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Operator: Greetings, and welcome to the Texas Pacific Land Corporation Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Shawn Amini, Vice President of Finance and Investor Relations. Thank you, sir. You may begin. Shawn Amini: Thank you for joining us today for Texas Pacific Land Corporation's Fourth Quarter 2025 Earnings Conference Call. Yesterday afternoon, the company released its financial results and filed its Form 10-K with the Securities and Exchange Commission, which is available on the Investors section of the company's website at www.texaspacific.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our recent SEC filings. During this call, we will also be discussing certain non-GAAP financial measures. More information and reconciliations about these non-GAAP financial measures are contained in our earnings release and SEC filings. Please also note, we may at times refer to our company by its stock ticker, TPL. This morning's conference call is hosted by TPL's Chief Executive Officer, Ty Glover; TPL's Chief Financial Officer, Chris Steddum; and Executive Vice President of Texas Pacific Water Resources, Robert Crain. Management will make some prepared comments, after which, we will open the call for questions. Now I will turn the call over to Ty. Tyler Glover: Good morning, everyone, and thank you for joining us today. Fourth quarter was an excellent finish to 2025 with quarterly records set for oil and gas royalty production, water sales volumes and produced water royalties. Excluding the contribution from our previously announced royalties acquisition from last November, our fourth quarter oil and gas royalty production grew 23% year-over-year. Water sales volumes this quarter exceeded 1 million barrels per day for the first time in our history, growing 36% year-over-year and produced water royalty volumes grew 22% year-over-year. For the full fiscal year 2025, we set annual records across our major operating milestones of oil and gas royalty production, water sales, produced water royalties and SLEM revenue. We also delivered fiscal year records for consolidated metrics, including revenue, net income and free cash flow. Despite oil prices declining from $95 per barrel in 2022 to $65 per barrel in 2025. During the same span, TPL delivered a 3-year compounded annual growth rate for oil and gas royalty production of 17%, water sales volumes of 18%, and produced water royalty volumes of 30%. We achieved this growth while maintaining a debt-free balance sheet and without any financing from new equity. We owe this countercyclical growth to our continued market capture, talented employees, commercial development focus, differentiated scale across royalties, land and water and self-funded acquisitions and investments. Beyond this excellent performance from our core business, we also made tangible progress with next-generation opportunities in data centers and produced water desalination. Starting with data centers. This past December, we announced a strategic investment into Bolt Data & Energy, a new AI infrastructure platform chaired by former Google CEO, Eric Schmidt. Bolt seeks to develop large-scale solutions across data centers and power generation. We're excited to team up with Bolt. For TPL, we can provide unrivaled access to land, conventional and renewable energy and water. We can offer this in a state that maintains arguably the most pro-growth and pro-infrastructure regulatory environment. Bolt is currently expanding its team and having productive conversations with potential customers, and our personnel have been evaluating future site selections across TPL land. As part of our agreement, TPL retains a right of first refusal to provide water to Bolt affiliated projects. We believe Bolt can become a large-scale, fully integrated data center and power generation platform, and we look forward to working closely together as we seek to make West Texas one of the premier technology infrastructure hubs. In addition to Bolt, TPL continues to engage in productive conversations with potential developers and customers for various projects. The data center landscape in the region is rapidly evolving and highly dynamic. We're working on projects across the full extent of our acreage, both in-basin and out-of-basin. Project time lines run the gamut as well with developers viewing West Texas as a near-term priority for new developments, but also as a longer-term hub that can support large-scale expansions. Given the size of these developments, which can potentially represent tens of billions of dollars of total investment across GPUs and power generation, these projects require extensive due diligence and negotiations across numerous counterparties. Projects of this scale are always difficult, especially with West Texas as a relative data center newcomer. That said, versus even a few quarters ago, urgency from developers and customers has clearly increased. Some of these conversations have progressed beyond just conceptual ideas and are in advanced stages of planning. We are encouraged by the progress we've made thus far, and we are hopeful to have multiple new updates to share before the end of the year. Turning to our desalination project. Our 10,000 barrel per day R&D desalination facility in Orla, Texas, which we refer to as Phase 2b is nearing completion. We had originally expected this facility to commence operations by the end of 2025, and we now expect the facility to begin taking produced water in the coming months. During equipment testing and flowing through synthetic produced water, the engineering team experimented with an additional process beyond the original design. After successful testing of new equipment to assess efficacy, we implemented the new process into our freeze desalination design, and we'll be installing the associated equipment into our Orla Phase 2 facility. We believe this will substantially reduce the amount of time and cycles produced water need to pass through the system, thereby providing substantial capital cost and operating expense savings for a commercial scale facility. For TPL, desalination would provide another solution we can offer the industry in addition to our extensive in-basin and out-of-basin pore space. Permian already generates nearly 25 million barrels of produced water a day with volumes expected to grow through the end of the decade, even if oil production were to plateau. To accommodate longer-term produced water growth, the industry will likely need incremental solutions beyond traditional subsurface disposal and desalination potentially provides a sustainable pathway to reduce the amount of water injected subsurface. For 2026, we look forward to commencing operations and ramping volumes on our Orla desalination facility, evaluating the potential to bring large-scale freeze desalination to the Permian. In addition, we plan to invest approximately $20 million on installing co-location equipment at the Orla facility to evaluate the feasibility of waste heat capture and data center cooling. Waste heat capture could provide significant energy savings for our freeze process, while our outlet freshwater stream after having gone through a freezing process could provide direct cooling benefits for data centers and power generation. In conclusion, as we look ahead to 2026, we're excited with the growth pipeline in front of us. We are focused on exploiting our strengths and leveraging our expertise as we look to benefit from the long-term structural tailwinds unfolding across our business. We believe we can continue to drive growth and extract incremental value even as this relatively weak oil price environment persists. With our industry-leading margins, our fortress balance sheet and a $500 million undrawn credit facility, not only can we tolerate periods of low commodity prices, we have considerable capability to invest opportunistically as we look to consolidate high-quality assets and expand market capture. We remain steadfastly focused on maximizing long-term intrinsic value per share and the opportunity set in front of us today across our legacy and next-gen businesses is as robust as ever. One additional housekeeping item I wanted to mention, yesterday, we announced an event for TPL shareholders for an office and water field visit in Midland, Texas. That event will be held on Monday, May 18. We welcome all shareholders to attend, and we ask that shareholders submit an RSVP by filling out a form on our website or e-mailing Investor Relations. Please visit the Events section of our website for more information. And with that, I'll hand the call over to Chris. Chris Steddum: Thanks, Ty. Consolidated revenues during the fourth quarter of 2025 were approximately $212 million. Consolidated adjusted EBITDA was $178 million. Adjusted EBITDA margin was 84% and free cash flow was $119 million. For full year 2025, we generated record free cash flow of approximately $498 million, which represents an 8% year-over-year increase. Full year performance benefited from higher daily oil and gas royalty production, which increased 29% year-over-year, higher water sales daily volumes, which increased 4% and higher produced water royalty daily volumes, which increased 25%. Of the approximately 34,600 barrels of oil equivalent per day for full year 2025 royalty production, the acquisition that closed last November contributed approximately 500 barrels of oil equivalent per day. Consolidated results were partially offset by lower realized oil prices, which declined year-over-year by 15%. Given the strong performance, yesterday, we announced a regular dividend of $0.60 per share, which represents a 12.5% increase versus the prior quarter dividend. Capital expenditures last year were $66 million, which is inclusive of $6 million of payables. This was at the low end of our original guidance. Moving to our well inventory. As of quarter end, TPL had 5.6 net permitted wells, 9.8 net drilled but uncompleted wells, are commonly referred to as DUCs, and 4.0 net completed but not producing wells. That amounts to 19.5 net line-of-sight wells, which also includes approximately 2 net wells from our recent royalty acquisition. Across the Permian Basin, sustained low oil and Waha natural gas prices during 2025 has generally led to a decline in rig activity, which according to Baker Hughes, Permian horizontal rig count is down approximately 26%. However, despite less rigs, the basin has been able to sustain production growth through a sizable drawdown in DUCs. The decline in our line of sight wells, and this is true basin-wide, is primarily due to this DUC drawdown. From our vantage point, we believe the industry will remain in DUC drawdown mode this year. During 2025, we estimate that the industry drew down approximately 600 DUCs with roughly 3,500 to 4,000 DUCs still remaining in the Permian today. With the current pacing of new completions, the industry will generally require around 2,000 DUCs to maintain a buffer in front of active frac fleets, leaving roughly 1,500 to 2,000 discretionary DUCs. Thus, we believe the Permian still has ample DUC inventory to drive a completion pacing to support production via continued discretionary DUC draws with at least a year or more of runway before the industry would need to begin adding rigs to bring new spuds and new completions into balance while maintaining current completion pacing. Another mitigating factor to lower rig counts is that operator efficiencies continue to improve and well laterals continue to get longer. Wells completed on TPL royalty acreage were on average 8% longer than the prior year. We are seeing substantial increases in lateral lengths across the board. This was the first quarter in which new permits, spuds, completions and new PDP wells all had average lateral lengths in excess of 11,000 feet. For new permitted wells this past quarter, the average lateral length is 35% longer than the average permitted well in 2024. We also had over 100 new permitted wells with lateral lengths over 15,000 feet and 34 wells over 20,000 feet. Industry consolidation over the last few years is allowing operators to block up sections and create much larger DSUs. With this trend of longer laterals, greater operator efficiencies and sizable DUC balance, we do not anticipate basin-wide production declines given the current oil strip. Turning to our capital allocation priorities for 2026. We exited the year with $145 million of cash on the balance sheet and 0 debt. During the quarter, we closed on TPL's inaugural credit facility with $500 million of commitments. That facility remains fully undrawn today. For fiscal year 2026, we anticipate capital expenditures to be approximately $65 million to $75 million. And as Ty mentioned, $20 million will be allocated towards investigating waste heat capture and data center and power generation co-location potential for our freeze desalination facility. The remaining balance will be dedicated to our water sales business for electrification, equipment and supply improvement and maintenance. With modest capital needs, a business that continues to generate strong free cash flow and a balance sheet and a net cash position with a sizable undrawn facility, TPL has the flexibility and liquidity to respond to evolving macro and sector volatility. We retain the ability to simultaneously invest in the business, acquire high-quality assets and expand shareholder return of capital, and we can flex up any or multiple aspects of those options should any opportunities or dislocations occur. We have a resilient business and a pristine balance sheet, and our focus remains on maximizing intrinsic value per share over the long term. And with that, operator, we will now take questions. Operator: [Operator Instructions] Our first question comes from the line of Derrick Whitfield with Texas Capital. Derrick Whitfield: Congrats on a strong financial and operational update. I'd like to start with AI macro. Based on the flurry of both power and AI announcements we've seen across West Texas over the last 6 months, I'd love to hear your thoughts on how the opportunity set for power and data center development has evolved for TPL, and if it extends beyond what you've highlighted with Bolt Energy to date? Tyler Glover: Yes. It definitely has. I think the further we dig into it, the bigger we think the opportunity is. We've got a few projects we're working on, some Bolt related, some not. But I think when you look at that business, just like any other business, at the end of the day, scale is what really matters. And there's not really anyone in Texas that offers scale like TPL does, whether that's land, access to gas or water. And I think long term, we're trying to build a real business here. We're not trying to hodgepodge 200-meg facilities over the acreage footprint. The long-term goal is to build multiple multi-gig energy campuses. And that takes a little time, but efforts have been very promising so far. And like I said, we've got a few deals we're working on, commercial negotiations are ongoing. So very excited about the opportunity set. Derrick Whitfield: Perfect. And Ty, for my follow-up, I really wanted to focus more firmly on Bolt Energy and the potential of your strategic agreement as laid out by one of your prominent investors. And maybe just for the benefit of level setting the discussion, the investor believes Bolt's ambition is to build a 10-gigawatt data center campus in West Texas and that each gigawatt could be worth over $125 million in water revenue for TPL, with power generating requiring over 120,000 barrels a day of less conditioned water and data center cooling requiring over 200,000 barrels per day of more conditioned water. With the understanding that we're still kind of in the early stages of charting this out, I know Robert and team have made a great deal of advances in understanding waste heat capture and cooling to improve fuel efficiencies for data centers. All that being said, are these reasonable numbers when kind of thinking about the scale and the potential value that we have in front of us? Tyler Glover: Well, what we've seen is it varies pretty greatly with the design of the facility, both on the power side and the data center side. But with certain designs, yes, those numbers are very reasonable. And we've talked to some power generators that the water usage numbers seem substantially higher than that. So for us, I mean, we're used to moving a lot of water. Fourth quarter, we moved over 1 million barrels of water a day. And we think that this could be pretty material to the water business over the long term. So again, I think the opportunity is pretty substantial. But the usage actually depends -- varies pretty widely depending on design of the facility. Robert, I don't know if you have anything to add to that. Robert Crain: Derrick, it's -- you know our stance on it, it's variation in design. Our goal is to obviously work with the customer on how do we implement the right volume and quality of water in that design. But as things start to evolve, I know it's specific for Bolt, but I think you have to look at just how that power plant is designed. Is it a single cycle? Is it a combined cycle? Is it using evaporative direct air cooling to offset those efficiency losses due to higher ambient air. Our goal is to work with the customer, facilitate their design from a water perspective. Again, we focus on the quality and the volume that's needed. I think when we look at the amount of compute that's coming, I mean, you mentioned the 10 gigawatt goal from Bolt, we're confident in the amount of compute and associated gen that's going to be coming to the Permian, the effect on our water business is going to be significant. Derrick Whitfield: Perfect. And maybe just one quick follow-up, if I could, and shifting really more to your traditional water business. You guys saw record volumes for both disposal and source water and really, for that matter, really strong implied source water realization per barrel for this quarter. Given the broader contraction in activity that we're seeing across the basin, could you speak to some of the things that TPL is actively doing to drive the strength in the business? And just your current outlook for each of these businesses. And the thing that we're kind of seeing occur right now with both is higher highs and higher lows. So any color you could provide would be helpful. Robert Crain: Sure. I'll start on the produced water side. I mean if you look at our success and the growth of produced water volumes, I think it's twofold. One, you go back to our legacy contracts, what we were able to really set up in the early days of ensuring the volumes and how we direct those volumes and work with operators and midstream companies to do it. But the second is the strategy that we implemented 4 or 5 years ago, looking at the constraints we knew that were going to come from produced water management and associated pore space was two things, out-of-basin pore space for short-term solutions and desal. The results you're seeing in those higher numbers is a result of those legacy contracts and our strategy that we've implemented. We look at the produced water management space of -- we're the solutions provider, again, to the operators and the midstream company, and I think you're seeing the results in the numbers. When you look at our source water business, the scale and scope of our system that we continue to expand on every year as we see water demands go up due to cube development and trimul fracs, we've always said the scale and scope of our business allows us to expand and capture more markets. We are -- we can bolt on and build on to that system to capture more where even if we see a slight contraction in overall activity level, we're able to touch so much more as we continue to expand. Operator: Our next question comes from the line of Tim Rezvan with KeyBanc. Timothy Rezvan: Derrick actually hit on some of my topics here. But I just wanted to kind of follow up again on the commentary on the data centers. Your shareholder put out some pretty impressive comments. So do you anticipate putting something out yourself on that opportunity set? Is there a time when you may feel comfortable doing that? Or do you think that your shareholders' commentary is sufficient as it created quite a stir and people are trying to kind of understand the opportunity set here? Tyler Glover: I think eventually, we'll put more information out. We've got pretty strict confidentiality agreements in place with all of our counterparties. And kind of like when we started the water business, keeping most of the commercial terms private, at least in the near term, we think, is a competitive advantage for us. But yes, we do hope to put a stronger narrative out eventually with some additional information on the opportunity set. Timothy Rezvan: Okay. Okay. I guess we'll stay tuned on that. And then if I could pivot to the desalination update. It sounds like there's sort of a change in process that you think creates more efficiencies. So just to be clear on that, this waste heat capture is the idea that it will sort of just improve the efficiency of the operation. And where I'm going with that is there's a debate in the marketplace about the power intensity to run that process. And in an area that's short electricity today, people are trying to understand kind of how feasible it would be to scale that. So if you could just kind of talk through the efficiencies you're trying to capture and overall power intensity of that business, that would be helpful. Robert Crain: Sure. The overall goal in water desal is to reduce energy consumption to overall reduce your price per barrel. If you look at how desal metrics are measured, it's really in your kilowatt per hour per barrel of water treated. So I'll touch first on our kind of adaptation of design. Again, that is trying to achieve that goal of process the water without having to put more energy consumption into it to bring that kilowatt per hour per barrel down. When you look at the power piece, all thermal technologies, you're right, they do require power. So that's where we go when you look at waste heat capture. Again, anything we can do from a waste heat capture standpoint, waste heat is almost free energy. And so we look at one of the big benefits of desal combined with power generation, be it for compute or microgrids or whatever the use may be, again, it's just furthering, bringing that kilowatt per hour per barrel treated down. Timothy Rezvan: Okay. We will stay tuned for an update on that. I appreciate that. And then if I could sneak one more question in. On the western part of your acreage position, you have a meaningful acreage in Hudspeth County. There have been companies developing and exploring for rare earths out there. Could you discuss your exposure to that activity maybe from any exploration or right away occurring there? Any color there would be helpful. Tyler Glover: Yes. So we do have a couple of exploration projects going on currently out there on some properties that we've actually purchased or traded for in the last 7 or 8 years. Early stages, but finding seem promising so far. So we'll be glad to update you as we have additional information. Operator: Our next question comes from the line of Oliver Huang with Tudor, Pickering, Holt. Hsu-Lei Huang: Just wanted to start out on the water side. As we think about the ROFR, to supply water for the previously announced Bolt partnership, just any sort of color on if this is expected to be done through your source water network, treated desal water or a tiered combination? Just really trying to get a better understanding how the latter measures up to spec requirements of counterparties for CCGT and for data center? Robert Crain: I would say both. Again, we go back to that variation in design of what the water volume and quality is needed. I think when you look at Bolt and some of the other deals we work on, eventually, it's going to be a combination of both of the water sources. We love the produced water component that could be used in power gen and combining desal with power gen and data center usage, there's some synergies there that are pretty amazing when you dig into them from waste heat capture, freeze technology. Obviously, the desal and that water is a little bit more complicated to treat, and that's what we've been working on the last couple of years to do. But when you look at the water use and the produced water, really not being in the hydrologic cycle, and being able to implement a produced water stream into power gen and compute water needs, it's really unique to oil and gas operations. Those conversations are progressing nicely. So again, I think it's going to probably be eventually a combination of both water sources. Hsu-Lei Huang: Okay. Perfect. That's helpful. And maybe as we're just kind of thinking about potential scaling up, whether it's 1 gig or multiple gigawatts, do you all have the capacity to ramp the treated water to the required volumes? Or is there a point where you all would be capped out? And just any sort of color in terms of how much capital it might take to build out to, call it, an incremental 250,000 a day of capacity? Robert Crain: When you look at the -- if we look at it just from a feedstock point, Ty mentioned in the commentary, there's 25 million barrels a day in the Permian Basin in produced water aspect. We're never going to have a feedstock shortage of water usage for power gen or compute. I think when you look at actual facilities to get up to the scale that's going to feed it, again, we're going to have to look at what the eventual water needs are, any capital offset that we can get for power gen and compute to help offset the capital needs of the desal facility are going to help bring it to market. I think it's too early to say, are you going to have a constraint to get there. Again, we're going to have to look at what the gen capacity is, what the water needs are and then design around that and make sure there's an economic return for us to do it. Hsu-Lei Huang: Okay. That makes sense. And if I could squeeze one more in, just on the Bolt agreement that you all have. I know it's still pretty early days, but any sort of updates you can provide with respect to just securing any sort of commercial partnerships and anchor customers to just get a better sense of facility size. And also just how should we expect revenues to start flowing through for the first data center project? Any sort of color on timing? Tyler Glover: Well, I think you can find some public comments that Eric has made. His goal is to get to 1 gig pretty swiftly with kind of a 10-gig campus being the ultimate goal. I would say the conversations that he's having and the pace that he's moving are pretty swift. So hopefully, we're announcing some stuff at least this year, if not first half of the year, but that's the goal. I think for us, there's a land use component. Obviously, we've got the right of first refusal on the water, which we think could be substantial, and then the equity return on Bolt could be very material for our business. And so I would just say Eric continues to build out his team. They're moving swiftly and having a lot of really good conversations. I mean, the guys got an unbelievable network of contacts in that space. Operator: We have reached the end of the question-and-answer session. I would now like to turn the floor back over to management for closing comments. Shawn Amini: Thanks for joining, everyone. Have a good day. