelopment opportunities. And so that sort of capital investment, we expect to happen year upon year upon year, and that's how we look to not only maintain the strong performance of our portfolio, but also provide that underlying growth that Elliott just articulated. The second part to your question in terms of capital management initiatives, we look to find ways to self-fund those capital management initiatives through the initiatives that we execute in themselves or other opportunities. So for example, last year, we've raised $2.2 billion from the Westfield Chermside and Westfield Sydney joint venturing. We're looking to use some of that capital to refinance and make whole the 2030 senior notes that we spoke about, and we'll look at other opportunities as well as how do we then maximize the return on that capital as it comes in. So they're sort of looked at separately. Tom Bodor: Great. And can you just confirm what leasing and maintenance CapEx was this year, please, [ Steve? ] Andrew Clarke: It was $167 million for 2025. And for 2026, we expect it to be around the $170 million mark. Operator: Your next question comes from Andrew Dodds with Jefferies. Andrew Dodds: Tom Bodor has covered my questions [indiscernible]. Operator: Your next question comes from Adam Calvetti with Bank of America. Adam Calvetti: Can you just talk through the makeup of guidance for 2026, if you're expecting any new JVs or divesting any assets, just like-for-like numbers and [indiscernible] That were expected? Andrew Clarke: Adam, Andrew here. Look, the underlying portfolio, as Elliott articulated, is performing extremely well. We expect to see that level of growth continue in 2026. We're seeing strong visitation growth in early January and partway through February. Sales growth has continued as well. So we expect that momentum in terms of growth from the underlying portfolio to continue. We'd expect around circa 4% growth in NOI. We also have the benefit of the make-whole transactions and netting off against the joint venturing that we did last year. So that's a positive tailwind for the business. We do have -- the ECC was an amount, I think, circa $17.7 million in 2025. We don't expect that number to repeat in 2026. And those are probably the key parts. We have obviously developments that -- the smaller developments where we're repurposing space and bringing in more productive brands and retailers. We don't expect that to -- we have some of those projects completing, but we also have some new projects commencing. So we spoke about Level 6 at Westfield Bondi as an example. So those are probably the key moving parts at a macro level. Adam Calvetti: Okay. Great. That's pretty clear. And then just on the 4,000 dwelling approvals that you have, I mean, what stage are you at in conversations with capital partners? Is that -- have you gone out to capital partners? How do we think about time line to actually putting shovel into the ground? Andrew Clarke: Yes. I think the way that we're looking at it at this stage is the first part is we're looking to maximize the opportunity. And by going down the path of focusing on the rezoning focus and potential development approvals really maximizes the scale of the opportunity across the entire portfolio. It's fair to say that we've had a lot of inbound inquiries from potential capital partners that are very excited and interested in opportunities to partner with us. However, what we need to focus on first is maximize the opportunity while there's this window to work with the state governments and councils on these -- on the scale opportunity. And then the second part is we'll then start to look at, okay, well, how do we want to monetize that opportunity over the longer term. At the very least, the first phase is as you get rezoning and you get scale, the land value of the -- of the land that we're sitting on can increase quite significantly. So that's an opportunity that we're looking at in the South. The second part, which I think is where you're getting at is how do you then want to monetize not just the land value, but the overall opportunity. We're still working through that strategically. We want to make sure that we maximize the opportunity for the long term, not just try and realize a short-term benefit to the group. Adam Calvetti: That makes sense. Maybe just to follow up with that. We sound like Hornsby, what -- when you talk about maximizing the opportunity, how much more, I guess, zoning or upside to FSR and internal floor space can you get? Andrew Clarke: Well, we've spoken about the number of units or dwellings that potentially can be built on Hornsby, I think it's in excess of 2,000 potential dwellings across the site. If you have to extrapolate that across our 42 destinations, there are very few with the 42 destinations that cannot add that sort of capacity. So if you think through that, the scale is significant. So that's sort of the opportunity that we're looking to maximize at this stage. The other thing I should add to your previous point is one of the key parts of our strategy is we're not looking to use Scentre Group's balance sheet to necessarily build this. We see this because there is so much appetite from third-party