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Zealand Pharma Results Full Year 2025 Conference Call. [Operator Instructions] Please be advised that, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Lange, Vice President, Investor Relations. Please go ahead. Adam Lange: Thank you, operator, and thank you to everyone for joining us today to discuss Zealand Pharma's results for the full year 2025. The related company announcement is available on our website at zealandpharma.com. As outlined on Slide 2, I would like to remind listeners that during today's call, we will be making forward-looking statements that are subject to risks and uncertainties. Turning to Slide 3 and today's agenda. I have with me on the call the following members of Zealand Pharma's management team: Adam Steensberg, President and Chief Executive Officer; Henriette Wennicke, Chief Financial Officer; and David Kendall, Chief Medical Officer. All speakers will be available for the Q&A session. Turning to Slide 4. I will now hand the call over to Adam Steensberg, President and Chief Executive Officer. Adam? Adam Steensberg: Thank you, Adam, and welcome, everyone. 2025 was a breakthrough year for Zealand Pharma, especially considering the landmark partnership petrelintide with Roche. As we enter 2026, we are moving into the most defining and catalyst risk year for Zealand Pharma's history, which includes Phase II petrelintide data and multiple key readouts from the Phase III program in obesity with survodutide. Moving to Slide 5. Obesity represents one of the greatest health care challenges of our time, not only because of its high and growing prevalence, but because of the long-term consequences of living with the disease. The longer people live with obesity, the greater the burden and the higher the risk of serious complications. Real-world data clearly shows that treatment persistence with GLP-1-based therapies remains a major challenge. To date, up to 12% of Americans have been exposed to a GLP-1-based therapy, yet only a small fraction remains in treatment. Approximately half of patients who discontinue GLP-1 therapies cite gastrointestinal adverse events as the primary reason. As a result, the key to unlocking the full value of this market is to develop therapies that deliver weight loss that patients desire, but with a better treatment experience that support long-term use in a real world. This leads me to Slide 6. In many other chronic diseases, physicians typically have access to a broad range of therapeutic options that can be tailored to the needs of the individual patients. In obesity, the treatment landscape remains comparatively narrow where we today rely on a single therapeutic category. While the GLP-1-based therapies clearly have advanced the field, they have not yet delivered what ultimately matters the most long-term treatment persistence, durable weight maintenance and sustained improvements in health outcomes. With petrelintide, we see the potential to expand and strengthen the treatment paradigm for weight management. Moving to Slide 7. The partnership we announced last year with us has delivered on everything we had hoped for. And our teams are currently moving full steam ahead and focused on finalizing the design of the Phase III program that we expect to initiate later this year to position petrelintide as a future foundational and first choice therapy for people living with overweight and obesity. I want to emphasize that, this is a true balanced partnership. This is reflected not only in the financial structure where we share profits in the U.S. and Europe, but also at the strategic level with shared development and commercialization rights for petrelintide and petrelintide-based combinations. This structure allows us to retain significant long-term value of the franchise while preserving the strategic rights needed to support our ambition over the long term. Moving to Slide 8 from one strong partner to another. Boehringer Ingelheim is positioned to lead the next wave of GLP-1-based innovation with survodutide, and we are very excited about the potential of survodutide to emerge as the preferred therapy for a large population of people with obesity and MASH. Liver disease is one of the most prevalent comorbidities associated with obesity. As Boehringer highlighted at Obesity Week last year, when you see obesity, think liver. And as one of our external speakers and the principal investigator in SYNCHRONIZE-1 noted at our Capital Markets Day, see obesity, think liver, treat the heart. This framing highlights the excitement for the upcoming Phase III obesity data with survodutide, including data from the cardiovascular outcome trial. Switching gears to our research efforts on Slide 9. Our ambition extends beyond refining the near-term future of weight management. Over the coming period, we aim to build the most valuable metabolic health pipeline, supported by our competitive advantage with more than 25 years of expertise in peptides and metabolic health, proprietary know-how and high-quality in-house data. Combined with rapid advancements in AI and machine learning, this strong foundation position us to remain at the forefront of innovation. While AI will improve efficiency across the industry, true differentiation comes from the quality and scale of proprietary data used to train these models. This is where we intend to focus our efforts. Our goal over the next 5 years is to advance more than 10 candidates into the clinic and set industry-leading cycle times from idea to the clinic. In a field historically characterized by long and complex development cycles, the pace of innovation is accelerating, and we intend to lead that. With that, I will turn over to David. David Kendall: Thank you, Adam. I will begin with an overview of our pipeline shown on Slide 10. Zealand Pharma is in a unique position today with the potential to achieve 5 product launches over the next 5 years. We are also embarking upon a data-rich period ahead with important results from many of our clinical programs. All told, this represents an incredibly exciting and highly compelling path forward for our company. Let's turn to Slide 11 and the ZUPREME-1 trial with petrelintide. We look forward to reporting top line data from the Phase II ZUPREME-1 trial this quarter. This trial is evaluating the efficacy and safety of petrelintide in participants with overweight or obesity without coexisting type 2 diabetes. ZUPREME-1 is a dose-finding trial assessing 5 dose levels of petrelintide administered weekly versus placebo over 42 weeks of active treatment. The trial includes monthly dose escalation over a period of up to 16 weeks, followed by maintenance doses of up to 9 milligrams. The study's primary endpoint assesses change in body weight at week 28. However, top line readout will also include important efficacy and safety measures at week 42. As previously shared, ZUPREME-1 enrolled a population of 494 participants with a mean baseline BMI of approximately 37 kilograms per meter squared and includes a balanced distribution of females and males. This population differs meaningfully from those studied in our Phase I trials, and also from populations enrolled in recent Phase II and Phase III clinical trials of other amylin analogs. Moving to Slide 12 for a reminder of our ongoing plans for petrelintide. Together with our partner, Roche, we are looking forward to leveraging insights from the ZUPREME-1 trial to inform the final design of a comprehensive and ambitious Phase III development program for petrelintide in weight management. We expect to initiate the Phase IIIa registrational trials for petrelintide monotherapy later this year, which will be followed by a comprehensive Phase IIIb program designed to further expand and unlock the full value of petrelintide. With Phase II data approaching, I would like to briefly revisit our target product profile for petrelintide. Our goal with petrelintide is to deliver the level of weight loss that the vast majority of people living with overweight and obesity are seeking, while also providing an improved patient experience to further enhance the use of petrelintide for long-term treatment. Accordingly, a successful outcome for us would be data that reinforces our confidence in petrelintide's potential to achieve approximately 15% to 20% body weight reduction in longer-term Phase III trials, together with a safety and tolerability profile that represents a significantly better experience relative to incretin-based therapies, firmly establishing petrelintide as a foundational therapy for the management of overweight and obesity. In parallel, we are excited about the opportunity to explore petrelintide as a backbone for future combination therapies. Petrelintide in combination with the dual GLP-1 GIP receptor agonist, CT-388, is the first combination being developed in our alliance with Roche. Zealand Pharma and Roche remain on track to initiate the Phase II trial of the petrelintideCT-388 combination in the first half of this year. Now turning to Slide 13 and survodutide, a glucagon GLP-1 receptor dual agonist that we believe has the potential to play an important role in the next phase of innovation in obesity and metabolic disease. In the first half of 2026, we look forward to the results from the 76-week SYNCHRONIZE-1 trial, which is evaluating the safety and efficacy of survodutide in people with overweight or obesity without type 2 diabetes. In the prior 46-week Phase II obesity trial, survodutide demonstrated very compelling and competitive weight loss of up to 19%. Beyond SYNCHRONIZE-1, we expect additional readouts from the broader Phase III obesity program over the course of 2026. Together, these data are expected to support the first regulatory submissions for survodutide. We are also excited and extremely encouraged by the ongoing Phase III program evaluating survodutide in people with metabolic dysfunction-associated steatohepatitis or MASH. This program includes 2 trials assessing safety and efficacy in patients with moderate to advanced fibrosis as well as in those with cirrhosis. Given the high unmet medical need and limited treatment options for this population, we believe survodutide has the potential to become a key therapeutic option for people living with overweight or obesity and coexisting MASH. Let's now turn to Slide 14 and our novel Kv1.3 inhibitor. Yesterday, we announced positive top line results from the first-in-human randomized double-blind, placebo-controlled Phase I trial evaluating the safety, tolerability, pharmacokinetics and pharmacodynamics of ZP9830 following a single administration to healthy male subjects. ZP9830 was very well tolerated with no serious or severe AEs or dose-limiting safety findings at any of the dose levels tested. PK parameters increased in a dose proportional manner across the investigated dose range, in line with predictions based on preclinical data. We are very pleased with the results of this trial that are very well aligned with our expectations, reinforcing our confidence in our Kv1.3 channel blocker as a very promising drug candidate with the potential to target multiple autoimmune and inflammatory diseases. We look forward to reporting top line results from the multiple ascending dose portion of this trial and progress ZP9830 into Phase Ib/IIa development in the second half of 2026. With that, thank you very much for your attention. I would now like to turn the call over to our Chief Financial Officer, Henriette Wennicke, who will review our financial results for 2025. Henriette? Henriette Wennicke: Thanks, David, and hello, everyone. Let's turn to Slide 15 and the income statement. Revenue for the full year of 2025 was DKK 9.2 billion, driven by the initial upfront payment received under the collaboration and license agreement with Roche. The net operating expenses, excluding other operating items, totaled DKK 2.1 billion in 2025 and was within the guidance range of DKK 2 billion to DKK 2.3 billion. 76% of the net operating expenses in 2025 were dedicated to research and development, mainly driven by the clinical advancement of the petrelintide program, including the 2 Phase II trials and the preparation for Phase III. The S&M expenses are driven by the pre-commercial activities associated with mainly petrelintide, while G&A expenses reflect a strengthening of organizational capabilities, investments in IT infrastructure and legal expenses related to the patent portfolio. This resulted in a net positive result of DKK 6.5 billion for the year. Let's move to Slide 16 and the financial position. We ended the year of 2025 with a strong cash position of DKK 15.1 billion. Our cash position was strengthened during the year by the initial upfront payment of DKK 9.2 billion from Roche, partly offset by the operating expenses during the period. Our strong capital preparedness enabled us to meet all obligations under the collaboration with Roche for petrelintide, including the comprehensive Phase III program. It will also allow us to intensify our efforts in building a leading metabolic health pipeline and deliver on our Metabolic Frontier 2030 strategy. Let's turn to Slide 17 and the outlook for the year. For 2026, we guide for net operating expenses to be in the range of DKK 2.7 billion to DKK 3.3 billion, mainly driven by research and development activities. On the development side, key cost drivers include the expected initiation of a Phase IIIa program with petrelintide monotherapy and the initiation of a Phase II trial, the petrelintide CT-388 combination. In addition, strengthening our research engine is critical to realizing our vision of building a leading metabolic pipeline and the guidance, therefore, also reflects a step-up in research costs. Overall, the anticipated OpEx spend reflects the momentum we have built into 2026 and position Zealand Pharma to leverage the future growth opportunities. And even though, we only provide guidance on operating expenses, I would like to take the opportunity to remind you that Zealand Pharma is eligible for potential milestone payments for Roche of USD 700 million in 2026. This includes an anniversary payment of USD 125 million and a potential development milestone payment of USD 575 million, which is subject to initiation of a Phase IIIa program with petrelintide monotherapy. Finally, let's move to Slide 18 and our sustainability efforts. As a biotech company, we place the health and well-being of patients at the center of everything we do. And our ability to ensure advance our pipeline and ultimately serve patients rest on our people. We are extremely proud that while we increased our headcount by 41% in 2025, we maintained a very high engagement -- employee engagement score of 8.9 on a 10-point scale. And at the same time, we maintained our employee turnover rate at just 7.8%. We believe this is a testament to our unique company culture and our continued dedication to fostering an engaging and enriching workplace. This makes us confident that we have built a sustainable organization setup capable of supporting our long-term aspirations. We are also committed to taking responsibility for the environmental impact of our operations. In 2025, we committed to the science-based targets initiative and joined the UN Global Compact. In 2026, we will continue our work to transition our company and collaborate closely with our business partner to mitigate climate change. And with that, I will move to Slide 19 and turn the call back to Adam for closing remarks. Adam Steensberg: Thank you, Henriette. Building on the momentum we created in 2025, we have entered the most catalyst-rich year in Zealand Pharma's history with defining data readouts expected for both of our leading obesity programs, petrelintide and survodutide. As we execute on our Metabolic Frontier 2030 strategy, we are also highly energized to open our new research site in Boston this year and to pursue additional partnerships that further strengthen and expand our pipeline. I will now turn over the call to the operator, and we will be happy to address your questions. Operator: [Operator Instructions] We will take our first question, and the question comes from the line of Hakon Hemme from Danske Bank. Hakon Hemme Jørgensen: In regards to the upcoming Phase II readout on petrelintide Phase II, the ZUPREME-1, what level of details are you able to share with us on the day of the announcement? Apart from the weight loss, will you include data on petrelintide's tolerability profile in the announcement? Adam Steensberg: Thank you, Hakon, for that question. So we can confirm that the data are anticipated this quarter, which, of course, means also in the coming weeks, and we are highly anticipating being able to share the data broadly. We will, as we always do when we share top line results, provide a balanced presentation of the data while also reserving data that can be presented at scientific conferences later in the year. So you should expect a balanced view, which will discuss both top line efficacy and safety tolerability. Operator: We will take our next question. Your next question comes from the line of Rajan Sharma from Goldman Sachs. Rajan Sharma: I just wanted to get your latest perspectives on competitive dynamics in the obesity market following the first oral launch. I know, you've always been clear in the view that injectables will be the largest segment of the market. Has anything changed given the launch trajectory of or Wegovy? And then maybe just to add on that, where do you expect net price to be in obesity by the time petrelintide launches? Adam Steensberg: Thank you for your question, Rajan. And I think it's -- we have not -- our minds around the oral versus injectables have not changed due to the recent launches. It's very important, and we remain you can say, focused on the fact that all GLP-1s that are launching right now do not address the biggest -- what we consider the biggest issues with the GLP-1s, which is tolerability. As we discussed in the prepared remarks, we have 50% of the patients who stop taking these medicines is due to adverse events related to the gastrointestinal tract. So while we do expect the all options to expand the GLP-1 market, we do not think it will -- it's actually addressing the main issue around the current therapies that are around. And that's why we are so excited about being able to lead in a novel category, which we think have the potential to provide patients, as David discussed, the weight loss they are looking for, but a more pleasant weight loss experience. And it's really back to the thing which we have also advocated for, for a long time. Instead of having such a keen focus on prices as an industry, we need to move the focus into how we help patients stay on therapy. The key to unlock the value of the obesity market is to make sure that obesity medications are used as chronic therapies rather than event-based weight loss agents. And that's where we think petrelintide and the amylin category has the potential to unlock the market value for obesity. When it comes to prices and which, of course, has a lot of focus right now in the current competitive environment also with having had compounders around, it's again some dynamics that we have talked about for a long time. And the uniqueness about the obesity market is we have the more classical market where we have payers and insurance companies and then we have the self-paid market. And you need to address both. Of course, when you launch with a new category, which may provide a much more pleasant weight loss experience, there will be novel dynamics also with regard to pricing. So while the GLP-1 dynamics will affect entrant into that market, we do anticipate that novel themes will play out when you launch novel categories, just as we have seen in other therapeutic areas. So -- but it's too early to provide any specifics on the net pricing when we launch petrelintide. Operator: We will take our next question. The next question comes from the line of Kirsty Rosergewart from BNP Paribas. Kirsty Ross-Stewart from BNP Paribas. Kirsty Ross-Stewart: Kirsty Ross-Stewart from BNP Paribas. So regarding the Phase IIIb development for petrelintide, can you just expand a little bit on the types of opportunities you're hoping to unlock with the broader clinical trial program? And how much of the total opportunity do you believe is represented by the monotherapy? Is that kind of the majority part? Is that what we should be thinking as the main part? Or just are you seeing this as a small portion and just the tip of the iceberg? And just related to that, can you remind us on the financial obligations from you and Roche regarding the future Phase IIIb development? Adam Steensberg: Thank you for your question. I'll just start with a few remarks and then hand over to David. So as -- as you know, our -- the focus for the team right now is to accelerate time lines to a potential launch of petrelintide and in parallel, invest deeply in making sure that petrelintide will become a foundational and first choice therapy and thus also having the data foundation to support that positioning. And we will have -- we'll share all costs with our partner us in those efforts. It's clearly the monotherapy that have our key focus right now. But as David also discussed, the combinations now starting with CT-388 is also carrying investments as we progress these programs. And we will hope to see more combinations really utilizing petrelintide's potentially as a foundational therapy. But perhaps, David, you can comment a little bit more on the Phase III considerations and why we have strong believe that it can become a foundational therapy. David Kendall: Yes. Thanks, Adam, and thanks, Kirsty. As noted, the Phase IIIb program beyond a rapid acceleration of the Phase IIIa program to ensure the earliest possible submission and potential approval. You can imagine that it is obviously the outcomes that matter most to patients and their providers that will be the focus, not only of the weight loss studies in Phase IIIa, but focusing on those complications, which we know are readily tied to weight reduction, such as obstructive sleep apnea, osteoarthritis and osteoarthritis pain, noting that amylin agonists may have the unique potential to favorably alter bone metabolism and impact pain markers as has already been shown with the GLP-1 agonist reduced weight has its benefits and going beyond that. But beyond those, I think attention to preserving muscle mass, maintaining functional status, focusing on the population that seeks weight-reducing therapies the most, specifically women and women's health implications. And finally, a very important impact of those coexistent comorbid conditions, cardiovascular outcomes being primary, looking at the impact on liver disease and other metabolic dysfunction associated comorbidities. As Adam noted, the focus initially is on monotherapy, establishing amylin-based therapies and petrelintide in particular, as a foundational therapy, but understanding that in complex metabolic diseases such as lipid disorders, hypertension, type 2 diabetes, we have learned that the complexity of these diseases often requires multifaceted approaches to therapy. So combinations with incretin-based therapies and other modalities as being investigated by us and others, we believe will become the cornerstone of the optimal treatment for obesity and its related conditions. To reemphasize what Adam stated, petrelintide as monotherapy, which we firmly believe can be foundational, but also substantially improve the patient experience will be the focus of Phase IIIa with the extension in Phase IIIb to unlock the full potential of this asset. Henriette Wennicke: And just maybe a comment from me, Kirsty, as well on the financial obligation. So yes, we will share costs both on Phase IIIa but also Phase III 50-50 with Roche. As I mentioned in my remarks, we will receive USD 575 million in connection with the Phase III initiation, and we will also receive USD 575 million in connection with Phase IIIb initiation from us. Operator: We will take our next question. Your next question comes from the line of Andy Hsieh from William Blair. Tsan-Yu Hsieh: Congratulations on a stellar 2025. Adam, I appreciate that you're moving the field away from the weight loss Olympics, as you coined the phrase. Just to gauge expectations ZUPREME-1, semaglutide and tirzepatide showed an additional 2% and 3% weight loss from 42 weeks to study end. So objectively, should we subtract that 2% to 3% from your TPP goal just to account for the timing difference and gender mix for the imminent readout? And also, if you don't mind, maybe a macro question on what Lilly has done recently. We wanted to recategorize as a biologic. So if they're successful, do you think that, that might set a precedent for all the peptides out there, including petrelintide? Adam Steensberg: Thank you for your question, Andy. And I would say when you -- and of course, everybody compares across studies. When we have designed our ZUPREME-1 study, we have had one key focus, and that is to generate the most robust data set to allow us for the most robust decision-making to move into Phase III. So we have not enhanced the study with a disproportional high amount of women or high BMI. And we've also decided to look at the data point of week 42 instead of week 48 as others would do in order to have the most robust data set for Phase III decisions. So when we then -- as David also shared in his prepared remarks, think about what are the weight loss that we anticipate to see -- we would expect in that study under these study conditions that translate into a 15% to 20% weight loss in a Phase III study setup. That's how we will look at the data. And I would say, historically, when you look into male-to-female ratio, if you take a study that is enriched with only females versus males, you could probably expect what, 5% more weight loss in the female-only cohort. If you then also enhance the BMI and the study duration, then you would see even higher differences. So we are looking for a data set that when we do our internal modeling will allow us to get this 15% to 20% weight loss. And the reason that we have called to end the weight loss Olympic is just the plain fact that patients are not interested -- most patients are not interested in a weight loss above 20%. So why is it that we, as an industry and a community keeps talking about those numbers as if they were so important. You can do these surveys among patients, and you will get the same answer across any survey that we have seen thus far. And that's why I call for the end. As I also said, and as we discussed also in one of the prior questions, the key to unlock the value in this market is to develop therapies that provides patients with the weight loss they're looking for and as importantly, therapies that they can stay on instead of therapies where they only take them for 3 to 6 months and then stop taking them. The big dilemma we have with people don't stay on therapy is that most will likely regain the weight and thus never get to the health benefits. So both from a patient, a society perspective, but also from a company value perspective, the focus has to be on treatments that deliver the weight loss that the most patients are looking for, 15% to 20% and then importantly, medicines they can stay on. And that's why I'm calling to the weight loss Olympic, focus on medicines that deliver what the patients want, and you will unlock the value in this market. On your other question, with regard to efforts to move from a small molecule designation to a biologic. I'm sure that industry is looking into different ways to enhance, you can say, the positioning of their drugs. And I will not share our specific efforts to protect the value of our programs. But rest assured that we also have that -- those efforts as key focus. Operator: We will take our next question. Your next question comes from the line of Yihan Li from Barclays. Yihan Li: Yihan from Barclays. So I guess I wanted to switch gear a little bit to survodutide and also MASH. So for MASH, based on our recent KOL checks, I believe the off-label use of including MASH appears increasingly common. So for example, our physicians would still use tirzepatide in MASH, if possible, even though we know it is not formally approved by regulators. So I'm just curious from your market research, are you observing something similar in terms of this physician behavior? And also more broadly, like assuming survodutide will be launched in 2027, and we understood you might be more offense on this partnership, but also wondering anything you could share regarding its commercial strategy across obesity and MASH? Adam Steensberg: Thank you for your question. And it's important to note that it is Boehringer Ingelheim, who is solely responsible for the development and the commercialization of survodutide. We will just get milestones and then high single to low double-digit royalties. The profile that we have seen thus far from the clinical data released by Boehringer for survodutide gives us a lot of confidence in the molecule, both with regards to weight loss, but also in MASH. On the weight loss parameters, as we have discussed before, we think the weight loss levels and the weight loss experience is going to be quite comparable to what we have seen with some of the market-leading GLP-1s on the market today. We look forward to seeing the Phase III data. When it comes to the MASH data, the Phase II MASH data that we have seen and is also expressed by Boehringer at the time when the data was released, we see them as breakthrough data. These are unprecedented levels of improvements. And I think that's also reflected in the fact that Boehringer have decided to invest in the largest ever Phase III program for MASH, not only addressing F2 and F3, but also F4 patients, which gives unique opportunities to broaden the potential label if approved beyond into the most severe cases of MASH, but also with the scope of the program could provide very early indications of clinical and not just biomarker improvements. With regard to what you mentioned as off-label use, if I heard you right, of the GLP-1s, I would say please remember that the majority of MASH patients are obese in the first place. And thus, of course, it's a logical choice to use the existing medicines to help patients achieve some weight loss as many MASH patients suffer from both obesity and other complications than MASH. So that is only a natural consequence. What we believe is that once you have a product that can make a significant larger effect on the disease status, we should expect to see a very attractive take-up also exemplified by the enrollment into the Phase III program and Phase II program for survodutide. So we have a high confidence in the program. We have a high confidence in Boehringer's ability to execute. They are one of the strongest large pharma players in the cardiovascular metabolic space, and we look forward to see the data coming out this year, including the cardiovascular outcome data in obesity. Operator: We will take our next question. The question comes from Xian Deng from UBS. Xian Deng: Xian from UBS. So 2, please. The first one is on ZUPREME-1. So really appreciate you emphasized -- reiterated the importance of tolerability. So just wondering, looking into ZUPREME-1, just wondering what sort of profile do you -- would you actually consider as really your target profile in terms of tolerability? Would you say -- let's say, do you think it's actually possible to achieve, let's say, placebo level similar to placebo level of vomiting and constipation. So any color on that, that would be great. So the second one is sort of a general question. So a few days ago, so Eli Lilly showed some quite interesting data combining tirzepatide and Taltz in psoriasis, which actually showed better skin clearance than Taltz alone. Of course, that's in psoriasis patients that are also obese. But just wondering if you have any thoughts on that? And would you consider, for example, in the future, collaborating with some other autoimmune players on something similar as well? Adam Steensberg: Thank you for your question. I'll just start by putting some thoughts on your second question and then hand over to David to follow up and also address your first question. I think maybe you also saw that yesterday, we also announced a Phase I data readout with our Kv1.3 ion channel drug, which is a broad autoimmune anti-inflammatory target, which has potential across a number of inflammatory conditions. And thus, we see that as a potential pipeline in a product. And -- there's another notion out there that in relation to the obesity pandemic, you actually see quite significant increases in the prevalence of some chronic autoimmune and inflammatory conditions, which had otherwise been seen as being rather stable. So we see a strong link between the obesity pandemic and the rising prevalence of some of these conditions. And it's clear that if you name things like psoriasis or even IBD, there are some strong links with the obesity pandemic. So we are highly energized by our own Kv1.3 data and the opportunity to perhaps link metabolism and inflammation in the future. But David, maybe you want to elaborate. David Kendall: Yes. And again, thanks for your questions. On the issue of tolerability, noting that tolerability is really a collection of factors. We focus, obviously, a great deal on the GI adverse events that have been made so central, particularly to incretin-based therapies. And while our Phase I data to date have suggested the potential for significantly lower rates of nausea, vomiting and certainly lower rates of the more chronic GI adverse events associated with GLP-1-based therapies, namely diarrhea and constipation in ZUPREME-1 and subsequent trials, tolerability and acceptability of the entire experience will be the focus of our evaluation. So looking obviously at GI adverse events, but in combination with the injection experience, the experience around dosing and dose escalation. And back to the question that was posed to Adam on orals versus injectables, if one thinks about the currently available therapies and the target product profile for petrelintide, we anticipate that the weekly injection will consume about 10 to 20 seconds of an individual patient's time, which clearly can be associated with the acceptability of a treatment, assuming that injection experience is without reactions, pain, discomfort, which we have seen in our Phase I trials to date. So I encourage you and others as we will be doing to look at tolerability and acceptability as a collection of these factors, GI adverse events and more. And to Adam's ultimate point, if that experience is highly acceptable to patients, that will further encourage long-term persistence on therapies and particularly therapies that give patients the weight loss they desire. Operator: We will take our next question. The question comes from the line of Jen Jia from Cantor Fitzgerald. Jennifer Jia: This is Jennifer Jia on behalf of Prakhar Agrawal from Cantor Fitzgerald. So I was wondering for the upcoming Phase IIb obesity readout for petrelintide, in what way can it differentiate on safety, tolerability versus Lilly's amylin eloralintide, and also for the combo with petrelintide with CT-388. Could you give more context on dosing across the 2 products, titration schedule as well as how you want to mitigate the GI tox previously seen with CT-388? Adam Steensberg: Thank you for that question. It's as we have tried to convey on this call, the most important aspect for us when we review these data is to confirm that we have a product that lives up to the target product profile, which we have discussed a number of times, which is delivering a 15% to 20% weight loss and a more pleasant weight loss experience. If we have that, we will have a leading category -- leading molecule within a new category. And I think it's really, really important to also look back at the data that have been generated thus far with petrelintide, which gives us the confidence when we look across the different amylin assets, we have what looks to be the best-in-class amylin analog in development. And that's why we move towards the Phase II data with a high level of confidence, both with regard to weight loss and tolerability data. But the most important part for us is to get confirmation in this Phase II data with what we have seen in the Phase I and thus, that we are fully on the path to deliver on our target product profile. And thereby, as we have also communicated several times, we think petrelintide and amylin in general has the potential to be a larger category for weight management than the GLP-1s because if you allow patients to stay on therapy and you don't have to go out and capture new patients all the time, you would rapidly see the volumes of such a category outgrow the volumes of a category where people stop taking medicines early on. So this is the key focus for us when we look at the data, and we move forward based on the prior data experience, which I think we have released to the market. So we all have the opportunity to look at those data that petrelintide has the potential to be the best-in-class amylin of those that are in the clinic today. The combination product, of course, is also a unique opportunity. And with CT-388, when we did the diligence and the partnership with us, our conclusion was that CT-388 look to be potentially also a best-in-class GLP-1/GIP molecule. And we look very much forward to seeing further data from that program. But the combination -- when we think about the combination with that molecule, our gut feeling, if you will, would be to max out on the potential of petrelintide and then add a teaspoon of the GLP-1 component to enhance the weight loss experience for those patients who need the highest weight loss. And so we look forward to share more on the study designs and of course, ultimately, the data that comes out of the Phase IIb study for the combination that we will start later this year. Operator: We will take our next question. The next question comes from the line of Kerry Holford from Berenberg. Kerry Holford: A question from me is just on the planned Phase IIIa study design. I wonder if you can share any more detail on that. It's clear the message here is to expect you to accelerate launch and deal with the CVOT data later. But can you discuss the endpoint, the study time period that you're looking at for the Phase IIIa study? I mean, for example, could we see a scenario where 6 months weight loss is sufficient to get a first approval for petrelintide? Adam Steensberg: Thank you for your question. I think what we can reassure you is that we, together with us, we are doing everything possible to accelerate, and we have some -- identified some very good levers and have a lot of confidence that we can accelerate and push this program as fast as possible forward. We cannot share the details also the exact details on submission time lines due to the fact that this is a partnership, so we need to agree on when to discuss these things. But we are all on in both organizations to make sure that things are being accelerated towards submission and ultimately a launch. What is also important here to note and one of the main reasons that we decided to partner this program at the time we did was, of course, investments into manufacturing capacity -- and we have been extremely pleased to see the announcements that have come out with, with regard to investments into high-volume, high-throughput manufacturing capacity, which, of course, is needed if you want to secure a successful launch when these products hit the market. And I think that's again coming back to the uniqueness of the partnership we have here and the uniqueness of Zealand today is that we are -- as I conveyed at our Capital Markets Day, and we continue to operate as a biotech company, but we -- and that's the -- we will bring in the best from that world. But in the collaboration with us, we will also leverage the strength of a pharma company as we approach the market with petrelintide. And I don't think you have seen many of these partnerships, but that is why we keep coming back to the strategic value and of course, the profit share we have in this partnership is unique and it's one which we are extremely pleased with to see also how it progresses. We will hopefully soon be able to share more on the exact time lines as we move the program into Phase III, but it's just perhaps one quarterly call too early. Operator: We will take our next question. The question comes from the line of Suzanne van Voorthuizen from VLK. Suzanne van Voorthuizen: This is Suzanne from Kempen. Looking beyond the Phase IIb readout that we're all eagerly awaiting and I believe how petrelintide could provide an alternative to incretins and the product profile you're targeting is very clear. But I wonder if you could elaborate for the longer run based on the knowledge today and the data sets that have been reported for the various amylin assets out there, how do you expect petrelintide to be positioned within the amylin class? What would you expect in terms of differentiation versus the other amylin later down the line? And maybe one clarification about the research site in Boston. What will this hub focus on? And how would that complement the capabilities in Copenhagen? Adam Steensberg: Thank you, Suzanne. It is too early for us to share our thoughts about the ultimate differentiation between the different amylin analogs. We have been extremely pleased with the data that we have seen thus far when it comes to the balance between weight loss and tolerability and safety findings also when we compare across the different modalities, different amylin analogs in the clinic today. So -- and we see a clear opportunity to continue to develop that differentiation that we have already observed in until today. Another key aspect, which I think is important to note as well is as we enter this market, this will be the #1, 2 and 3 focus for Zealand and to build petrelintide into a leading molecule within the amylin class. Others will have to spend more time thinking about existing franchises and how to protect current molecules that are already on the market. And that's a strength and a force which I don't think people should underestimate. On the research side, in Boston, as Utpal shared a little bit on our Capital Markets Day, but it's really going to be a site that will complement what we do in Denmark. In Denmark, we are one of the strongest, if not the strongest research group within peptide chemistry and also having worked in metabolic diseases and health for more than 25 years, have very unique expertise in those areas. In Boston, we will build complementary skills, including focus on high throughput research labs machines that are built -- labs that are built specifically to tap into the automatization that we are seeing in research these days. And on top of that, we are also going to broaden out to modalities beyond peptides. And part of that broadening out will be through partnerships. We just announced one in December with OTR, which has to do with small molecules, but we expect to announce more partnerships, but we will also build some in-house capabilities, so we can become best partners to these opportunities. So it's broadening beyond peptide modalities, and it's also with a high focus on automatization and high throughput, really leading to our firm conviction that we can deliver industry-leading times from idea to the clinic as we build our infrastructure in the coming few years. Operator: [Operator Instructions] We will take our next question. The question comes from Rajan Sharma from Goldman Sachs. Rajan Sharma: Could you just discuss the rationale for restarting development of a GIP analog? Firstly, just to clarify, is this the same asset which you previously deprioritized? And then just in terms of strategy here, do you expect to see monotherapy activity? Or is this really a combination asset for the future? And how should we think about that in the context of CT-388, which is a GLP-1/GIP co-agonist? Adam Steensberg: Thank you, Rajan. I'll hand it over to David. David Kendall: Yes. Thanks, Rajan. Yes, this is the asset that has been part of our pipeline all along. And as you have likely noted, I mean, the interest in leveraging GIP pharmacology, while it is still in its infancy, both with the development of tirzepatide and other GLP-1/GIP molecules, the recent announcement of Novo looking at combinations with an amylin analog. But our understanding, as we've stated all along, that combination therapies can ultimately be leveraged to target this complex metabolic set of disorders, obesity and beyond. And while GIP monotherapy, as has been reported by others, may not in and of itself have potent weight-reducing effects, the potential to further improve insulin action or insulin sensitivity, the ability to unlock even greater effect of other molecules, including amylin analogs, other incretin hormones and other peptide signals is becoming clearer. And for us, this is yet another venture into the potential for combination approaches to targeting these complex metabolic diseases. And again, our commitment to improving metabolic health overall goes beyond, as Adam said, simply reducing body weight, simply targeting MASH to improving things like insulin action, targeting aspects of fat cell or adipocyte behavior and using this pharmacology to really target multiple tissues, multiple organs and further enhance the effect of other peptide and non-peptide signals. So starting with the first in-human to ensure understanding of the PK and safety and tolerability, and then we hope to rapidly advance into assessment of unique combinations with amylin assets and other signals. Operator: We will take our next question. The question comes from the line of [ Susan Shaw ] from Wells Fargo. Unknown Analyst: This is Susan on for Mohit. Just a quick question on ZUPREME-1 dose titration cohorts. Can you speak a little bit more on the rationale behind the timing and the step-up doses that were chosen for the trial? And as a follow-up, where do you expect to see the most improvement on the side effects? Adam Steensberg: Thank you for your question. The rationale was for the dose titration or you could even say that it is even a titration because you can expect, of course, to see weight loss even at the lower doses, but it's is the ability to get to the higher doses is a dosing escalation every 4 weeks is a practical way to do it. Our Phase Ib data suggests that we could do more frequent dose escalation and not compromise the tolerability from a GI side effect profile. It was clean, as you remember, except for one dosing arm where they started at a higher dose than what we do here. So it's also about the practical timing for dose escalation. I don't think we have the same issues as you have with the GLP-1s, where you need to titrate carefully. And remember also a lot of patients, you will have to down titrate when you have decided to titrate up, then you have to back off for some weeks and then back off. That is what becomes -- that's why it becomes so complicated to get patients to the higher doses of the GLP-1, but we have not seen that with the amylin. In all our titration step, we have seen patients being able to tolerate the next dose with any significant new adverse events. So for us, it's more a practical decision rather than something that has to decide with how you have to do it actually from a side effect profile. Operator: We will take our final question. The final question comes from the line of Jen Jia from Cantor Fitzgerald. Jennifer Jia: On 9830, the channel blocker, what indication would you consider pursuing? And what would be the rationale for that? Adam Steensberg: Yes. So we have some very good ideas about where we want to take the molecule in next, and also -- but -- and what you should expect is that we will be pursuing several indications also in parallel, because if you look into the biology rationale, we are looking at what could become a pipeline in a product. It's too early for us to share which indications we are going for, but you should expect us to pursue several indications in parallel. It is a target that industry has been pursuing for a very long time without success because of the difficult nature of addressing this target. And that's also why, as David shared before, we are extremely excited about the fact that we have not only seen PK, but also clear effects of target engagement from a PD perspective in the Phase I study. So we think we have something that could be a future jewel in our pipeline. So -- but the specific indications, we'll have to come back with later. All right. Okay. And with that, I would like to thank you all for attending and for your questions. We look forward to future announcements and updates and to connecting in the coming weeks and months. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Teekay Group Fourth Quarter and Fiscal 2025 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to the company. Please go ahead. Lee Edwards: Before we begin, I would like to direct all participants to our website at www.teekay.com, where you will find a copy of the Teekay Group's Fourth Quarter and Annual 2025 earnings presentation. Kenneth will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter and annual 2025 Teekay Group earnings presentation available on our website. I will now turn the call over to Kenneth Hvid, Teekay Corporation and Teekay Tankers' President and CEO, to begin. Kenneth Hvid: Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's Fourth Quarter and Annual 2025 Earnings Conference Call. Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporation's and Teekay Tankers' CFO; Ryan Hamilton, our VP, Finance and Corporate Development; and Christian Waldegrave, our Director of Research. Starting on Slide 3 of the presentation, we will cover Teekay Tankers' recent highlights. Teekay Tankers reported GAAP net income of $120 million or $3.47 per share and adjusted net income of $97 million or $2.80 per share in the fourth quarter. For the full year, Teekay Tankers reported GAAP net income of $351 million or $10.15 per share and adjusted net income of $241 million or $6.96 per share and realized gains on vessel sales for the year totaling $100 million. Spot tanker rates during the quarter were the second highest for a fourth quarter in the last 15 years. With our significant spot exposure and a low free cash flow breakeven, the company generated approximately $112 million in free cash flow from operations and at the end of the quarter, had a cash position of $853 million with no debt. This excludes $99 million of cash held in escrow at the end of the year related to payments for vessel purchases. Teekay Tankers continues to execute on its fleet renewal strategy. In January, we acquired three 2016-built Aframaxes for $142 million and bareboat chartered the vessels back to the seller on short-term contracts. We expect to take over full commercial and technical management of these vessels in the second and third quarter this year. In addition, we sold or agreed to sell two older Suezmaxes for gross proceeds of $73 million. And just this week, we finalized an agreement to sell our only VLCC for gross proceeds of $84.5 million with delivery during Q2. We expect to recognize total gains from these sales of approximately $45 million in the first and second quarter of 2026. Looking at our first quarter to date, the tanker market has continued to strengthen, and we have secured spot rates of $79,800, $56,900 and $51,400 per day for our VLCC, Suezmax and Aframax LR2 fleets, respectively, with approximately 78% spot days booked for our VLCC and around 65% spot days booked for our midsized fleet. Lastly, Teekay Tankers has declared its regular fixed dividend of $0.25 per share. Moving to Slide 4. We look at recent developments in the spot market. Spot tanker rates strengthened in the fourth quarter of 2025 due to a combination of fundamental drivers, geopolitical events and seasonal factors. Global seaborne oil trade volumes were near record highs during the fourth quarter due to the unwinding of OPEC+ supply cuts, coupled with rising oil production from non-OPEC+ countries, particularly in the Americas. In addition, tighter sanctions against Russia, Iran and Venezuela created trading inefficiencies, which have benefited tanker ton-mile demand while pushing more trade volumes away from the dark fleet towards the compliant fleet of tankers. Midsized tanker spot rates were further supported by disruptions on the CPC terminal in the Black Sea during November 2025, which led to a reduction of crude oil exports for around 2 months. This outage opened up the arbitrage to bring U.S. oil across the Atlantic to Europe, while poor weather in Europe prevented ships and ballast from returning across the Atlantic, giving rise to very strong rates for both spot voyages and lightering in the U.S. Gulf region. Spot tanker rates have strengthened at the start of 2026 with midsized rates trending above the 5-year high in February as many of the factors which supported the tanker market during the fourth quarter remain in place. Turning to Slide 5. We look at the impact of sanctions on tanker trade patterns. Geopolitical events continue to shape global oil trade flows and in recent months have pushed an increasing portion of global seaborne oil trade to the non-sanctioned or compliant fleet of tankers. As shown by the chart on the left, both Russia and Iran have found it increasingly difficult to sell their oil due to stricter sanctions leading to a more than 70% increase in sanctioned barrels at sea over the past 12 months. This includes both tankers in transit as well as oil held in floating storage and reflects the increasing complexity of the logistics chain for sanctioned oil exports. The end result is that buyers of Russian and Iranian barrels are having to find alternative sources of oil using the compliant fleet in order to compensate for the loss of sanctioned oil. This trend is most evident when looking at Indian crude oil imports. India became the top buyer of Russian crude over the past 2 to 3 years with imports averaging 1.6 million barrels per day in 2025. However, sanctions on Russian oil companies, Rosneft and Lukoil, coupled with an EU ban on the import of refined products made from Russian crude oil has led to a drop in imports to around 1 million barrels per day as of January 2026, with replacement barrels being sourced from the Middle East and Atlantic Basin via the compliant fleet. In addition, the U.S. and India recently signed a trade deal, which reportedly involves India further reducing the imports of Russian crude oil, which may push even more trade to the compliant fleet in the coming months. Finally, recent U.S. action in Venezuela is incrementally shifting trade flows to the benefit of compliant tanker demand. Close of Venezuelan oil to China via the dark fleet, which averaged 550,000 barrels per day in 