capital to be involved in this opportunity. It's highly likely that we would realize the opportunities in a very capital-light manner. Elliott Rusanow: Yes. I mean the reality of that is our capital is already invested -- it's just in the form of a car park. And so it's -- in many respects, the shareholder already owns that land and it's how do we utilize the shareholders' already invested capital in a way that sees this built out in a monetized way over a medium to longer term. Operator: Your next question comes from Solomon Zhang with UBS. Solomon Zhang: First question was just on NOI margins. Do you expect NOI margins to be flat up or down next year? And can you call out whether security costs would be a material drag in that number given, I guess, some of the security incidents in Sydney and beyond? Elliott Rusanow: Yes. So thank you for the question. I think that what you've seen in this year is that our NOI margin has actually improved. We did have the uptick in security costs, which we called out in 2024. The reality is that we adopted what was already considered and stated by the New South Wales corridor as being world-leading security arrangements we had already started to improve that in light of what did occur, unfortunately, and tragically at Bondi in 2024. But we adopted those improvements in that hindsight very, very quickly. So we've done that. I think the better question would be to ask the others, what are they doing because we've already ingested that. You see that in our numbers. And I think that what you're now hearing is others are now having to play a bit of catch-up to get to a security posture, which is now, I would say, expected by the community in terms of these security arrangements in place at destinations countrywide. Solomon Zhang: Maybe next question for Andrew. If you triggered the make-whole provision for the subnotes today, the original 2030 is noncore, what premium to par do you estimate you'd be paying today with the sort of 4 to 5, 4.5 years to run? Andrew Clarke: Look, the subnotes today are trading at a slight premium to par, and then the make-whole would be over and above that, any make-whole premium. So through today's lens, there would be a decent premium relative to some of the other transactions that we've done in the past where we've been able to buy the subnotes back at a discount to par. So you can -- it's not pretty obvious which type of market we would prefer to be executing those types of transactions. Solomon Zhang: Yes. Would it be circa 10% given the 4.5 years to run and I guess, where the base rates are for the U.S. Andrew Clarke: It's not as simple as that, and maybe the IR team can take you through later. But you've got to look at, firstly, the premium that you need to pay to where the notes are trading. And then you've also got to look at the cost to unwind the cross-currency swaps as part of that transaction. So there's 2 sort of key parts to the transaction, and they both can change depending on market dynamics. But I think I'll say it looks relatively more expensive through today's lens than what we've seen or what we've executed in the past. But the market... As you can see, the markets can change overnight very quickly. So our job is to monitor those opportunities. Solomon Zhang: Great. But I guess if you look at the past 6 months, the AUD has appreciated versus the USD. So presumably, unwinding that cross-currency swap if you hedged at $0.73 per AUD has improved. So I guess, is it looking more attractive versus 6 months ago? Andrew Clarke: No, I just said no before. So I think you're getting lost into the detail there. I think it's probably best to take it off the call. The cross-currency swaps that we enter into the time swap fixed U.S. dollar coupons into floating Aussie. So -- but I'll leave it there and the team can take you through that. Operator: Your next question comes from Callum Bramah with Macquarie. Callum Bramah: Just maybe going back to the assumptions around guidance. Are you able to just clarify, so the 4% NOI, was that like-for-like that you're talking about? And can you just give me an idea of where you see net debt at the end of the year maybe in dollars and your weighted average cost of debt trend as you've sort of benefited, I guess, over the last 12 months, what you're thinking weighted average cost of debt will be for fiscal '26? Andrew Clarke: Yes. So the first part to your question, we would expect the underlying like-for-like NOI to be around that approximately 4% mark. The second part to your question is on the weighted average cost of debt. So we're forecasting around 5.4% weighted average cost of debt compared to the 5.6% that we had in 2025. And then the last part of your question, Yes. We -- basically, in terms of the amount of capital that we're looking to invest, as I said before, we're looking to invest about $170 million on operating leasing capital and then somewhere in the range of $250 million to $300 million for redevelopment capital. And then the add-on to that is any capital management initiatives that we execute on that. We obviously pay a distribution, which we've spoken about today with 4% growth in the guidance, plus any retained earnings that we have through the DRP and retained earnings from FFO less the distribution will help fund the majority of that CapEx. Callum Bramah: And any assumption in relation to Carindale? Andrew Clarke: There's nothing included in our guidance, no. As we said that we will be looking to execute that purchase of units under the creep provisions, which effectively means you can buy up to 3% every 6-month period. So I would expect it to be very gradual. Callum Bramah: And maybe just one follow-on, just in relation to the development opportunity that you've talked about on the land. And if I heard correctly, and apologies if I didn't, a lot of that land is existing car parks. I just wondered how much of that is tied up in leases with anchor tenants? Andrew Clarke: Yes. Look, I'd say that the opportunity is across the entire site. If you look at a typical Westfield shopping center. Some centers have vacant land, then they will also have on-grade parking. And then there's also air rights over and above the shopping center. In terms of ease of execution, it obviously starts with the vacant land. The next opportunity is then you'd look at on-grade parking and then the harder to execute is then looking on top of the shopping centers. So it's fair to say that if you look at the opportunities, that's the way -- it's probably the way that we'd look to prioritize it. Elliott Rusanow: I think if you look at the compendium when it comes out, you'll see site by site, what's built form already versus the land parcel itself. Callum Bramah: Okay. And so if you -- and apologies, maybe it doesn't make sense to ask it this way, but the 670, was it hectares? What portion of that is just vacant available land ready to go. And the [indiscernible]. Elliott Rusanow: So the built form is somewhere between 40% to 50% of that. So yes, so the residual is obviously -- it's used as car parts. So arguably, that's built for them. I think the point I was trying to make is today, its economic use is to house a car. In the future, we see it as housing a car and a lot more above it. Operator: Your next question comes from Simon Chan with Morgan Stanley. Simon Chan: Do you have a specialty occupancy cost number? Andrew Clarke: Yes, it's 17.2%. Simon Chan: Okay. So that hasn't changed over the last 12 months. Andrew Clarke: No, we're seeing really strong specialty sales growth, which is fantastic. It's actually what our strategy is about is growing visitation and helping our business partners perform and grow, and then we're able to grow rents in line, if not better than that sales growth. Simon Chan: Okay. Fair enough. And just a follow-up on your guidance. I think Andrew talked about all the positive points, right? Like comp NOI growth, I know you sold some assets, but then you're going to pay down debt, [indiscernible] is coming down. Why is guidance just 4%? It doesn't add up? It should be more than that. Andrew Clarke: Simon, so I spoke about the 4% in terms of net operating income growth. I did talk about we do have some dilution from the joint venturing of Westfield Sydney and Westfield Chermside. Obviously, we're more than offsetting that dilution with the make-whole transaction that we've spoken about. We do -- there's $18 million of ECC that we had in 2025. We're not assuming that any of that would repeat in 2026. We spoke about -- in my notes, I spoke about the New Zealand exchange rates. So we have -- I'm getting into the detail here. There's lots of moving parts, but things like the New Zealand exchange rate, the Australian dollar has strengthened significantly against the New Zealand dollar. So that's a bit of a drag. We are seeing higher tax expense. A lot of that's driven by lower interest rates in New Zealand, therefore, lower tax deductions. We spoke about some of the active projects, Westfield Bondi -- we've got Tuggerah, the David Jones replacement there. Those... Simon Chan: Sorry. Is that lost rent you're talking about that [indiscernible]. Andrew Clarke: That's exactly right. So you have disruption to the existing space, whereby we're replacing it with more productive retailers over the long term. So those are some of the key moving parts. And it was at least 12%. Simon Chan: So how much is the lost rent incremental in '26 on this year versus last year, about $10. Andrew Clarke: Yes, maybe a little bit more than that, probably $10 to $15. Operator: Your next question comes from James Druce with CLSA. James Druce: Yes, similar to Simon's question on guidance, is there anything for project management income in guidance? Andrew Clarke: No, we expect that to be relatively flat to 2025. James Druce: Okay. And apart from maybe refinancing that long-dated bond you spoke about, is there anything else in the refinancing side of things in guidance? Andrew Clarke: Look, we have assumed that we can do better than where the floating rate currently sits within that guidance number, but it's not -- the material movement is the make-whole. James Druce: Okay. And you've got your cost of debt declining this year from 5.6% to 5.4%. I mean that does feel like a bit of a tailwind despite the ECC dilution we're talking about before. It does sound a bit light to me. Andrew Clarke: Yes. I think