2025 have fallen to 0 since the onset of the U.S. naval blockade in December. Venezuelan oil is now being transported entirely by the fleet of compliant tankers with most volumes in January being directed to the U.S. Gulf and Caribbean on Aframaxes. In the early part of February, we have also seen several loadings destined for Europe on Suezmaxes, while we understand that some Indian refiners have also booked cargoes for April delivery using VLCCs. To give an illustration of the potential impact going forward, an extra 500,000 barrels per day shift from Venezuela to the U.S. Gulf creates demand for approximately 20 Aframaxes. Turning to Slide 6. We review the key drivers for the medium-term tanker market outlook. Underlying tanker demand fundamentals remain positive. Global oil demand is projected to increase by 1.1 million barrels per day in 2026, which is in line with levels seen in 2024 and 2025. Demand could be further boosted by strategic stockpiling, particularly in China, where the country is projected to add just under 1 million barrels per day to strategic reserves during 2026 as per estimates by the U.S. Energy Information Administration. Non-OPEC+ supply growth is projected to increase by 1.3 million barrels per day in 2026, led by the Americas, which should lead to meaningful midsized tanker demand growth. The OPEC+ Group, which unwound over 2 million barrels per day of voluntary cuts in 2025 has announced a pause on further unwinds during the first quarter of 2026 and its supply policy for the remainder of the year is uncertain. On the supply side, over the recent months, we have seen an increase in tanker ordering, particularly for large crude tankers, which has pushed the size of the order book to a 10-year high when measured as a percentage of the existing fleet. As a result, tanker deliveries are set to increase in 2026 with a further acceleration in 2027. Though actual fleet growth will depend on the level of vessel removals through scrapping or via the migration of vessels from the compliant fleet to the dark fleet and the utilization of older vessels. While the order book size has increased over the past year, we should keep in mind that the tanker fleet is aging with the average age of the fleet now the highest in over 30 years, meaning that there will be a significant amount of replacement demand in the coming years. In fact, the order book, which now stretches into 2029 is completely offset by the number of compliant tankers reaching age 20 over the same time frame, not to mention the dark fleet of tankers, which already has an average age of over 20 years. So in short, while the tanker order book appears large on the surface, these vessels are needed to replace the older fleet of tankers, which are approaching the end of their trading lives in the coming years, although the timing of when vessels will exit the fleet is uncertain. Turning to Slide 7. We highlight TNK's key achievements in 2025. Reflecting on the year, the tanker market for 2025 was strong but volatile, influenced by several dynamic geopolitical factors. With our exposure to the spot tanker market and our low free cash flow breakeven levels, Teekay Tankers generated $309 million of free cash flows while returning approximately $69 million of capital to our shareholders via our regular quarterly dividend and $1 special dividend in May of last year. We commenced our fleet renewal process, including our recent transactions in January and February, the company acquired 6 vessels for $300 million, while selling 14 vessels for $500 million, booking estimated gains of approximately $145 million. As a result of these transactions, we have made progress towards reducing our fleet age. These transactions highlight our ability to act opportunistically given the dynamic market conditions. In addition to the fleet renewal transactions, we outchartered 3 vessels, extended an in-chartered vessel for another 12 months and sold our investment in Ardmore, generating a gross return of over 14% on this investment. Overall, our strong financial result was supported by our exceptional operational performance with 0 lost time injuries and 99.8% fleet availability, important metrics measuring the safety of our crews and reliability of our operations. Turning to Slide 8. We highlight Teekay Tankers' value proposition. First, as a result of our fleet profile, our operating leverage remains strong and the company is well positioned to generate significant cash flows in nearly any tanker market. With our 3 out charters and no debt, we have a low free cash flow breakeven of approximately $11,300 per day, which is down significantly from $21,300 per day in 2022. For every $5,000 per day increase in spot rates above our low free cash flow breakeven is expected to produce about $55 million of annual free cash flow or $1.60 per share. Second, Teekay Tankers has a strong balance sheet with no debt and a large investment capacity for future growth. Having $853 million cash position, we can transact quickly in this dynamic tanker market. And lastly, the company's performance is underpinned by our integrated platform. We believe our in-house commercial and technical management is a competitive advantage. Combined with over 50 years of operating experience in the tanker industry, we provide superior service to our customers and transparency through the value chain, which drives shareholder returns. In summary, the company's strategy over the last several years has been to maximize shareholder value through our exposure to the strong spot market. In 2025, we made progress to renew our fleet by making incremental investments in more modern vessels, while at the same time, selling some of our oldest tonnage. As we look ahead, our best-in-class operating platform and strong financial footing positions the company well to continue renewing our fleet, earning cash flow, building intrinsic value and returning capital to shareholders. With that, operator, we are now available to take questions. Operator: We'll take our first question from John Chappell with Evercore ISI. Jonathan Chappell: Brody, a couple of questions for you today on modeling. So the bareboat charters for the Aframaxes that you acquired and will take full commercial ownership in the second and third quarters. Between January and taking that full ownership, the P&L impact, is that you're just getting the bareboat rate that you chartered back to the previous owner. There's no OpEx, there's no D&A. There's no other impact except a revenue. Brody Speers: Yes, that's right. We're just getting the bareboat back. And those ships will actually dry dock in the first half of the year during that period, too, but we'll continue to get the bareboat rate during the dry docking. Jonathan Chappell: Okay. Great. The other thing I wanted to ask you was the G&A run rate. So you did the whole management reorg, et cetera. So as we look at kind of the last 3 quarters, is that the right run rate to think about going forward, maybe with some inflationary impact on there? Or is there anything that would either make that go up or down significantly from, let's call it, the last 3 quarter run rate? Brody Speers: Yes, I think that's right. I think if you look at even our annual G&A for the year, around $46 million. Going forward, I think we should be about that or maybe a little bit lower. So it approximates the run rate from the last few quarters. Jonathan Chappell: Okay. Final thing, sorry, just to harp on this stuff. It's the strategic stuff to market. I think we've covered that pretty well already. The D&A. So you've done a lot of fleet renewal, taken out the V, a couple more Suezmaxes. And then obviously, you're not going to add the 3 acquired Afras until, call it, the middle of the year. What do we think about for a first quarter starting point on D&A? Is it similar to 4Q? Or would it be a step down from there? Brody Speers: Yes. Yes, it should be pretty close to what we had in Q4 there at about $21.5 million or $22 million in the first quarter. Operator: Our next question will come from Omar Nokta with Clarksons Securities. Omar Nokta: Obviously, things are progressing quite nicely. You were mentioning the $850 million of cash you've got that gives you plenty of flexibility in this market to act quickly when an opportunity arises and you're getting close to that $1 billion number here, seemingly, I would say, in the next -- presumably the next few weeks or months. But -- and you have no debt. So just wanted to get a sense from you in terms of how you're feeling about this cash position you have on the balance sheet. Do you feel compelled to put that to work? And is there like a sense of urgency that you have either at your -- at the management level or at the Board level that you want to put that to work? And I guess maybe kind of related, obviously, to that is, how are you thinking about putting that to work when it's time? Is it more kind of drip fee dynamic in acquiring assets in the sale and purchase market? Or are you thinking more big picture M&A? Kenneth Hvid: Thanks, Omar. Welcome back. Good question. Obviously, it's a bit of a high-class problem we're sitting on here. But it's not something that's a big surprise to us. I mean we could obviously project this out. I think what has surprised us maybe in this quarter, last quarter and this quarter we are in here is how strongly the market has performed. That's obviously positive. We have still a lot of operating leverage and generating a lot of cash flow in this market. Had the market been low, we probably would have been a bit more active on the buying side. We still found a couple of ships, and we're happy about that. The way we look at it in a strong market, which very clearly, and we've seen the big uplift in tanker values here is that we're still an operator. We still want to renew our fleet. We still believe that there are deals that we can find in this market. So -- but at the same time, we also recognize that asset values have had another step up here, and that's natural as we are seeing spot rates as we have. I expect that we will continue to do a couple of purchases throughout the year here. I think it's a very tough environment to see that we do a major acquisition just because of the relative asset values. So I think the short answer to your question in terms of big acquisition versus drip feeding, I think, was your words. It will probably be more drip feeding with a couple of ships here and there. And the way we think about it is that we can still do it on a basis where we are selling maybe 1 old ship and buying 2 new ones and using a bit of the arbitrage that we have as we have seen a nice uplift also on the values of the older tankers that we have. Omar Nokta: Yes. Makes sense. And then I guess, perhaps a follow-up and clearly related. We're coming up on the 1Q dividend potential. I know you've declared $0.25. The past 3 years, you've conditioned us to anticipate a special with 1Q. Is the plan still to stick to that? And I know it's a Board decision, you can't just speak openly like that. But can we presume that the payout for the first quarter will be higher than what was done last time around? Kenneth Hvid: Yes. I'm just looking for my note to your question from exactly a year ago, Omar. And I think my answer at that time was that it's something we discussed with the Board at our March Board meeting and as we've done in the last couple of years, we typically announce any specials in connection with the May earnings release. Omar Nokta: Okay. I will try to remember that for next year. Operator: We'll now take our next question from Ken Hoexter with Bank of America. Ken Hoexter: Brody, I love going back to the May script to repeat it. So thoughts on -- you mentioned the 500,000 barrels increase in Venezuela can provide the increased demand for a number of vessels. Your thoughts on timing of Venezuela getting back up and running? Or is there an immediate amount that they've talked about kind of revamping and being able to scale up with speed before long-term capital investments have to be made. Is there a potential of that increase of 500,000 barrels? Kenneth Hvid: Yes. I think the -- it's Kenneth here. I'll pass it on to Christian. The oil is obviously being transported already now, as we said in our prepared remarks, but I'll let Christian comment on kind of our outlook for Venezuela. Christian Waldegrave: Yes. So last year, Venezuelan crude exports averaged about 800,000 barrels a day. We obviously saw in December and January after the U.S. naval blockade that those volumes fell to about 500,000 barrels a day, and it was all the long-haul flows to China that disappeared. Just looking at where it's tracking in February, we're already back up to about 700,000 barrels a day of exports. So the oil is starting to move again, and it's all going on non-sanctioned ships, primarily to the U.S. Gulf Caribbean region, but we've also seen 2 or 3 cargoes to Europe. And we know that India is starting to buy some barrels as well. So it looks like we're going to get back up to the normal run rate of 800,000 barrels a day of exports fairly soon. And then I think there's an expectation as well that with the Venezuelan oil industry opening up and foreign companies coming in and doing more investment that production and exports could be boosted within the year by another 200,000 to 300,000 barrels a day, but that's obviously dependent on how quickly they can get things moving there. So I think it's a good story for the tanker market in terms of the exports are shifting from the dark fleet to the compliant fleet. And then if we can get some extra production and volumes moving as well, then it's just going to benefit the midsized tankers, especially even more. Ken Hoexter: Great. How about the same thing, Christian, on an update on the Canada shipments? Christian Waldegrave: Yes. So it's an interesting one because, obviously, a lot of that Venezuelan crude, which is heavy sour was going to China. And so some of the Chinese state-owned refiners that were getting that heavy sour crude will probably be looking for replacement. And there are two areas they could replace it from. One is Middle East heavy crude and the other is Canadian. We have seen an increasing trend of the TMX exports going directly on Aframax to Asia. And I think it's a natural replacement for some of that Venezuelan crude. And we're also seeing a trend of the U.S. West Coast requirements are coming down because there's been some refinery closures there and the Benicia Refinery, I think, is in the process of closing down as well. So again, that just frees up more Canadian crude to flow to China. So I think we will see some volumes picking up there directly on Aframaxes, which again is going to benefit the Aframax market. Ken Hoexter: Yes. So it's staying on Aframaxes. It's not transloading the load. Christian Waldegrave: So now it doesn't seem to be transloading. It's going more directly on Afras rather than transloading a pile on to Vs. Ken Hoexter: Ken, how about a little history lesson, right? I mean it seems like something -- I don't know, maybe it's getting a little more antagonistic with Iran the last couple of days. If there is action, maybe a little history lesson on what's happened with rates and volumes with military action in the region? Kenneth Hvid: Yes. I think it's a good question. Right now, it's more in anticipation of something happening. And as you're probably alluding to, it's -- we go back to last time that we had action in the region where there was military action, and we looked at it back then, we saw a run-up in rates. We saw some security fears. I think we -- at the time, we pointed out that -- historically, we've never seen a closure of the Strait of Hormuz. But of course, that's what everybody is speculating about in the event that we see an escalation there, how is that going to drive up rates. And I would say the one difference we have this time around is that we've seen also consolidation in the VLCC segment. So it's a slightly different dynamic this time around in the event that charterers will be looking to secure tonnage quickly. But I think at this point, I mean, we see rates which are as high as we saw last time, but for slightly different reasons. And I think it's just a situation we need to watch. Christian, do you want to add anything? Christian Waldegrave: No, I think like Kenneth said, when we had the last time, obviously, it was last June during that 12-day conflict. And as Kenneth said, I think the big thing was during that time, there was no actual disruption to flows and to movements. It was more of a security sort of premium that caused the rates to spike and they came down pretty quickly. So it will depend if there's military action. Obviously, we don't know that. That's kind of speculative. But if there is military action, it depends on whether actual shipping and oil infrastructure is impacted or not. If the oil keeps flowing, then presumably, it will be a bit like last time, the effects might be short-lived, but it really depends on how it unfolds. Ken Hoexter: So if no attack on shipping or infrastructure, then rates -- you're saying they've already run up in anticipation and we see it cooling off. Okay. Got it. And then last one for me is the tanker order book. Now you mentioned 18% of the fleet, the highest since 2016, but you said optically, it's different as I think you said some of the vessels needed to replace an aging fleet. So maybe thoughts on -- your thoughts on supply/demand, Christian. How do you think we see the balance in the year ahead? Christian Waldegrave: Yes. It's going to be a timing issue, I guess, because as we laid out in the prepared remarks, the order book, while on the surface, it looks quite big. If you look at the fleet age profile, there was a lot of ships that were built in the late 2000s, especially 2008, 2009, 2010. So we're approaching a big hump in the fleet age profile that needs to be replaced. So the ships that are on order right now are needed to replace the older ships, but it's a matter of timing, right? We know when the ships are coming into the fleet, we don't know when ships are going to be exiting either through scrapping or other means. So in the meantime, like I said, the deliveries will ramp up this year and further into next year. So there's quite a bit of tonnage that needs to be absorbed. But for now, as we're seeing in the rate environment, the fact that the underlying demand is still positive. We're seeing more and more trade getting pushed to the non-sanctioned fleet. There are factors there that in the near term, at least suggest that the market should stay firm. But beyond that, it's going to depend on the timing of the order book coming in versus some of these changes that are going on, on the geopolitical side. So that's why we take a more balanced outlook on the medium term. But certainly, in the near term, I think things still look pretty positive. Operator: And that does conclude our question-and-answer session for today. I'd like to turn the conference back to the company for any additional or closing comments. Kenneth Hvid: Thank you very much for tuning in today. We look forward to reporting back to you next quarter. Have a great day. Operator: And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Radian Group Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bob Lally, VP Finance. Please go ahead. Robert Lally: Thank you, and welcome to Radian's Fourth Quarter 2025 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the Investors section of our website at radian.com. This press release includes certain non-GAAP measures that may be discussed during today's call, including adjusted pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity. A complete description of all our non-GAAP measures may be found in press release Exhibit F and reconciliations of these measures to the most comparable GAAP measures may be found in press release Exhibit G. These exhibits are on the Investors section of our website. Today, you will hear from Rick Thornberry, Radian's Chief Executive Officer; and Dan Kobell, Senior Executive Vice President and Interim Chief Financial Officer. Before we begin, I'd like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For more information regarding these risks and uncertainties as well as certain additional risks that Radian faces, you should refer to the risk factors included in our 2024 Form 10-K and our third quarter 2025 Form 10-Q as well as the subsequent reports filed with the SEC. Now I would like to turn the call over to Rick. Richard Thornberry: Good morning, and thank you for joining us. I am pleased to report another strong quarter for Radian, rounding out an outstanding year, both in terms of our financial performance and the beginning of an exciting strategic transformation of our company with the acquisition of Inigo. Our performance in 2025 demonstrates the strength of our core business and the disciplined execution of our strategy. We grew our mortgage insurance in force portfolio to an all-time high. We maintained strong credit performance and operational discipline. We continue to generate substantial capital, distributing $795 million from Radian Guaranty to our holding company and returned $576 million to stockholders through dividends and share repurchases. And we used risk distribution strategies to effectively manage our capital and proactively mitigate risk. Most notably, earlier this month, we completed our strategic acquisition of Inigo, a highly respected specialty insurer underwriting through Lloyd's of London. Importantly, we funded this transaction entirely with available liquidity and excess capital with no new equity raised. This marks a defining milestone in Radian's history and the beginning of an exciting new chapter. We believe this is truly transformative for Radian's future. Building on a strong foundation as a leading U.S. mortgage insurer, we are now poised to expand and diversify into a global multiline specialty insurer. We have the unique opportunity to leverage our high-performing Mortgage Insurance business, which is expected to continue generating excess capital alongside a growing and global specialty insurance business. The acquisition significantly expands our expertise, capabilities and geographic reach, greatly increasing our total addressable market and position us to deploy capital strategically for attractive returns. We expect this transaction to double our annual revenues, be accretive to EPS and returns and provide greater strategic flexibility to deploy capital across multiple insurance lines through various business cycles. Inigo has a proven track record in the Lloyd's market, fueled by a high-performing culture and an experienced team with a strong focus on their customers. Their business model and the approach align closely with our Mortgage Insurance business, particularly in their commitment to strong risk management through disciplined underwriting, leveraging data and analytics and disciplined capital allocation. As part of Radian, Inigo will operate as a stand-alone business unit in London, maintaining its management team, brand and culture. We are excited to welcome Inigo's CEO, Richard Watson, and his talented team to Radian and look forward to working together to build long-term and sustainable value for all our stakeholders as a global multiline specialty insurer. I also want to share that our divestiture plan for our Mortgage Conduit, Title and Real Estate Services businesses is well underway and on track for completion by the third quarter of this year. I am very proud of these teams as they have effectively managed their businesses while working through this process. Last week, we announced an important organizational update. These changes are intended to align our leadership team with our strategic focus, continuing to deliver strong operating performance in our Mortgage Insurance business, realizing the strategic value of the Inigo acquisition and maintaining strong financial management, including effective capital allocation. We promoted Steve Keleher and Meghan Bartholomew, both long-tenured Radian leaders who are well known to the market to co-head our Mortgage Insurance business. We also promoted Dan Kobell and Rob Quigley, two highly experienced and accomplished financial executives with extensive financial management expertise. These appointments and the exceptional teams behind them, along with the addition of the highly talented Inigo team, position us well for the future with a strong and deep pool of talent. I am truly excited to see what this team can achieve together. Before I turn the call over to Dan, I would like to take a moment to formally introduce him. Many of you have worked with Dan during his tenure at Radian, most recently as EVP of Finance, heading Corporate Planning, Corporate Development, Treasury, Investments and Investor Relations. During his 11 years at Radian, he has been a leader across our finance team and his deep expertise in financial management and strong understanding of our business have been invaluable. Most recently, he was a key leader in the work done to identify and complete the Inigo acquisition. His experience and knowledge of Radian and now Inigo position him well for this important role. Now I would like to turn the call over to Dan to review our financial results. Dan Kobell: Thank you, Rick, for the warm welcome. I'm honored to step into this role and lead the finance function at Radian in close partnership with Rob Quigley. This is an exciting chapter in Radian's nearly 50-year history, and I look forward to engaging with all of you as we move forward together. I'm pleased to report additional details about our fourth quarter results, which reflect another quarter of strong performance. For the quarter, we generated net income from continuing operations of $159 million or $1.15 per share. For the full year, net income from continuing operations was $618 million or $4.39 per share. We were pleased to grow our net income from continuing operations per share in 2025, driven by a combination of strong earnings as well as an 8% reduction in our share count. Additionally, in our Mortgage Insurance business, we saw growth in both insurance in force and new insurance written with NIW growing 6% year-over-year. We generated a return on equity of 13.5% in the fourth quarter and 13.1% for the full year. We grew book value per share 13% year-over-year to $35.29. We also returned dividends to our stockholders in 2025 that accounted for an additional 3% of book value. Turning now to the key drivers of our results. Our total revenues continued to be strong at $301 million in the fourth quarter and $1.2 billion for the full year. Slides 14 through 16 in our presentation include details on our Mortgage Insurance portfolio as well as other key factors impacting our net premiums earned. We generated $237 million in net premiums earned in the quarter, which represents the highest level in over 3 years. Our large, high-quality primary Mortgage Insurance portfolio grew 3% year-over-year to another all-time high of $283 billion. Contributing to this growth was $55 billion of NIW in 2025, including $15.9 billion in the fourth quarter. These figures compare favorably to $52 billion in 2024 and $13.2 billion in the fourth quarter of the prior year. Our proprietary mortgage data and analytics, which drive our MI pricing strategy, together with our disciplined and informed approach to risk management have contributed to a healthy and profitable portfolio, creating long-term