the other part, what we've noticed with a lot of the sell-side analyst forecast is we're not seeing a regular updated floating rate curve within those forecasts. So the floating rate increase, although we're relatively highly hedged, that does have an impact on the unhedged part of our debt. James Druce: Okay. I thought you were 99% hedged. What's your hedging. Andrew Clarke: At the start of the year, and then that comes down to 82% at the end of the year. So the average is sort of in the higher 80s. So there is still a component of our debt that's exposed to the floating rates. Operator: Your next question comes from Ben Brayshaw with Barrenjoey. Benjamin Brayshaw: I was wondering if you could comment or perhaps it's a question for Andrew, just the expected credit charge of the lease that's come through, what that relates to, I thought that you might have been through that release of prior allowances that have been made. And just did that come through in the second half? Or how was that recognized over the course of the year? Andrew Clarke: Yes. The expected credit charge release came through in the second half of the year. Really, what it comes down to is the strength of the collections that we've had from a rent perspective and the aging of our debtors. So what you've seen, which you can't see just with the headline numbers, but the quality of our debtors has improved dramatically, where we've been able to collect some of the long-dated debtors that were outstanding and resolve some of the outstanding issues that we had previously provided an expected credit allowance for. We've resolved the issues commercially, and we're able to then collect some of those debtors and then therefore, release the ECC. We're not assuming any further release looking forward. It doesn't mean that we're not pursuing more opportunity in that space. But at this stage, we're not assuming any further upside from that in 2026. Operator: Your next question comes from Richard Jones with JPMorgan. Richard Jones: Another question for you, Andrew, sorry. Just what was the write-down on project income booked in the Market Street development? And then why is there no growth expected in project income in '26? Andrew Clarke: Yes. So we spoke about this at the half year results. There was around a $15 million loss or write-down that we were booked in the first half of 2025. We did have a bit more cost in the second half, but we've been able to offset that or more than offset that by other project income that we had come through on smaller bits and pieces of work that have happened across the portfolio. In terms of 2026 project income, we're not expecting a lot from joint venture assets. So if you look at the major development that we're talking about is Westfield Bondi, which is 100% owned. So therefore, there's no joint venture project income that we generate on that capital investment. And yes, so there's not -- that's why we're assuming that it's relatively flat to 2025. Richard Jones: Okay. And then just a second question for Elliott. Just on Carindale, why would you not just take it out? It's not an overly material transaction for the group. Elliott Rusanow: Try to answer that because I wear 2 hats. I think you could see with the creep provision, we see it as a good value long term for the group. Having said that, the -- it's probably lurching into areas that I shouldn't be talking about in terms of what our intentions may or may not be longer term in terms of whether Carindale remains as is or doesn't. So I am going to avoid that question and because it's probably not prudent for me to actually answer it in that way other than to say that what we've announced today is what we'll be doing, which is creeping. Richard Jones: Okay. Can I maybe ask it another way? So it looks as though the ownership structure in terms of the joint venture partner is likely to change at some point this year. Do you think that provides an opportunity that perhaps wasn't there whilst [ Lendlease ] was the partner? Elliott Rusanow: I don't believe it does because if you recall, Westfield back in when it purchased its interest in Carindale Property Trust bought an existing structure, which was set up by Suncorp and Suncorp had some preemptive mechanics within their documents, which don't mirror necessarily the preemptive mechanics that we would normally see in a Westfield joint venture or a Centre Group joint venture. And so the change of control of APPF doesn't necessarily result in a preemption action. It might, depending on how it's done or what happens. So it's hard to comment on speculation of what may or may not occur other than to say that it does -- that the arrangements that are in place because we were brought into a structure that was pre-existing is different to what you would normally see in a Westfield now Scentre Group joint venture arrangement. Operator: Your next question comes from Claire McKew with Green Street. Claire McKew: Just a quick one on capital allocation as a follow-up to Tom's question. I'm just curious more big picture, how you're thinking about that decision matrix. So clearly, Bondi Junction next have off the rank. Booragoons kind of been put on the back burner. Is that really just a function of the return profile? Or is there more to it? And how are you thinking about the future priorities in terms of opportunities in the development pipeline? Elliott Rusanow: Yes. I wouldn't say that Booragoon has been put on the back burner. I think that the scale and size and how we do Booragoon probably has changed in the last 3 years where we've pivoted away from taking an entire center out of income production and then rebuilding it and hoping people come back and generating some return. Some say it's going to be not Booragoon, but where it's been done somewhere, particularly in Sydney, that it might get to a 6 at some point in time. Rather, we prefer to incrementally add and add to the offer whilst the center keeps trading. And so the opportunity at Bondi presented itself as a more immediate opportunity. We were able to actually make that occur due to the change of control that happened at David Jones that accelerated our ability to bring forward plans, much needed plans, I would say, to ensure that Bondi Junction retains its premium position, not only in our portfolio, but certainly in Sydney and one of the best in the country arguably the world. And so we're taking advantage of that. At the same time, we're still predeveloping work on Booragoon, and we would be expecting that, that would occur sometime either later this year or early next year. But again, in a way which maintains the existing center a little bit disrupted, unfortunately, but in the main with people still being able to come and spend time and transact with businesses during that redevelopment activity. Claire McKew: That's clear. And just another one. Obviously, department store shadow supply is favorable for Centre Group. But just curious, just with David Jones continuing to rightsize their portfolio. Can you just provide -- I know you can't provide specifics on Myer and David Jones, but perhaps just a bit of color around David Jones sort of decision matrix. I mean their productivity is a lot stronger than Myers, generally speaking. Are the stores that they're closing materially underperformers? Or how do those stores compare to the general footprint of the department stores in your portfolio? Just trying to get a sense of the potential phasing of this shadow supply. Elliott Rusanow: Yes. I think -- and the property [indiscernible] will have a lot more detail on this. But what you're seeing, this is not a new phenomenon. This has been going on for decades where department stores have been downsizing we can -- many of us, unfortunately, who have aged in life can remember department stores being somewhere between 25,000 and 30,000 square meters. The right size now is somewhere between 10,000 to 12,000 square meters, maybe even slightly lower. A lot of that has to do with the brands that they're selling, they're actually taking stores, stand-alone stores with us and paying a much higher rent to do so. So the economics for us as Scentre Group is a better economic outcome. What it also means is that we are getting space back, which allows us to redeploy for that higher and better usage. So what is the magic number, I don't think we all know. But what I can say is that the methodic way that this has been dealt with over a long period of time has meant that what might have been a concern around an existential or unusual event of everything going under and having to redo it is being played out differently, which is we're rightsizing and we're doing so in a very economic way that makes money for shareholders. Claire McKew: I guess, obviously, there's a recap coming with David Jones. So just curious to see if we're going to see a much stronger wave of either full closures or reducing rightsizing the actual store size. Elliott Rusanow: Yes. And I think you might part that to bear in mind is that our leases with David Jones are fairly long. So many years of duration is still to go. And unlike our peers, we actually have bank guarantees. So the -- not just a net asset value test. So the ability for someone to come in and Phoenix to get it out and effectively put a gun to our head is actually fairly limited in that scenario because if they -- by doing so, they'll be giving up real cash in the form of the bank guarantees coming back to us. That was something that was a major, I suppose, demands on the right work. A major component of why we gave our consent to the change of control to ensure that we had longevity of security that whoever was trading in that site continue to trade in that site. And if they weren't, it would cost. And so I think we're in a good position vis-a-vis that. Operator: There are no further questions at this time. I'll now hand back to Mr. Rusanow for closing remarks. Elliott Rusanow: Well, thank you, everyone, for making the time today. I'm sure we'll get to see a lot of you in the days and weeks ahead. And if there are any questions in the meantime, then please do reach out to us. And I know there were some very detailed questions on the call, which we will follow up immediately after this to help connect the dots. But thank you for your time today and looking forward to seeing you soon. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.