economic value and generating strong returns for our shareholders. As shown on Slide 14, our quarterly persistency rate remained strong at 82% in the fourth quarter, a small decrease from the prior quarter due to higher refinance activity. As of the end of the fourth quarter, approximately half of our insurance in-force portfolio had a mortgage rate of 5.5% or lower. Given current mortgage interest rates, these policies are less likely to cancel due to refinancing in the near term, and we, therefore, continue to expect our persistency rate to remain strong. As shown on Slide 16, the in-force premium yield for our Mortgage Insurance portfolio remained stable as expected at 38 basis points. With strong persistency rates and the current industry pricing environment, we expect the in-force premium yield to remain generally stable in 2026. As shown on Slide 17, our investment portfolio of $6.1 billion consists of well diversified and highly rated securities, generating net investment income of $249 million in 2025. Our provision for losses and related credit trends continue to be positive with strong cure activity. On Slide 20, we provide trends for our primary default inventory. The number of new defaults in the fourth quarter was approximately 14,200 and as expected, the total number of defaults increased in the fourth quarter to approximately 25,000 loans at quarter end, resulting in a portfolio default rate of 2.56%. This increase in total defaults reflects normal seasonal trends and the expected continued seasoning of our large insurance in-force portfolio. As we have noted in the past, our new defaults continue to contain significant embedded equity, which has been a key driver of recent favorable credit trends, including higher cure rates and reduced severity for policies that result in claims submission. As shown on Slide 21, our cure trends have been consistently positive in recent periods, meaningfully exceeding our initial default-to-claim expectations for these loans. Cure rates in the fourth quarter exhibited typical seasonal trends in line with similar periods from prior years. Slide 22 shows the components of our provision for loss. We maintained our initial default-to-claim rate of 7.5% on new defaults, which resulted in $57 million of loss provision for new defaults in the fourth quarter. Throughout 2025, our provision for losses benefited from favorable reserve development on prior period defaults, primarily due to more favorable cure trends than initially estimated. This continued in the fourth quarter with $35 million of positive reserve development. As a result, we recognized a net provision expense of $22 million in the fourth quarter. Now turning to our other expenses. For the fourth quarter, our other operating expenses were $56 million, down from $62 million in the third quarter. For the year, our other operating expenses were $246 million, below our previously communicated annual expense guidance of $250 million for continuing operations. With the Inigo acquisition and following the planned divestiture of our Mortgage Conduit, Title and Real Estate Services businesses, we will continue to look for opportunities to enhance our efficiency as we simplify our business model to focus on mortgage and specialty insurance. Moving to our capital, available liquidity and related strategic actions. Radian Guaranty's financial position remains strong. In 2025, Radian Guaranty distributed $795 million to Radian Group through dividends and returns of capital. We also continue to diversify our sources of capital and use a range of risk distribution strategies to effectively manage capital and proactively mitigate risk. During the fourth quarter, we completed an excess of loss reinsurance agreement covering approximately $373 million on certain policies written from 2016 through 2021. Our PMIERs cushion was $1.6 billion at year-end, significantly above our required PMIERs capital level. This capital buffer, combined with our current reinsurance programs, positions Radian Guaranty well to withstand and remain well capitalized through a severe potential macroeconomic stress. Moving to our discontinued operations. During the fourth quarter, we extracted $62 million of capital from our entities held for sale. These returns of capital provided immediate liquidity to Radian Group and reduced the net carrying value of these businesses to $110 million as of year-end. As we've mentioned in the past, we have engaged Citizens JMP and Piper Sandler to assist us in the divestiture process. We are making steady progress and continue to expect this process to be completed by the end of the third quarter of this year. Moving to our holding company, Radian Group. In 2025, we repurchased approximately 13.5 million shares of our common stock at a total cost of $430 million. In preparation for the Inigo acquisition, which closed earlier this month, we significantly expanded our holding company liquidity to $1.8 billion at year-end, supported by a $195 million dividend in the fourth quarter and a $600 million intercompany note, both from Radian Guaranty. In January, we drew $200 million on our revolving credit facility, further increasing holding company liquidity. With these resources, we funded the Inigo acquisition with a purchase price paid at closing, net of certain adjustments, of $1.67 billion. Inigo's estimated tangible equity at year-end was $1.16 billion, resulting in a net purchase price multiple of approximately 1.4x tangible equity. Following the Inigo purchase, our holding company liquidity was approximately $350 million. In 2026, we expect dividends of at least $600 million from Radian Guaranty to Radian Group, including a $140 million dividend later in the first quarter. We expect these dividends to allow Radian Group to repay the $200 million draw from the credit facility during 2026 while continuing to maintain sufficient liquidity. As the year progresses, we expect to continue to build our liquidity position at Radian Group, and we will apply our disciplined capital allocation methodology to optimize the use of any excess capital, including potentially resuming share repurchases under our available share repurchase authorization. Finally, our leverage ratio declined to 18.3% at year-end, and we expect it to remain below 20% by year-end 2026. I will now turn the call back over to Rick. Richard Thornberry: Thank you, Dan. Our results for the quarter and the year once again reflect the balance and agility of our company as well as the strength and flexibility of our capital and liquidity positions. Our Mortgage Insurance business remains a cornerstone of our success and of our commitment to supporting homeownership. We appreciate the focus of the administration, FHFA and GSEs on making homeownership more affordable and sustainable. Our products enable qualified borrowers to access homeownership and begin building equity years earlier than if they had to save for a large down payment. For nearly 50 years, we have helped millions of families purchase their homes or refinance their mortgages. We are proud to play this important role in the housing finance system and in building strong communities. Finally, I want to express my gratitude to all Radian employees across every part of our company for their dedication and outstanding work throughout this pivotal year. Their commitment to excellence and our values has been the foundation of our success. Operator, we would be happy to take questions. Operator: [Operator Instructions] And our first question comes from Terry Ma of Barclays. Terry Ma: Maybe just to start off with Inigo, a question for Dan. Kind of -- like you guys just recently closed it, but any kind of updated thoughts on financial metrics or anything you kind of laid out initially a few months ago? Dan Kobell: Yes. Thanks, Terry, for the question. So I'd say broadly no changes from what we laid out a few months ago. And I would say just generally, the simplest way to look at the financial accretion from the Inigo acquisition using round numbers, it's a $1.7 billion acquisition. The funds we used for that acquisition were part of our investment portfolio at Radian between Radian Group and Guaranty. And they were earning, call it, a 4% or a 5% yield. So we've now taken that $1.7 billion and deployed it into an operating business that we expect is going to earn a mid-teens return through the cycle. There's going to be some volatility. It's actually been higher of late. But if you say it's mid-teens through the cycle, that's a -- call it, a 10% step-up in yield on $1.7 billion. So you get to $170 million of incremental net income. And that's really the source of the financial accretion that we had in the transaction. We didn't have expense synergies or revenue synergies that we were relying on. So it's really fairly straightforward taking Inigo as it exists and putting it into Radian. So from an execution risk perspective, I'd characterize it as fairly low. We have some light integration to do in terms of financial systems and reporting to be able to report our results on a consolidated basis, and some areas that -- we'll kind of look at that makes sense at an enterprise level to kind of think about on a consolidated basis. But really no change to what we provided in terms of financial guidance and feel very confident that we'll be able to deliver on that. Terry Ma: Got it. That's helpful. And then maybe just turning to credit. You called out the strong cure trends on Slide 21 of your deck, 90% of defaults curing within 1 year. Like as we kind of look forward, how sticky can that 90% be as you have some of the more recent vintages kind of start to season and peak, which I imagine have probably less embedded equity as some of the earlier vintages. Dan Kobell: Yes. So that's a good question, Terry, and that's certainly something we'll continue to monitor. As you noted, the vintages, if you go back, kind of that are seasoning now, had significant home price appreciation and embedded equity. We do continue to see in our new defaults, very significant embedded equity is still what's coming through. So the more recent vintages, we're starting to see that play through now, certainly going to be mindful of that. But the cure activity that we've seen has been very strong. As a reminder, we assume effectively 92.5% cumulative cure rate in terms of our reserving assumptions. So we take a fairly conservative view there relative to what we've seen over the last several years. It remains to be seen in terms of how those more recent vintages play out because we're just not seeing that enter the default inventory in a significant number yet. But we continue to see those cure trends play out very consistently, very favorable to what our original expectations were. And as far as credit trends overall, not really seeing any pockets of concern from a geography perspective across different credit segments or at a vintage level. Everything is playing out in line with or better than our expectations. Operator: And our next question comes from Mihir Bhatia of Bank of America. Mihir Bhatia: On the pricing environment, can you just compare returns on new business today versus a year ago? Dan Kobell: I can start with that one, and then Rick can jump in for some color on pricing. So as far as -- our premium yield is probably the best way to look at it. Our yield on an in-force basis has been very consistent. It's been around 38 basis points now for really 3 years. That's a pretty good indication that what we're bringing into the portfolio and what's exiting, there's a pretty good balance from a pricing perspective. We're not really seeing that in-force yield move. And I noted in my prepared remarks that we expect that to be the case for 2026 as well. So fair amount of stability there in terms of the blended rate of what's coming into the portfolio and what's leaving. I'll leave it to Rick from a pricing competition perspective. Richard Thornberry: Yes. First off, I'd just say we're very happy with the volume and the quality of what we saw in the fourth quarter and throughout 2025 from an economic value point of view. I would say industry pricing has been relatively stable, and it's a normal competitive environment. So nothing really noteworthy there. As we've stated for us, we don't focus on market share. We focus on economic value and being disciplined and consistent in our approach. And we continue to see really attractive opportunities to leverage our data and analytics to source NIW that has attractive economic value and risk-adjusted returns, which we believe gives us the opportunity to construct a really high-value portfolio, as Dan mentioned in his earlier comments. I think we used that -- those analytics this year to grow our insurance in force and find value to grow that portfolio to an all-time high to $283 billion. And I think we would expect fluctuations quarter-to-quarter, but I think we've been relatively consistent over time because we focus on really trying to find the most attractive EV segments of the market. One thing I would just highlight because I think it's important to note that maybe compared to other MI companies that maybe are more heavily weighted to bid-card structures that we deem to be low-value structures and can effectively limit the ability for us to leverage our proprietary data and analytics platforms to select risk where we see economic value. For us, today, over 80% of our current NIW is being sourced through our proprietary RADAR Rates platform, which is our black box pricing. And it really plays to our strength where we're able to leverage our analytics to price and select the loans we believe have the highest economic value based on loan and borrower attributes, based on our long-term view of geographic trends and differences across the industry. So I believe the combination -- as we've looked at this market the past year, we've seen very attractive opportunities from an economic value point of view. The combination of our industry-leading data and analytics and our view of customer from a quality of origination and servicing perspective, combined with our unwavering commitment to underwriting, I think really provides us with an advantage in terms of long-term portfolio construction. So we like this market. I think our team has done a really good job of leveraging our tools to find value in the marketplace, working closely with our customers. Mihir Bhatia: Okay. Awesome. And then maybe just a quick one on Inigo. Is the mid- to high 80% combined ratio a good run rate to think about for that business? Dan Kobell: Yes. So we haven't provided any kind of forward guidance from an Inigo perspective. I think as we report our results starting with the first quarter on a combined basis, we'll have all the key drivers for both Inigo and our MI business and probably a segment reporting structure, we'll be able to provide more detail at that time. So nothing forward. I think the combined ratio range that you referenced, I think, is kind of where they've been certainly over kind of their 5 years of operation. So I understand if you want to kind of think about that as a good trend to use, but we'll provide updated guidance as we move forward. Operator: And our next question comes from Bose George of KBW. Bose George: Actually, I just wanted to first follow up on the question on the accretion. The $170 million is -- I think it's a pretax number, but can you just confirm that? Dan Kobell: Yes. The way that I would explain that, Bose, I think of that as a pretax number. And... Bose George: Okay. Great. And -- sorry, go ahead. Dan Kobell: No, I was going to say, I think if you take that $170 million and you apply that to our equity base using, call it, a 25% statutory tax rate in the U.K. for Inigo, you get to north of 200 basis points of ROE accretion. So I think that's the right math to use. Bose George: Okay. Perfect. And then in terms of the premium to book value, is there going to be intangibles that need to be amortized? So do you know the split yet between goodwill and intangibles? Dan Kobell: Yes. So there will be intangibles and some of them will most likely be amortizing. We are in the process of doing all the purchase accounting related to the transaction. So that we don't have those numbers available and complete yet. But as I mentioned earlier, when we report our results for the first quarter, we will certainly have that and be able to kind of specify what the intangibles are and kind of what the amortization periods are going to look like for those. Bose George: Okay. Great. And then just one on the buybacks. You mentioned that we could see a resumption back half of the year. So if you look out to 2027, could we see buybacks back at the pre-Inigo levels by next year? Richard Thornberry: I think given our -- by the way, Bose, thank you for that question. I think given kind of our strategic path forward with MI -- our MI business, Inigo combination and the divestiture process underway and the attractive financial metrics that we expect from the Inigo acquisition, I would just state that we think our shares are undervalued, probably not the first time you've ever heard a public company CEO say that. But I think that's the position we take today. And given the strength of our financial position heading into 2026, Dan walked through some of that in terms of our current capital position and the transparency of future capital availability, we would expect to resume opportunistic share repurchases. And I think that's all based on the visibility of our MI business' embedded earnings from our insurance in force portfolio and the visibility to capital return we have from Radian Guaranty to group. And truthfully, we believe the combination with Inigo makes the value of our shares even more attractive. So we look forward to demonstrating the value of the strategic transformation as we go forward to all of our stakeholders. But I think we see value in our shares. Operator: I'm showing no further questions at this time. I'd like to turn it back to Rick Thornberry for closing remarks. Richard Thornberry: Thank you for joining us and for your interest in Radian. We look forward to reporting on our first combined results with Inigo next quarter, kind of exciting and demonstrating how our transformation into a global multiline specialty insurer can create additional value for our customers, partners and stockholders. And we're excited to speak with many of you in the coming months and share more of our story as it continues to unfold. And again, look forward to that first quarter reporting cycle. So thank you and appreciate your interest and be well. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, and welcome to Oceaneering's Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Sarah, and I will be your conference operator. [Operator Instructions] With that, I will now turn the call over to Hilary Frisbie, Oceaneering's Senior Director of Investor Relations. Hilary Frisbie: Thanks, Sarah. Good morning, and welcome to Oceaneering's Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being webcast, and a replay will be available on our website. With me today are Rod Larson, President and Chief Executive Officer, who will provide our prepared comments; and Mike Sumruld, Senior Vice President and Chief Financial Officer. After Rod's remarks, we will open the call for questions. Before we begin, please note that statements made during this call regarding our future financial performance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter press release, which is posted on our website. I'll now turn the call over to Rod. Roderick Larson: Good morning, and thanks for joining the call today. We closed out 2025 with strong execution across the business, making continued progress against our strategic priorities. Our performance reflected continued pricing progression in key businesses, strong operational delivery and growing contributions from Aerospace and Defense Technologies or ADTech. Importantly, this translated into meaningful cash generation with our cash balance increasing to $689 million at year-end, further strengthening our financial flexibility. During 2025, we generated order intake of $3.7 billion, which represented a book-to-bill ratio of 1.33, up from 1.1 in 2024, expanded adjusted EBITDA margins by 140 basis points with each operating segment realizing year-over-year improvements, achieved 99% ROV uptime for the second consecutive year and for the seventh time in the past 10 years, improved ROV -- improved pricing in our ROV business by 7% over the course of the year. Won the highest ever initial contract award in Oceaneering's history through our ADTech business, integrated GDi into our Integrity Management and Digital Solutions, or IMDS segment, repurchased approximately 1.8 million shares for $40 million and grew our cash balance by $191 million. As safety remains foundational to everything we do, I'm especially proud of our record low total recordable incident rate, or TRIR, of 0.22 achieved in 2025. Today, I'll cover our fourth quarter and full year 2025 results, our market outlook for 2026, our consolidated guidance for 2026 and our segment outlook for the full year and first quarter of 2026. I'll start by reviewing our fourth quarter 2025 results. We delivered a solid fourth quarter in line with typical seasonality, driven by strong operational execution in several of our business segments. Compared to the fourth quarter of 2024, consolidated revenue of $669 million was driven by substantial growth in ADTech, which partially offset lower revenue in our energy-focused businesses, resulting in a 6% decline from the same period last year. The revenue decrease in energy was primarily due to the unusually high number of international intervention and installation projects that our Offshore Projects Group or OPG, performed in the fourth quarter of 2024 that did not repeat in the fourth quarter of 2025. Consolidated operating income of $65.4 million also declined year-over-year with increases in ADTech, Manufactured Products and Subsea Robotics or SSR, partially offsetting significantly lower results in OPG, stemming from the intervention and installation projects in the fourth quarter of 2024 that I mentioned previously. IMDS was also lower compared to last year. We reported net income of $178 million or $1.76 per share, a 217% increase year-over-year. This improvement was largely due to a $156 million discrete tax benefit related to the release of U.S. valuation allowances. Our consolidated adjusted EBITDA of $90.5 million was at the high end of our guidance range, but as expected, declined year-over-year for the same reasons that revenue and operating income declined. Additionally, during the fourth quarter, we generated $221 million of cash from operating activities and invested approximately $30 million in organic capital expenditures with approximately 55% allocated to growth and 45% to maintenance. Free cash flow for the quarter was $191 million, benefiting from the timing of customer payments, including early receipt of payments originally due in the first quarter of 2026. As of December 31, 2025, our cash balance was $689 million, a 38% increase compared to the end of 2024. Now let's look at our segment results for the fourth quarter of 2025 as compared to the fourth quarter of 2024. SSR operating income of $67.8 million was 7% higher on relatively flat revenue. EBITDA margins improved to 38% from 36%, largely due to improved ROV pricing and increased tooling volumes. Survey results decreased on lower activity levels in the Americas as certain projects originally planned for the fourth quarter of 2025 shifted to the first quarter of 2026. The revenue split between our ROV business and our combined tooling and survey businesses as a percentage of our total SSR revenue was relatively flat at 78% and 22%, respectively. Average ROV revenue per day utilized increased 7% from $10,481 in 2024 to $11,210 in 2025, with a fourth quarter exit rate of $11,550. These pricing improvements offset the impacts of lower ROV fleet utilization during the quarter, which declined to 62%. Most of the decline came from vessel support of our OPG vessels as drill support utilization was slightly higher compared to the fourth quarter of 2024. During the quarter, 67% of ROV days utilized were for drill support and 33% were for vessel services. As of December 31, 2025, we had 60% of the contracted floating rig market with ROV contracts on 81 of the 136 floating rigs under contract. We ended the quarter with the year -- we ended the quarter and the year with a fleet of 250 ROV systems, including 16 upgraded work class ROV systems that replaced 16 systems that were retired in 2025. Turning to Manufactured Products. Our fourth quarter revenue of $132 million decreased 7% year-over-year. Operating income of $20.4 million and operating income margin of 15% increased considerably due to conversion of high-margin backlog in our umbilicals business and improved results in our non-energy projects. Year-end 2025 backlog was $511 million, a decrease of 15% compared to December 31, 2024. The book-to-bill ratio of 0.84 for the full year of 2025 declined compared to 0.97 in the full year of 2024, largely based on the timing of orders. It is worth noting that Manufactured Products full year 2025 revenue of $569 million and operating income of $72 million represented their highest level since 2020, when we combined our energy and nonenergy products into the same segment. OPG revenue of $131 million decreased 29% compared to the same quarter last year, while operating income decreased to $15 million and operating income margin declined to 11%. This was expected and as noted earlier, primarily due to large international intervention and installation projects that OPG performed in the fourth quarter of 2024 that did not repeat in the fourth quarter of 2025. For IMDS, fourth quarter revenue declined due to lower activity levels in Europe and West Africa. Operating income declined by $2 million due to a combination of lower revenue and a loss associated with the resolution of a commercial dispute. Our ADTech fourth quarter 2025 operating income increased 43% and operating income margin improved to 11% on a 29% increase in revenue as compared to the same period last year. These improvements are the result of new contracts awarded during the year and reflect our strategic initiative to increasingly leverage our offshore knowledge and capabilities to grow this segment. In addition to previously announced contract awards, ADTech completed 2025 with 2 fourth quarter awards on unexercised options that are expected to generate meaningful revenue in 2026. ADTech's current backlog establishes a strong multiyear foundation for revenue growth, extending beyond the traditional 5-year planning horizon. Fourth quarter 2025 unallocated expenses of $52 million increased 26% compared to the same period last year, primarily for increased accruals for performance-based compensation. Now I'll turn my focus to our consolidated full year 2025 results compared to 2024. For 2025, consolidated revenue increased 5% to $2.8 billion, marking our fifth consecutive year of revenue growth. With the exception of IMDS, each of our operating segments achieved revenue increases. Consolidated 2025 operating income of $305 million improved by $58 million or 24% and adjusted EBITDA of $401 million improved by $54 million or 16% compared to 2024. EBITDA growth was realized for all of our operating segments. Cash flow from operations increased $116 million to $319 million, primarily due to timing of customer collections in the fourth quarter. We invested 101 -- excuse me, we invested $111 million in organic capital expenditures, representing a 4% increase over 2024 levels. For the full year of 2025, free cash flow was $208 million compared to $96.1 million in 2024. At year-end, we had total liquidity of $904 million, comprised of $689 million in cash and cash equivalents and $250 million -- $215 million, to be clear, million from our undrawn revolving credit facility. Now turning to our 2026 market outlook. We expect ADTech to be our primary growth driver in 2026 based on our current backlog and expectations for increased spending across defense and government markets. In the U.S., we anticipate a well-funded defense environment with steady activity in subsea critical infrastructure protection, unmanned subsea systems and submarine sustainment. Internationally, geopolitical tensions and increased allied spending create additional opportunities for our AUVs, resident systems and subsea monitoring solutions. For our energy-focused businesses, we expect 2026 results to reflect a global oil market that remains oversupplied early in the year and gradually tightens as the year progresses. Consistent with that backdrop, offshore activity levels are expected to be relatively flat in the first half of 2026 with increased activity in the second half of the year and into 2027. According to the U.S. Energy Information Administration, Brent crude oil prices are expected to average in the mid-$50 to low $60 range in 2026, a level we believe supportive of deepwater activity broadly consistent with 2025. Spinergie forecasts that deepwater rig demand, which is indicative of ROV activity, will remain relatively flat in 2026. Independent research indicates that final investment decisions or FIDs for deepwater projects are expected to increase in 2026. FIDs and subsea tree awards are key leading indicators for offshore activity over a 2- to 5-year horizon, including installations, equipment orders and overall offshore spending. These indicators help inform the expected timing of demand for umbilicals, subsea hardware and other subsea products, such as our rotator valves, all of which are typically ordered 3 to 6 months following tree awards. According to Rystad Energy, 42 deepwater FIDs are expected in 2026 compared to 37 in 2025 and increasing to approximately 75 in 2027. Subsea tree awards are forecasted to increase to approximately 300 awards in 2026 compared to 190 in 2025. Tree installations are expected to increase modestly to approximately 370 installations in 2026 compared to 343 in 2025. Now I'll turn to our consolidated 2026 outlook. Based on our current backlog, anticipated order intake and market fundamentals, we project consolidated revenue in 2026 to grow in the low to mid-single-digit percentage range. Year-over-year, ADTech revenue will improve significantly. SSR and IMDS revenue improvement will largely offset anticipated declines in OPG and Manufactured Products. Our current energy-related backlog includes a mix of multiyear contracts, including awards announced across multiple geographies and business segments, such as multiyear SSR contracts for ROV services in Angola and ROV and survey services in Brazil, and multiyear OPG contracts for Inspection, Maintenance and Repair, or IMR, contract in Mauritania and for riserless light well intervention in the Caspian Sea. For the year, we anticipate generating $390 million to $440 million of EBITDA with year-over-year improvements in all of our segments, except for OPG. At the midpoint of this range, our 2026 EBITDA would represent a modest increase over our 2025 adjusted EBITDA. EBITDA margins are expected to improve in Manufactured Products and IMDS, remain stable in SSR and ADTech and decrease in OPG. We anticipate generating positive free cash flow of $100 million to $120 million. The year-over-year reduction in free cash flow primarily reflects the early receipt of approximately $37 million in customer payments in the fourth quarter of 2025 that were originally scheduled for the first quarter of 2026. At the midpoint of our EBITDA and free cash flow ranges, our cash conversion rate for '25 and '26 combined will be almost 40%, as has been the case over the last several years, we anticipate a substantial cash draw during the first quarter related to working capital changes associated with lower customer receipts, associated with early collections in 2025 that were scheduled for 2026, and the payment of performance-based incentive compensation. For 2026, we forecast our organic capital expenditures to total between $105 million and $115 million, with approximately 40% allocated to growth and 60% to maintenance. Compared to 2025, our energy-focused capital expenditures are projected to be down 12%, while ADTech spending is up to support recent contract awards. We forecast our 2026 interest expense net of interest income to be in the range of $21 million to $26 million. We expect our cash 2026 tax payments to be in the range of $95 million to $105. Directionally, in 2026 for our operations by segment, we expect continued improvements in SSR based on increased tooling volume, improved results from our survey business and the full year benefit of pricing improvements achieved throughout 2025. Revenue growth is expected to be in the low to mid-single-digit percentage range and EBITDA margins are expected to average in the mid-30% range for the full year. For ROVs, we project a service mix of approximately 65% drill support and 35% vessel services consistent with 2025. Our overall ROV fleet utilization is forecasted to be in the mid-60% range with higher activity levels during the second and third quarters. We expect to sustain our ROV market share in the 55% to 60% range for drill support services. Average ROV revenue per day utilized in 2026 is expected to be relatively flat compared to our 2025 exit rate. Survey results are expected to improve in 2026, supported by increased utilization of our Ocean Intervention II vessel, which we upgraded in 2025 to enable simultaneous autonomous survey operations. We have also deployed our Freedom Autonomous Underwater Vehicle or AUV, on commercial operations in West Africa. We expect to deliver a second commercial second Freedom vehicle to the defense innovation unit in the first half of 2026. Finally, as part of our fleet transition plan, we are pleased to announce that our newest electric work class ROV momentum is expected to be deployed on vessel support operations in the U.S. Gulf later this year. For Manufactured Products, we expect meaningful improvements in operating income on slightly lower revenue, driven by continued conversion of our existing umbilicals backlog, high absorption levels across our 3 umbilical plants, increased order activity in rotator and cost reductions in our nonenergy product lines. Operating income margin is expected to average in the mid-teens for the year. For OPG, revenue is expected to decrease and operating income is expected to decrease significantly as projects shift toward traditional IMR work from installation and intervention work. We also project lower activity levels in the U.S. Gulf and West Africa, partially offset by higher activity levels in Brazil, the Caspian and the Middle East. Overall, for 2026, OPG operating income margins are expected to average in the mid-teens range for the year. IMDS operating income is forecasted to improve significantly on increased revenue with growth opportunities in digital and engineering services. Operating income margin is expected to improve to be in the mid-single-digit range for the year. ADTech operating income is expected to improve on significantly higher revenue with revenue and operating income growth in all 3 of our government-focused businesses. Operating income margins are expected to average in the low teens for the year. Our growth expectations are underpinned by 2025 contract awards that span product development, maintenance, inspection, specialized technical services and ongoing operations in complex maritime, space and security environments, supporting mission-critical defense and space operations. For 2026, we anticipate unallocated expenses to average approximately $50 million per quarter with increases associated with wage inflation, IT costs and foreign exchange impacts. Now I'll discuss our outlook for the first quarter of 2026 as compared to the first quarter of 2025. On a consolidated basis, we expect our consolidated revenue to decrease and EBITDA to be in the range of $80 million to $90 million. This guidance range is driven by our expectation for lower activity levels in energy markets at the start of 2026, which we expect to improve as the year progresses. For SSR, we project revenue to increase slightly and operating income to decrease given the geographic mix of ROV activity. We anticipate the mix to be more favorable as we progress through the year. In Manufactured Products, we forecast operating income to increase significantly on slightly lower revenue due to continued backlog conversion and the absence of the inventory release that impacted our theme park ride business in the first quarter of 2025. We expect OPG revenue and operating income to decrease significantly on lower vessel utilization and changes in project mix in the U.S. Gulf and lower international activity. We project IMDS revenue and operating income to be relatively flat. For ADTech, we expect significantly higher revenue and increased operating income on changes in project mix. We forecast unallocated expenses to be in the range of $50 million. In closing, I want to thank our employees for their dedication throughout 2025. Through their efforts, we saw momentum in each of our segments that gives us increased visibility into the future, including strengthening contributions from ADTech, growing opportunities in digital and software services and expanding opportunities in international projects. As we move into 2026, we remain focused on working safely and reliably, supporting our customers and creating value for our shareholders. We appreciate everyone's continued interest in Oceaneering, and we'll now be happy to take any questions you may have. Operator: [Operator Instructions] Your first question comes from Keith Beckmann with Pickering Energy Partners. Keith Beckmann: I wanted to ask kind of around -- I noticed you guys have talked about increased defense and government spending. ADTech looks to be stronger throughout the year with some awards. What is the -- what's kind of the typical lead time and process of government services type of projects from the time that they're awarded to kind of whenever they would show up for you typically. Is there a rough time line on that or lead time? Roderick Larson: It's really hard. It varies quite a bit. I mean some things depending on like if there are services for existing products, they ramp up quickly. Some of the things where we're working on new things, that starts with -- like every other project starts with engineering studies and then you go to prototyping and all those kinds of things. So it really is -- it's hard to call. And I would just -- just to give you an idea, it's a mix right now. So the things we've been talking about are a mix of the two. Keith Beckmann: No, that's very helpful. Makes sense. And then the other question that I had was around ADTech as well again. Whenever you think about kind of the other segments in your business, how those really helped supplement what ADTech does and kind of the growth we've seen in that segment? I think it's kind of like your knowledge around ROVs and maybe how that helps, but any color on that? Roderick Larson: No, I think you're right on. And so we work in different places, right? So one of them is more about just sort of that offshore operations, ROVs, vehicles, that kind of stuff. That's one of the groups that we talk about. The other one is just our experience in maritime and working on things. It started with a lot of our welder expertise and the things we were doing offshore. So in that case, we do SUBSAFE work. So we're doing what we call -- you'll hear us talk about submarine sustainment. And that's because we're doing a lot of the mechanical haul repair, sail repair, things like that when a submarine comes into dry dock for nuclear refueling. So we do a lot of that pressure vessel maintenance, if you will. And we're actually one of the only ones that's actively doing that other than the submarine builders. So that's a SUBSAFE certification they call it, which is pretty unique. And then the third part is, of course, Oceaneering space systems and the space systems stuff, we do everything from the things that astronauts need to do in space. So creating tools, habitats, human interface and not surprisingly, that's about working in low gravity environments, right, like a diver does. So our expertise with divers and tooling kind of translate into that business. And then the other part that came with that is suits and then finally, thermal protection systems, which is sort of a -- if you think about this, this is the shrouding that goes around the rockets, a fabric shrouding that's sacrificial, it burns up basically when the rocket launches. And of course, that business is pretty hot right now with both the return to space, but also with the Golden Dome. Operator: Your next question comes from Josh Jayne with Daniel Energy Partners. Joshua Jayne: First one, I was just curious, could you talk about the future of IMDS and then also your digital software offerings and how you could potentially expand them sort of outside what you're doing within energy? Roderick Larson: Yes. And those are kind of linked at the hip. It -- for us, it's exciting because it's one of the first times we see sort of machine vision, machine learning and AI coming to play. So we're going out to a rig. And instead of just having people crawl all over and do spot checks with hammers and cameras and chip and paint and things looking at pressure vessels and primary containment on the surface side of the offshore platform. We actually are doing laser scanning. We'll be able to take that laser scanning and build a 3D model of the rig and detect corrosion at a very precise level. So you detect that corrosion, so you can be able to do a much more comprehensive scan of the facility but you can also quantify the corrosion and then start to predict how long till failure, what are the parts we need to check more regularly. So it's a huge advantage to catching things early to being a lot more, I would say, precise with how you want to go out and do your inspections thereafter. The cool part and the thing we're really excited about is while that really improves the topside inspection for our customers, we have had some really successful tests about taking that underwater. And so if we can inspect subsea infrastructure the same way with the laser scanning and the 3D model, we can be deploying that off an OPG vessel with an ROV. And so we expect that we will solve the customer's problem, but it will also create demand for ROVs and vessels. Joshua Jayne: That's helpful. And then just one more that I wanted to ask. I want to dig into M&A a little bit. I know it obviously hasn't been as much of a focus for you in the last couple of years. But just given that we've seen some on the rig side recently announced some larger deals. And I would say the current administration is pretty favorable towards moving deals. Has any of this changed your thoughts moving forward on M&A? Or should we expect Oceaneering just to sort of operate how they've been over the last couple of years and sort of sticking to your knitting and with the focus on free cash flow generation and returning it to shareholders with your capital allocation? Roderick Larson: I don't think it's going to change my mind on big industry consolidation, right, to try to go and put things together that if you squint really hard, look like they might go together just to create a bigger company. But it does -- I mean, it does give us a little bit of confidence as we go forward. The GDi acquisition was something we love, a bolt-on of technology that gave us this laser scanning thing I just talked about. I think the more we can look at how do we move to what the oilfield needs next or what the defense side needs next, and picking up new technologies that are great bolt-ons that either give us broader participation in the market or up our technology game, I think those are really attractive. And hey, if they -- if it's easier to do, it will also -- along with the financial wherewithal we're building with a strong balance sheet, it may encourage us to move into slightly bigger things. Michael Sumruld: Yes, I was going to add the same thing. I think for sure, the balance sheet strength and the growth in cash over the last several years, given the excellent work that's happened here, just gives us the opportunity, more flexibility and opportunity to do more when the time is right. Operator: [Operator Instructions] Your next question comes from Brandon Carnovale with Half Moon Capital. Brandon Carnovale: Congrats on a great print. So curious if you're seeing any traction on the autonomous forklift side after kind of like the big delivery, I think you had kind of exiting last year. Roderick Larson: There's -- I would say there's a lot of interest and different people are looking at whether they want to use it for truck loading and unloading, which is a huge opportunity for us. And we've been working on improving the capabilities for doing that. But also wherever it's just operating in places where it's not as conducive to have a driver on the forklift. So it's a lot of interest. I would say it's spread out over a lot of what was a get to know you kind of activities, somebody who wants to pick up 2 or 3 and do a test. I think one of the things we learned is the adoption, we're going to be really keen on, are you ready to adopt. If it's a brownfield application, are the people ready for it? Is the location ready for it? To make sure that those adoptions are smooth. But yes, the interest is high. I think we just got to see how fast these things pick up. So we're still encouraged and the list is long. So we'll keep knocking on the doors and keep answering those calls. Operator: This concludes the question-and-answer session. I'll turn the call to Rod Larson for closing remarks. Roderick Larson: Well, since there's no more questions, I'll just wrap up by thanking everybody for joining the call. This concludes our fourth quarter and full year 2025 conference call. Have a great day. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Welcome to the NiCE conference call discussing fourth quarter 2025 results, and thank you all for holding. [Operator Instructions] As a reminder, this conference is being recorded February 19, 2026. I would now like to turn this call over to Mr. Ryan Gilligan, VP, Investor Relations at NiCE. Please go ahead. Ryan Gilligan: Thank you, operator. With me on Today's call are Scott Russell, Chief Executive Officer; and Beth Gaspich, Chief Financial Officer. Before we start, I would like to point out that some of the statements made on this call will constitute forward-looking statements. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, please be advised that the company's actual results could differ materially from these forward-looking statements. Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2024 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 19, 2025. During today's call, we will present a more detailed discussion of fourth quarter and full year 2025 results and the company's guidance for first quarter and full year 2026. You can find our press release as well as PDFs of our financial results on NiCE's Investor Relations website. Following our comments, there will be an opportunity for questions. Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles as reflected mainly in accounting for share-based compensation, amortization of acquired intangible assets, acquisition-related expenses, amortization of discount on debt and loss from extinguishment of debt and the tax effect of the non-GAAP adjustments. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties and assumptions. I will now turn the call over to Scott. Scott Russell: Thank you, Ryan, and good morning, everyone. I am incredibly proud of what our team accomplished in 2025. We achieved our financial guidance each quarter and for the full year, delivered total revenue growth of 8%, cloud revenue growth of 13% and non-GAAP EPS of $12.30, all at the high end of our guidance range. Since I joined, we sharpened our focus on execution and speed. We leaned into the AI-first platform-led strategy and doubled down on international expansion and strategic partnerships. Our 2025 results reflect strong execution against that strategy. In 2025, we extended our CX AI market leadership with AI ARR increasing 66% to $328 million, representing 13% of cloud revenue. We set records for acquiring new AI logos, growing 300% year-over-year and closed a record number of seven-figure ACV deals for CXone with 100% including AI. We further strengthened our competitive position with the acquisition of Cognigy, the enterprise leader in agentic AI, making NiCE the only player in the CX market with a fully AI native CX platform. In our international markets, 2025 was a breakthrough year. We landed our largest international deal ever and ultimately grew international revenue by 16% with growth accelerating to 29% in the fourth quarter. We also expanded our strategic partner ecosystem through deals with ServiceNow, AWS, Snowflake, Salesforce, Deloitte Digital, PwC and RingCentral as well as several other international SI partners. Our partners continue to be an incredibly valuable and exciting part of our growing contribution, and we expect these partnerships to bring even more in the coming years. Coming out of Q4 with a strong booking momentum and retention, we are entering 2026 on track to reaccelerate cloud revenue growth, which Beth will, of course, cover in more detail shortly. None of this would be possible without a healthy core CCaaS business. We have the leading platform in a growing and healthy market. Seats and interactions on CXone continued to grow in 2025. And importantly, only about 40% of contact centers have migrated to CCaaS today, leaving a large and durable on-premise to cloud migration opportunity ahead. We are delivering real transformative value to our customers, and this is translating into strong performance in our core CCaaS business. In Q4, cloud revenue grew 14% year-over-year and excluding NiCE Cognigy, grew 12%. Q4 was a record quarter for new cloud ACV bookings, including and excluding Cognigy, driving cloud backlog growth to 25%, including Cognigy and 22% excluding it. Our win rates continue to improve against key CX competitors as customers increasingly favor holistic end-to-end CX platforms over fragmented point solutions. This is reflected in several key deals during the quarter, including a large enterprise win with a leading North American financial services firm. They selected NiCE in a competitive displacement of a legacy on-prem environment and will adopt NiCE's AI-powered CXone platform, including NiCE Cognigy to increase service automation, reduce low-value interactions and deliver more personalized client experiences. Additionally, we won a seven-figure ACV deal with a leading financial services group in EMEA, which selected NICE CXone to replace a legacy on-premise ACD and consolidate multiple platforms into a unified AI-ready CX foundation. With a strong core, we are positioned to capitalize on the significant CX AI opportunity in front of us. AI is expanding NiCE's CX market opportunity beyond the contact center, creating new use cases that are still early in adoption and driving faster expansion as customers scale AI across their organizations. NiCE Cognigy NICE strengthens that position. NiCE Cognigy is ranked #1 by industry analysts and was recently recognized as the only conversational AI platform to receive the customer choice distinction in the latest Gartner Peer Insights Voice of the Customer Report. That customer validation extends across our core platform as well with CXone also now recognized as the only CCaaS platform to receive the customer choice distinction. Combining the market leaders in CCaaS and agentic AI for CX into the only AI native CX platform that can operate seamlessly across voice, digital and AI at enterprise scale allows NiCE to be uniquely positioned to seize the significant CX AI opportunity ahead. Our platform owns the point of engagement and is built on the industry's largest CX data foundation. With decades of CX experience and a platform that supports 20 billion interactions annually, NiCE understands customer experience better than anyone, and this leadership is showing in the results. 2026 is the year that NiCE Cognigy begins to act as a force multiplier. We recently launched Cognigy Simulator, an AI performance lab that allows for faster, scalable and more reliable testing of AI agents. And soon, we will expand NiCE Copilot capabilities with Task Assist for agents powered by NiCE Cognigy. Later this year, we will complete the integration of NiCE Cognigy into a single fully native CXone platform, delivering a seamless AI native experience at enterprise scale. As we enter 2026, I am very excited about the significant pipeline growth from our NiCE installed base that we -- and we expect that pipeline to grow as we further integrate NiCE Cognigy into CXone. While we're incredibly excited about what the future holds for our seamlessly integrated capabilities, NiCE Cognigy is seeing strong momentum today. More broadly, we continue to see strong AI-driven enterprise software demand with customers prioritizing investments that deliver clear ROI and measurable outcomes. In Q4, seven-digit ACV wins included a leading North American consumer services company that expanded its relationship with NiCE by adding Cognigy for self-service to its existing CXone platform. This expansion will replace an AI solution from a CRM provider, providing -- delivering a compounding benefits of a unified platform with improved orchestration, deeper insights and more seamless experiences across channels. In another large enterprise win, a leading North American energy company and an existing CXone customer expanded its relationship with NiCE to accelerate AI-driven customer engagement. By adopting Cognigy for self-service and Copilot to support agents on more complex interactions, the customer aims to improve containment and call handle times while scaling efficiently during periods of elevated demand. The market is still in the early stages of AI adoption, yet it's already driving our growth. But as you heard me say in the Capital Markets Day, we need to make strategic, targeted and time-bound investments in 2026 to seize this opportunity. These investments will focus on innovation, including integrating NiCE Cognigy and advancing our agentic AI capabilities, while also expanding our go-to-market and delivery capabilities, so we're able to execute on the significant growth catalysts we see in 2026 and beyond. These catalysts, including driving AI-first growth across every customer touch point, automating end-to-end customer journeys with AI -- agentic AI on our platform, capitalizing on the CCaaS cloud migration, accelerating our international expansion and partner ecosystem and expanding beyond the contact center. Before handing it over to Beth, I want to emphasize two points. First, 2026 is all about speed, and we're moving quickly to seize the opportunity in front of us. And secondly, my conviction today is stronger than when I joined that AI is a clear tailwind for NiCE. Let me be really clear here. NiCE is an AI company. Enterprise CX AI requires deep domain expertise, unified data, orchestration and governance at scale, and that is what we do. We have the technology, the data, the domain expertise and the customer base to win, and we will seize this opportunity. With that, I'll now hand the call over to Beth. Beth Gaspich: Thank you, Scott. I'm pleased to close out 2025 by sharing our strong fourth quarter and full year results, which reflect continued disciplined execution across our business. Our fourth quarter performance has further strengthened our confidence in the recent financial targets we shared at our Capital Markets Day in November 2025. Later in my remarks, I will share our first quarter and full year guidance for 2026, which reflects the healthy momentum we experienced exiting 2025. 2025 was a transformative year for NiCE with Scott and our NiCErs across the globe laying the groundwork for accelerating top line growth in the years ahead. Before I dive further into the fourth quarter 2025 results, there are several financial accomplishments from last year that I would like to highlight. First, our full year 2025 results were impressive and came in at the high end of our previously communicated guidance ranges. Full year total revenue was $2.945 billion, representing 8% year-over-year growth. Full year cloud revenue grew 13% year-over-year and 12% excluding Cognigy. 2025 reflected consistent execution in our core cloud business with 12% cloud revenue growth delivered each quarter, excluding Cognigy. Operating margin tracked as expected, while free cash flow margin of 21% exceeded our guidance, reflecting disciplined execution while absorbing Cognigy starting in early September. Second, we completed the acquisition of Cognigy, which was financed entirely with cash on hand, supported by our strong balance sheet and robust organic operating cash flow. Third, we fully repaid $460 million of outstanding debt. Our balance sheet is now debt-free, providing us with significant financial flexibility to invest prudently in our business and return capital to shareholders. And fourth, we continue to return significant capital to our shareholders through our share repurchase program, underscoring our confidence in the durability of our cash flow generation and long-term value creation. In 2025, we repurchased $489 million of our shares, representing 32% growth year-over-year and 79% of free cash flow generation, ending the year with approximately 60.4 million shares outstanding. Shifting to fourth quarter financial results. Total revenue was $786 million, representing 9% year-over-year growth. Cloud revenue totaled $608 million, growing 14% year-over-year and represented 77% of total revenue, continuing the steady mix shift toward our cloud-first model. Excluding Cognigy, cloud revenue increased 12% year-over-year. Cloud growth in the quarter was driven primarily by continued momentum in our CX AI offerings with AI ARR of $328 million, up 66% year-over-year as customers increasingly adopt our AI-powered automation across both self-service and human-assisted workflows. Cloud growth also benefited from ongoing CCaaS migrations and a very strong international performance, including a modest incremental contribution for an earlier-than-expected go-live of a large international enterprise deployment originally planned for 2026 as well as a small foreign exchange tailwind of approximately 50 basis points in the quarter. As we've noticed previously, while AI is already a meaningful contributor to growth, we remain early in fully monetizing its long-term potential. That context is important as we continue to invest in this opportunity today while building operating leverage over time as our AI revenue compounds. Our cloud net revenue retention for the trailing 12 months was 109%, remaining healthy and stable with the prior quarter, reflecting continued customer retention and expansion activity. Turning to our business segments. Customer Engagement revenue was $658 million in Q4, representing 84% of total revenue and growing 10% year-over-year, driven by double-digit cloud revenue expansion across all geographic regions with strong performance internationally, reflecting increased enterprise adoption of CXone and growing demand for our AI-powered CX solutions. Financial Crime and Compliance revenue totaled $128 million, growing 2% year-over-year and represented 16% of total revenue. Actimize is the clear market leader and is benefiting from the positive momentum we are experiencing in shifting this segment to a higher recurring business with healthy cloud revenue growth. From a geographic perspective, the Americas region represented 82% of total revenue, growing 5% year-over-year, and this performance was supported by double-digit cloud revenue growth in the region alongside the continued evolution of our revenue mix from on-premise related revenue towards cloud-based solutions. EMEA revenue, which represented 13% of total revenue, grew 38% year-over-year or 32% on a constant currency basis, and APAC revenue representing 5% of total revenue grew 11% year-over-year, consistent on a constant currency basis. This strong growth is reflective of continued healthy demand in international markets, one of our key growth drivers. International revenue is now majority cloud, while cloud adoption internationally remains underpenetrated, supporting a significant growth runway in 2026 and beyond. Turning to profitability. Our total gross margin for the fourth quarter was 69.3%, consistent with our expectations. Our gross margin reflects our continued investments in scaling our global cloud infrastructure and supporting increased AI workloads, particularly as usage expands across regions and use cases. Operating income for the quarter was $301 million, resulting in an operating margin of 31%. Earnings per share for the quarter were $3.24, a 7% increase compared to last year. Cash flow from operations in Q4 was $180 million, underscoring the strength of our operating model and our ability to fund growth internally. Free cash flow was $156 million in Q4, and we ended the year with $417 million in cash and short-term investments. Our strong free cash flow and balance sheet are key strategic assets that provide us flexibility to invest in innovation, support strategic initiatives and continue returning capital to shareholders over time. We remain committed to disciplined and thoughtful capital allocation. To further enhance our financial flexibility, yesterday, we entered into a new $300 million revolving credit facility, which provides additional liquidity and optionality while maintaining our strong balance sheet. In addition, we are announcing that our Board has authorized a new $600 million share repurchase program, reinforcing our confidence in the durability of our cash flow generation and our disciplined approach to capital allocation. This brings our total remaining share repurchase authorization to approximately $1 billion. Before closing with guidance, I do want to spend a few minutes on how we are thinking about 2026, specifically around the cadence of investments and how that should translate into margins throughout the year. At our Capital Markets Day, we shared a midterm framework for growth, margins and cash generation. Today, we are confirming that framework with additional clarity on timing and cadence. 2026 will be a year of deliberate targeted investment to support our next phase of growth to capitalize on the immense CX AI opportunity. These investments are focused on three primary areas: cost of goods sold, R&D, and sales and marketing. As we've shared, near-term margin performance expectations reflect intentional investment choices. These investments are designed to optimize our AI market-leading position, drive durable growth, expand our competitive differentiation and position the business for long-term operating leverage. While we plan to increase organic investments during 2026, our margins remain industry-leading, outperforming our market peers even with the addition of the focused spend, and we expect to build on this strength with steady margin expansion in 2027. In tandem with investing for growth acceleration, we are investing in AI internally to enhance productivity and execution across the organization. Within our go-to-market operations, we are applying AI to accelerate customer quoting and surface key signals from customer interactions, enabling faster deal execution, improved forecast accuracy and reduced deal risk. Beyond go-to-market, we're using AI to improve internal operations, including applying AI to HR knowledge and deploying Cognigy within our internal help desk to resolve IT queries more quickly and with a more human-like experience. These are just a few examples where we're already leveraging AI internally to deliver long-term operational efficiencies. In 2026, we expect the pace of incremental margin investment to be highest in the first half of the year as we execute against our growth priorities, including integrating Cognigy and scaling its operations with operating margins improving in the second half. This positions us to exit 2026 near the upper end of our 25% to 26% operating margin range and sets the stage for margin expansion in 2027 and beyond, driven by the benefits of our 2026 investments, including stronger cloud revenue growth, continued scaling of our AI business and the increasingly accretive contribution from Cognigy. Cognigy remains on track to be accretive within 18 months of the acquisition close. Now I'll close with our total revenue and non-GAAP EPS guidance for the full year and first quarter of 2026. Full year 2026 total revenue is expected to be in a range of $3.170 billion to $3.190 billion, which represents an increase of 8% at the midpoint. We expect cloud revenue growth in 2026 to be in the range of 14.5% to 15% with Cognigy expected to contribute approximately 200 basis points. Turning to financial income. It's important to note that our cash and short-term investment balance was reduced by approximately $1.2 billion in 2025 as we financed the Cognigy acquisition and fully repaid our outstanding debt, which will naturally impact financial income in 2026. We expect our effective tax rate throughout 2026 to be in the range of 20.5% to 21% due to tax law changes in certain jurisdictions that became effective at the start of this year. Full year 2026 fully diluted earnings per share is expected to be in a range of $10.85 to $11.05. For the first quarter of '26, we expect total revenue to be in the range of $755 million to $765 million, representing an 8.5% year-over-year growth at the midpoint. We expect the first quarter 2026 fully diluted earnings per share to be in a range of $2.45 to $2.55. In summary, we exited 2025 from a position of strength. anchored by a stabilized and growing cloud business, a differentiated customer experience platform with embedded agentic AI and a strong balance sheet that supports investment and continued capital returns to our shareholders. Our large and expanding installed base reflected in healthy cloud net revenue retention, continued growth in cloud backlog from both customer expansion and new large enterprise wins and an increasing number of enterprise go-lives gives us confidence in the durability of our growth as we enter 2026. Our 2026 guidance reflects our excitement about the market opportunity ahead and our confidence in our ability to accelerate top line growth through our market leadership and unmatched assets. Together with Scott, we would like to thank all our dedicated teams across NiCE for their disciplined execution and focus throughout the past year, which drove our strong financial performance. We remain confident in our strategy, our execution and our ability to deliver durable shareholder value over the long term. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Rishi Jaluria with RBC. Rishi Jaluria: This is Rishi Jaluria. Nice to see solid execution to close out the year. Maybe two questions, if I may. First, look, looking at the market, it's pretty clear that the market is scared of AI disrupting and displacing your business. Clearly, that's spread to all of software and is something that we've all been dealing with really in a big way over the past couple of months. You made it clear over the past couple of years and at Analyst Day and now today that you're viewing AI as a real tailwind for NiCE and something that could pick up accelerating momentum in kind of the coming years. Can you maybe help us understand where is the disconnect? Where do you think that the market is wrong? And kind of where is your opportunity to kind of disprove those bear cases and kind of prove yourselves as an AI beneficiary? And then I've got a quick follow-up. Scott Russell: Sure. Thanks, Rish. So let me try to take that. So there is clearly a disconnect between the fears in the market and the reality of what we're seeing in the business. So let me try to break it down, if I can. First of all, there's a concern about competition from new AI point solution. And the reality is this, the CX AI market is expanding rapidly. And it's large enough actually to support multiple approaches. But our growth -- the growth of our business is not coming at the expense of those competitors. Actually, it's a beneficiary. If you look at NiCE's business, 13% of our cloud revenue is AI. We've already proven that we've embedded it into our core platform. We're able to deliver durable value to our customers. And why is that? Well, CX is complex, and we are domain experts in CX. You look at what is required from our customers, it requires orchestration, really rich and unified data governance. It requires deep domain expertise across the customer journey. And so whilst point solutions and some AI solutions can address use cases and narrow use cases, they don't actually fulfill the full customer journey. They're -- in fact, in some ways, they're actually complicating or creating more complexity. So a unified platform that is able to deliver across voice, digital and AI is what the market needs and expects. And that's where a combined platform that we offer, which is unique in that we've got the best-in-class in both cases helps us. And that -- and I guess, ultimately, we're showing that in the numbers. The growth rates, I indicated at Capital Markets Day, if you remember, Rish, that we expected our cloud growth in 2026 to be between 13% to 15%. We're already indicating at the high end of 14.5% to 15%. That's on the back of customer demand, real backlog that's growing at 25%, real pipeline that we're converting into ultimately revenue for NiCE, but ultimately, it's value for our customers. So I'm confident that our growth indicators reflect the tailwind that AI brings, and I'm sure the market ultimately will see NiCE in a favorable way. Rishi Jaluria: All right. That's super helpful. And maybe just a follow-up on that. In kind of the AI native space, we've obviously seen a lot of funding for voice AI start-ups. And it feels like maybe piggyback on that earlier point of conversation, the market is kind of viewed it as -- at least the stock market is viewed it as kind of an either/or. But it really feels like there might be opportunities for even partnerships and integrations and kind of focusing on customer success. Can you maybe talk about your opportunities? I know, Scott, you talked a lot about increasing partner ecosystem traction, et cetera, but maybe an opportunity to even just have deeper integrations and partnerships with some of these AI natives just to kind of leave the choice up to the customers even if it may sound potentially competitive. Because at the end of the day, they do need the pipes that you have, they do need the call routing piece. Maybe help us understand what could that kind of ISV or AI partnership look like? Scott Russell: Yes. It's a great question, Rish. I'll probably break it into two parts. The first is we're an open platform. We've made a very conscious decision to be a platform that allows the customers to utilize their data because it's their data that all of the billions of interactions that sits on our platform and being able to leverage it across not only the NiCE CXone, but an open stack that supports the use of other tools. And that's why the partnerships with Salesforce, with AWS, with ServiceNow and many others are essential to it. And we're -- at the enterprise, you're dealing with a complex technology landscape, and so we're able to use that to our advantage. But let me just zero in on the AI side. One of the questions that we often get is, hey, these new frontier models and what does it mean? And is that going to be a disruption to us? And actually, it's a benefit. It's actually a significant positive because if you look at it, the labs, these frontier models, they are tremendous advancements in agentic capability. But we leverage those models. We have partnerships with those AI players that we can use those models in our stack, but then we've built a purpose-built AI around customer engagement data. And so we differentiate by our specialization. Those models are really powerful, but then we process it on those billions of interactions, the specific learning loops, the optimization. So the specialization around the customer intent resolution, the compliance-heavy workflows, the guardrails that enterprise have, the real-time voice orchestration. So the reality is it's not replacing, it's enabling a more powerful and differentiated outcome with the combination of what we bring and what they bring to give a better outcome for our customers. So it's not replacement. It's actually expansion and extension from what we've already done, and it gives us more opportunity to deliver ROI. Again, that's why we're seeing the backlog and the bookings growth that we're getting because the customers are voting by their choice of NiCE, and we're benefiting that in our revenue outlook. Operator: Your next question comes from the line of Samad Samana with Jefferies. Samad Samana: Great to see the solid 4Q results. Maybe first, just one on the guidance. I think we're all happy to see the upward revision to the 2026 cloud revenue growth forecast. I was curious, Beth or Scott, if you guys could break down what led to the upward revision? Is it the core organic cloud revenue? Is it Cognigy doing better than expected? Because if we assume Cognigy is at 200 basis points of revenue growth contribution, that kind of implies an acceleration for the organic business. Just help us unpack that. And then I have one follow-up. Beth Gaspich: Yes. Thanks for the question, Samad. And I'll take that, and Scott, feel free to chime here. I think generally, as a starting point, we feel confident that both will contribute to that mix and give us that confidence as we step into 2026. Scott has already highlighted the strength of the backlog. We had a record in terms of new cloud ACV bookings in the fourth quarter that led to that strength of the 25% growth in our cloud backlog looking ahead. So that's a mix of both the strength of that AI force that we see, inclusive of both our own homegrown AI and of course, amplified by the addition of Cognigy. So when we look both at the core, which you've seen was consistent at a 12% growth throughout each and every quarter this year, we feel confident that there is opportunity to accelerate growth both in that core as well as continue to drive that growth through Cognigy, which had very strong fourth quarter showing as well. So it comes from a combination of both those places. Samad Samana: Great. And then, Scott, a follow-up for you. And I know that this topic came up at the Capital Markets Day as well. I think it's appreciated by investors that the company is putting the foot on the gas with AI being this massive opportunity, right? You guys are literally putting your money where your mouth is. I'm curious maybe as you think about deploying new investments and how that's going inside the organization? And are you starting to see a shift inside of the sales organization, whether it's win rates, whether it's productivity as maybe the accelerated investments drive enthusiasm in the organization as well? Scott Russell: Yes. It's good question. So first of all, there is, I guess, a positive energy and momentum that we're seeing in the business. And that's obviously on the back of the bookings and the backlog generated in Q4, the momentum that we've been able to generate, but also the pipeline and what we see. What was interesting is the Cognigy business continues to grow remarkably on a stand-alone basis, just acquisition of new market where NiCE has no footprint at all and our ability to be able to go and compete and win in that new marketplace where they don't have a need for a CCaaS, but they really want an AI CX platform as a leadership, that's given a real positive energy inside of our sales organization, combined with the obvious opportunity that we see with existing installed base, the large customer base that we have and our ability to be able to serve that. So I think first on the positive momentum, fantastic. The other point, and Beth touched on this in her opening comments, we're embracing the use of AI inside of our business as much as we expect our customers to. We're living and breathing that reality. So for our sales teams, being able to use it to be able to get better understanding of customer signals, intent, our ability to automate quoting and being able to do fast turnaround for business for our customers when we're competing, these were deployed and we're up and running. So I think our go-to-market are also seeing higher productivity that allows them to get more at bats to be able to get more customers engaged and ultimately improve our win rates. So you need to do both. You need to have a great capability that you take in a market, but you've got to walk the talk, and we're definitely doing that. Operator: Your next question comes from the line of Arjun Bhatia with William Blair & Company. Arjun Bhatia: Scott, maybe one for you to start out with. Obviously, it's good to see the continued traction in your AI and self-service ARR. I imagine the distribution of customers in that group of those that are advanced versus those that are still starting is quite wide. But when you're looking at your more sort of advanced customers, what are you seeing in terms of seat dynamics there? Has that changed at all over the past couple of quarters? Or is this still like something that's being contemplated for years or quarters in the future in terms of what they do with their seat counts and agent counts? Scott Russell: Yes. It's a great question, Arjun. So I think there's a couple of things to maybe highlight here. As I mentioned in my opening comments, our core CX CCaaS platform is really strong. And to Beth's earlier comment, we see reacceleration in our outlook for '26 and beyond. Why is that? Well, I guess I'll best answer it by discussions that I've been having. This week, I had a number of meetings with customers, CEO, CTO and we were just talking about their CX environment and their existing use of their contact center. And right now, they both had indicated that their contact centers are capacity constrained. They're not overstaffed. And so they plan to use AI to actually free up their agents for higher value engagement, proactive outreach, more revenue generation or more value orientated. So rather than elimination of roles, they're using it as an efficiency driver so their people can be driving more value-added activities. And so they had no plans, no plans to reduce agents in the short to midterm. Now that's not to say that as we continue to build out our platform that we don't see the opportunity to be able to reduce the human capacity as the AI picks up. But we -- that's why in these complex environments because remember, CX is tough. you've got to have accuracy of data at high volume, the guardrails, the domain expertise and ultimately, it's got to fulfill a great consumer experience for the brand. And so what they don't want is a point solution that gives them a bit of automation, but then increases the complexity when it has to interoperate with their AI agents. And I think we've really seized upon this. What we see at the top end is that customers value a unified customer engagement platform. We call it the front door. So whether it's voice, whether it's digital, whether it's AI or what is most likely to be a combination of all three at the same time, real time at enterprises at the top end, they need a platform that can give that in a scalable, reliable way. And obviously, we differentiate on that basis. So it's interesting about the, I guess, the perceived concerns that you're going to see this erosion of the seats. We -- the data does not support that assertion, but we're growing on both levers, and we continue to expect to do so. Arjun Bhatia: All right. Perfect. Yes, that's super helpful color. And then Beth, I had one for you. Just in terms of the investments that you're making, I think I fully appreciate, right, it's the right time to sort of lean in given the precipice of the tech change here. But how are you just monitoring that you're making the sort of the right investments and you're allocating capital appropriately? Like what are the ROI signals you're looking for? Or is it just continued sort of revenue reacceleration here? Beth Gaspich: Yes. Thank you. We're very excited about the opportunity ahead of us, and we absolutely believe this is the appropriate time to lean in. We really have at NiCE a fence investment approach where we are very closely monitoring a very tightly the exact areas that we plan to invest, which we've talked a lot about. It's around the go-to-market. It's bringing in more integration of Cognigy into the platform, agentic capabilities as well as using additional AI technologies internally, accelerating our delivery time line, all of those areas are very intentional, and we are very much closely monitoring that the dollars are being spent in the right places. In parallel, as a general muscle that we have in NiCE, we are constantly also driving initiatives that drive long-term operating leverage. Scott talked about the use of AI. There are other initiatives as well that we're always putting in place. So we're also monitoring the effectiveness and seeing that we get the ROI from those initiatives and investments through key specific metrics. And when you add all of those together, ultimately, the big test is that we see that we are delivering on the growth that we've signed up for on the top line. And so those are a combination of all of the things we monitor very, very closely to ensure we're on track and that we're getting the ROI from those investments. Operator: Your next question comes from the line of Tyler Radke with Citi. Unknown Analyst: This is Kyle on for Tyler. It was great to see the significant acceleration in international revenue. And I'd be curious to hear how you'd expect that trend to continue into FY '26? And what -- maybe any color on what would be embedded in the total revenue guidance on a constant currency basis? Scott Russell: So let me cover the international expansion. So first of all, I need to highlight. I've inherited a beneficiary from a significant investment that had been made in our international expansion. So the footprint of our data centers, the sovereign cloud, the capacity in key markets in U.K., Europe, in parts of Asia. So what we saw in '25 was a real breakthrough in terms of -- obviously, our bookings and the backlog, we saw in Q4 a significant acceleration of our revenue that you saw in those results. And so for '26 and beyond, what we see is expansion opportunity. And if I give you a couple of data points to color. First is the CCaaS shift in the international markets is not as progressed as what it is in North America. So there are more opportunities with our platform to be able to win the on-prem to cloud migration, leveraging those investments, leveraging our momentum. The second is they're doing it with AI from the get-go. They're not doing this in a two-part move or sequential. They're doing it at the same time. So the unified platform where we can embed Cognigy and our AI agentic capabilities in that -- in those deals gives us competitive edge, but it also allows us to be able to accelerate revenue because the AI adoption time frames are faster, whilst often the CCaaS migration is a complex onetime undertaking. And then the last, what I would say is those international markets are benefiting from our investments in the ecosystem. Practically, all of our go-to-market in international is through our partners. And so the strategic ecosystem is part of the reason why our international expansion is performing strongly because we've really made sure our go-to-market motions with both SI partners, resellers, technology partners internationally be the core vehicle that we use. And that gives us reach that goes beyond the 4 walls of the NiCE capability. We really do leverage their breadth and strength in those international markets. So it is -- you can expect to see continued momentum in that area. Beth Gaspich: And then I would just quickly, Kyle, address on the currency side. I think, first of all, I'll start with the overall outlook for NiCE in totality. I think it's important to highlight that in total, NiCE is still predominantly concentrated in terms of mix out of the Americas, which is mostly USD denominated. So 82%, for example, of our revenue in the fourth quarter was coming from the Americas, mostly USD. Any impact that we may see within the international business, which is thriving and growing for us, has been considered and is factored in. We're always looking at the environment generally on a macro for exchange rates and other factors as well that is inclusive in the expectations that we're looking at. Again, you may see that more noticeable as you've seen in the fourth quarter in terms of the impact on the international markets, but not any expectation that is not already baked into our expectation for the full year. Unknown Analyst: Understood. And then regarding the Better Together story with NiCE and Cognigy, the ability to win more deals as a combined CCaaS and AI domain expert. How did the joint go-to-market motion play out in 4Q? I know it's early, but also how to think about the Cognigy opportunities from current CXone customers versus sales to customers on competitor CCaaS platforms as well? Scott Russell: Let me take that one. So I was really pleased. I've got to say that despite it being -- with Cognigy coming into the NiCE family at the -- in September, coming into our busiest and most hectic quarter of the year, it was remarkable to see two things. One, Cognigy and our ability to win and grow as a stand-alone AI market-leading platform, it was fantastic. But then secondly, our -- I've got to give it to our -- the NiCE go-to-market team, we were able to quickly pivot. And so the fourth quarter performance also on a Better Together where we were able to embed it into our big wins and the strong performance we had in fourth quarter, Cognigy was well and truly a part of that, which is why, by the way, 100% of our seven-digit deals included AI and that pretty much nearly all of them was inclusive of Cognigy. So the early collaboration was really strong. What we're really now focused on is how do we then capitalize and expanding on that rapidly in '26. So we're very early days in the AI expansion. We see obviously new competitors with AI point solutions. We've got a differentiated offer. So really, we're doubling down on the Better Together, unified platform, but also winning and competing in the AI-only market where the situation exists and being able to win and win well. So competitive win rates were good. I feel very good about the fast integration, and it's a credit to Phil Heltewig and the Cognigy team and the way they've really embraced and coming to the NiCE team and led the way. Operator: Your next question comes from the line of Siti Panigrahi with Mizuho. Sitikantha Panigrahi: Great. If I look at your cloud backlog that excluding Cognigy, it's organic cloud backlog, now 22% growth, that is quite a step-up from 13% in Q3. So a few things, like what's the composition like for that step-up? And you guys earlier talked about it takes longer to convert to recognized revenue. So how should we think about the lag from the backlog to cloud revenue growth over the next 2, 3 years? -- 2-3 quarters? Beth Gaspich: Yes. Thanks, Siti, for the question. I would start and just say that when you think about the 25% growth we had in the backlog, you highlighted the 22% growth that we had, excluding Cognigy. When you think about how that will play out in the coming years and months, essentially, the substantial majority of that will actually be recognized in the next 24 months. It is not, however, linear. Of course, it is dependent upon various go-lives that happen throughout that period. So the expectation and as we continue to shift that from the backlog over into recognized revenue, you should see that gradual expansion playing out in the cloud revenue growth over that period. Sitikantha Panigrahi: Okay. And then on the Cognigy side, Beth, you talked about before exiting Q4, $85 million ARR. Is that still -- does that still holds good based on what you're guiding for the year? Beth Gaspich: It is. We had a very nice performance of Cognigy since the start of the acquisition and the close. So yes, very much on track and looking forward and excited about our ongoing opportunity during the course of '26. Operator: Your next question comes from the line of Jamie Reynolds with Morgan Stanley. James Reynolds: This is Jamie on for Elizabeth. And congrats on the strong quarter. It's just the first question. It'd be great to just unpack a little bit more about how that displacement with the CRM vendor materialized. What capabilities did NiCE bring where that vendor fell short? Scott Russell: Yes. I'll answer this one, Jamie. So there's a couple of factors here. First of all, customers -- the customer that we're referring to had a need of an integrated customer engagement platform. What they didn't want is one platform to handle the AI piece, another platform to handle digital and another platform to handle voice because what it did was it created friction in their engagement, and it was actually impacting a positive customer experience. What they wanted was the data, the operational flows, the process to be orchestrated end-to-end. So it was more about clear conscious strategy for customers. And we're seeing this more and more where they're distinguishing a customer engagement platform, the front door to the enterprise by their customers in a unified single approach rather than fragmented through differing technologies. Now that's not to say that they don't need and orchestrate with the CRM because you still want your sales data, your commerce data, your other information, your customer data that you've got there. But when it comes to the interaction and understanding the customers' intent and then having a simple way of being able to orchestrate between a human agent, an AI agent, synchronous, asynchronous, inbound and outbound, they wanted it on a single stack. And obviously, we see the benefits of that. Ultimately, they chose it because it will deliver better ROI, better customer experience. And it was one customer example. We've got many others that are doing the same journey. James Reynolds: Got it. That's helpful. And then just as a quick follow-up, it'd be great to get any color on how the performance among the more seasonal customers kind of trended in the fourth quarter relative to your expectations? Beth Gaspich: Yes, thanks. When we looked at the seasonality, we had highlighted that we had a strong bar to climb when compared to the fourth quarter of 2024, but we were quite pleased with the seasonality that we experienced in the fourth quarter this year. I did highlight a couple of things in my formal remarks around we had about a 50 basis point tailwind coming into the cloud revenue in the fourth quarter coming from foreign exchange that was included there. We also ended up having a go-live of a very large international deal earlier than anticipated that came into that. So those also kind of triggered some health in the quarter. But generally, we were pleased with the seasonality that we saw, which was healthy for our fourth quarter across our diversified vertical customer base. Operator: Your next question comes from the line of Michael Funk with Bank of America. Michael Funk: So Scott, earlier you mentioned -- I think you mentioned that only 40% of enterprise have moved from on-prem into the cloud. So I'd love to hear more color around the pace of that migration and then net new versus migration internally and the increase that you see in TCV when customers do migrate internally? Scott Russell: Yes. So as I mentioned, there's a significant market in front of us. Now the international side, Michael, is particularly strong because they've not progressed in the migration compared to the Americas. So just from a geographic standpoint, we see real momentum on the international side and obviously, we're benefiting from it. I think what -- if I take a step back, what's happening in the market is customers were previously forced to choose, do they do the on-prem, the cloud migration? Do they do an AI move? They had to distinguish between their methods. Now we give them the choice to do that as well. But what we've now seen and the results are undeniable around all of our big wins, all of our CCaaS moves are embedding AI in. So what we're seeing now is they're using AI to be able to drive the automation capability, give them fast return, early deployment while they're still doing their CCaaS shift, and that is able to help make sure that they've got early return on investment. It gives us a competitive differentiation because we unify the journey of not just the on-prem to cloud and the AI, but it's combined together. So it actually has given us a really significant differentiation compared to where we were a year ago, where we were obviously able to still capitalize on that. The last comment I would make is the routes that customers are choosing will -- that they will -- migration paths will continue to be a key part of the differentiator. What customers aren't prepared to do on the CCaaS migration is long time to transition. So the other thing that we've really focused on is reducing the time to turn up or the time to value. We improved our delivery time frames by 20% during 2025. I mentioned that, that was a focus area at the beginning of last year. And I think the more we're able to show that we can do a time-bound, efficient migration while capitalizing on the AI capability, we're going to be able to seize an acceleration of those CCaaS moves as the customers evaluate the use of this technology in their landscape. Michael Funk: Maybe one more, if I could, quickly. Financial crime and compliance business, love to hear your thoughts on the operating and strategic benefits of owning that business versus maybe some strategic alternatives? Scott Russell: Yes. It's such a great business. What makes me smile is it continues to be seen and perceived and understood as the market leader. We serve the most sophisticated financial institutions with a level of trust that, honestly, it is a joy. I meet with banking executives and our clients. And the first thing they tell me is, we trust Actimize, we rely upon it. We need your help to continue to support our ability to fight financial crime, fraud and compliance factors. So from a brand point of view and from a trust point of view of that segment, which is also a big segment inside of our CX business, it really does enhance our -- the trust position that we have as a company. So great business, strong performance, really profitable. And yes, we're proud for it to be a part of the NiCE family. Operator: Your next question comes from the line of Thomas Blakey with Cantor Fitzgerald. Thomas Blakey: Maybe just first one, Scott, I just wanted to talk about these increased win rates that you're talking about and obviously evidenced by the increase in backlog. If you could maybe -- in answering another way about the increased win rates on pricing and any levers you might have there with regard to your to Cognigy or other kind of consumption-based AI levers that you have here in the market, that would be helpful? Scott Russell: Yes. I'll try to answer it simply. We're definitely seeing customers being more astute in their expectations of ROI and that leads to more quantifiable outcome. Now they're not buying outcome-based pricing, but they're negotiating an understanding proven ROI that we're able to deliver. One of the advantages we obviously have is that we understand their volumes, their interactions on their existing seats, how efficient their platform is. We use data to inform them about what the automation that AI can do to improve upon that and then how that then delivers measurable return and we put that into our offers. So look, we've seen our pricing continue to be effective in terms of profitable business for NiCE, but also as a differentiator. But we're watching it closely. I think the market in AI will continue to be scrutinized, the promise versus the reality. It's easy to come in with an AI solution and say, we'll build you a bunch of AI agents. But if it doesn't deliver the real value, they go to vendors and partners that have proven to deliver that before. And we leverage that. There is no doubt that we're using our historical strength and benefits to our advantage. And if that means updating our pricing models, we'll do so. Thomas Blakey: Yes. No, that's helpful. And you're definitely balancing that well in terms of the backlog growth. Maybe for Beth, you've broken out in the past the consumption-based AI ARR. I don't know if it's something you'd want to help with here. And just understanding the increase in backlog and the jump in AI ARR in total, I wanted to know if consumption is driving that. And when we can kind of expect as folks are finding value here, looking to expand AI in terms of the CX role internally, NRR to start maybe expanding? Is that more of a '26 or more of a kind of an out-year kind of environment when you kind of look at your contracts and backlog wins, that would be helpful? Beth Gaspich: Yes, sure. So I think I would start with where Scott just led to, which is we have a flexible pricing model that allows that fluidity, and we're driving more and more increasingly towards interaction and consumption-based pricing, which is demonstrated in our overall AI ARR growth, where we're leaning in more and more towards pricing, which is coming from that increasing and ongoing expansion of interactions that we see. With respect to our backlog, we actually -- it demonstrates we have even further upside. When we look at our backlog, we're actually only including there our minimum contractual commitments. So our pricing model and the way we commercialize with our customers generally is on a subscription basis over a multiyear period. So that's what's being reflected in our model. We're still in very early stages of deployment with a lot of those enterprise customers. So as we continue to see those interactions increasing, that's further upside that we have even beyond what's already captured in our backlog. Operator: Your final question comes from the line of Patrick Walravens with Citizens. Patrick Walravens: Great. Let me add my congratulations. I was wondering if you could give us an update on your two $100 million deals. I think you had one that was in APAC and one that was in EMEA. And Beth, maybe you commented on that when you talked about something that went live. So what's the state of those two now? And then are there anything else -- are there any more this big that are in the pipeline? Beth Gaspich: Yes. So I'll take the first part, which is -- thanks for the question. Those -- both of those deals that were internationally driven are actually within our recognized revenue. They've both gone live. We're very excited about them. We're delivering to the customers. I would also add that there are additional opportunities. Those customers are continuing to look to do more with us. So we're off in a great start of those relationships, and we'll have more to come. But yes, they are already live and contributing to our revenue. Scott Russell: Yes. And in terms of the outlook, look, I guess you're getting a sense on this call, both with our backlog, but our optimism. There is some big opportunities that are in front of us. It's highly competitive out there, but I think we're proving that we've got a differentiated ability to win those. And so I look forward to being able to share more significant wins going forward, both internationally, but also in North America. Operator: That concludes our question-and-answer session. I will now turn the call back over to Scott for closing remarks. Scott Russell: Look, I just wanted to, first of all, thank everybody for the engagements, not only today, but throughout '25. It was a year of clear transition, but we're really excited about what we delivered, but also about the future in front of us. And in particular, I just wanted to thank all the NiCE employees, the NiCE is all around the world, our partners and our customers that contributed towards this. We've got exciting times ahead. It is an exciting market, but we've got the momentum to be able to seize upon it, which we will do. So I appreciate the time, everyone, today. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the ONE Gas Fourth Quarter and Year-End 2025 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey. Erin Dailey: Good morning, and thank you for joining us to discuss our fourth quarter and year-end financial results. This call is being webcast live, and a replay will be made available later today. After our prepared remarks, we are happy to take your questions. A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. This call will include financial results and guidance with respect to adjusted net income and adjusted net income per share, which are non-GAAP financial measures as defined by the SEC. A reconciliation of the company's GAAP net income and GAAP earnings per share to adjusted net income and adjusted net income per share is available in the appendix to the earnings release we issued yesterday. Joining me on the call this morning are Sid McAnnally, Chief Executive Officer; Christopher Sighinolfi, Chief Financial Officer; and Curtis Dinan, Chief Operating Officer. And now I'll turn the call over to Sid. Robert McAnnally: Thanks, Erin, and good morning, everyone. I began our call today by recognizing our coworkers across the company for their dedication to serving our 2.3 million customers during Winter Storm Fern. This storm was the first multi-day subfreezing event we've experienced since Winter storm Uri in 2021. On the peak day of the storm, we delivered over 3 billion cubic feet of gas to our customers with no supply disruptions. This performance is a testament to the work completed after Uri, including the Austin system reinforcement, which boosted our available winter peak capacity by approximately 25%. Our post-Uri investments also included a focus on gas supply. We increased our storage capacity to over 60 Bcf implemented strategic reinforcements across our system and diversified our gas supply, all enhancing reliability and reducing the impact of price fluctuation on our customers. As a result, across our service territory, over 80% of the gas supply needed during the storm was shielded from temporary price increases. Our full year 2025 financial results were also strong. In August, based on a solid first half performance and the expected impact of Texas House Bill 4384, we raised the midpoint of our EPS guidance to $4.37. We finished the year fully in line with that mid-summer expectation. This marks our 12th consecutive year of meeting or surpassing the midpoint of our initial EPS guidance. Finally, to ensure that the financial impact of the Texas legislation is appropriately reflected in our disclosures, we've introduced a non-GAAP adjustment to our net income and earnings per share. This update adds clarity to our disclosures and helps better illustrate the earnings that our regulator allows. I'll ask Chris to discuss the details. Chris? Christopher Sighinolfi: Thanks, Sid, and good morning, everyone. With solid fourth quarter performance, we delivered full year financial results squarely in line with our revised guidance. 2025 net income totaled $264 million or $4.37 per diluted share compared with $223 million and $3.91 in 2024. Capital expenditures totaled $760 million for the year. As Sid noted, we have introduced non-GAAP adjustments to our financial reports and our earnings guidance. These adjustments offer a comprehensive view of our performance within the Texas regulatory model and better reflect the returns allowed by our regulator. I want to spend a moment detailing specifically what these adjustments represent and why we are introducing them now. In 2011, the Texas Railroad Commission adopted Rule 8.209 of the Texas Administrative Code. This rule allows natural gas utilities to defer depreciation expense and ad valorem taxes and accrue a carrying cost on qualifying safety-related capital expenditures between the time of project in service and its inclusion in rates. Texas House Bill 4384 signed into law last June, extends the approved deferrals and accruals of Rule 8.209 to all capital expenditures in the state. The carrying cost allowed to be accrued under both provisions is defined as the unrecovered gross plant multiplied by the utilities' pretax weighted average cost of capital as established in its most recent rate proceeding. As we know, weighted average cost of capital includes a return on debt and a return on equity. It is specifically the accrual and allowed recovery of this equity return and the timing of its impact that cause a delta between our regulatory books in Texas, and our reported GAAP financials. This difference in treatment between our regulatory accounting and GAAP accounting has existed since the adoption of Rule 8.209 in 2011, but it represented a modest annual impact when only Rule 8.209 applied. For example, in 2024, this difference was approximately $2 million or roughly $0.03 per diluted share. With the expansion of qualifying capital under House Bill 4384 last year, this delta widened to nearly $7 million or roughly $0.11 per diluted share. With a full year of impact in 2026, we anticipate it will constitute an approximate $12 million variance, roughly $0.18 per diluted share or 4% of our projected consolidated full year EPS. In sum, this difference in treatment is a fundamental aspect of our regulatory framework and an embedded feature of our financial profile. Texas House Bill 4384 has amplified the impact of these adjustments and with them meaningfully increased the persistent delta between regulatory accounting and GAAP accounting. For these reasons, we will report non-GAAP adjusted net income and EPS figures as key indicators of business performance going forward. Adjusted net income for the fourth quarter was $90 million or $1.48 per diluted share compared with $78 million and $1.35 in the same period in 2024. For the full year, adjusted net income was $271 million or $4.48 per diluted share compared with $225 million and $3.94 in 2024. Our expected financial performance, as expressed in our 2026 financial guidance has not changed, but we intend to also provide guidance based on our adjusted numbers going forward. So for 2026, we expect adjusted net income in the range of $306 million to $314 million and adjusted earnings per share in the range of $4.83 to $4.95. Consistent with our previously communicated 5-year financial outlook, we expect long-term adjusted net income growth of 7% to 9% and adjusted EPS growth of 5% to 7%. These growth rates now use adjusted 2025 actual results as the baseline for the 2026 through 2030 planning period, implying a 2030 adjusted EPS midpoint of roughly $6. Turning to other financial results. O&M expense for the full year was up approximately 5% over 2024, slightly above our 4% CAGR guidance. As I noted on our third quarter call, we had the opportunity and capacity to execute some projects earlier than we had initially planned, resulting in the slightly elevated expense rate for 2025. Executing certain projects ahead of schedule is another example of how we continually look for ways to deliver improvements more efficiently, while maintaining financial discipline. Our long-term outlook continues to project a 3% to 4% O&M CAGR as indicated in our guidance. Excluding amounts related to KGSS1, interest expense in the quarter was $2.9 million lower year-over-year, primarily reflecting lower rates on commercial paper borrowings and the implementation of Texas House Bill 4384. We benefited from Federal Reserve rate cuts in 2024 and 2025, which we anticipated, though they occurred more quickly than we had assumed in our plan. As a reminder, we have assumed no further rate cuts in 2026. As with everything we do, we are focused on efficient execution of our financing strategy, so any future rate cuts flow through to our bottom line. Our balance sheet remains strong. In December, S&P affirmed its A- credit rating and stable outlook. And earlier this month, Moody's affirmed its A3 rating and stable outlook. 2025 cash flow metrics were several hundred basis points above our respective downgrade thresholds with both agencies. And our financial plan supports similar performance going forward. With that, Curtis, I'll turn it to you. Curtis Dinan: Thank you, Chris, and good morning, everyone. I'll begin with an update on regulatory and legislative activity. Earlier this month, we received a final order in the Texas rate case. The Railroad Commission approved a $14.4 million revenue increase, a 9.8% return on equity and a 59.9% equity ratio. The commission also approved consolidation of our 3 remaining Texas jurisdictions into a single statewide division. We plan to make one GRIP filing for Texas Gas Service and our PBR filing in Oklahoma later this quarter. Our Kansas GSRS filing is planned for April. We have no full rate cases planned until the Oklahoma filing in 2027 as required by our tariff. Turning to legislative activity. We are supporting proposed legislation in Kansas that would allow for more efficient recovery of the capital we invest in the Kansas Gas Service system. We view this as a constructive step towards better aligning capital recovery with investment timing as we help to advance ongoing economic development in Kansas. Moving on to operations and commercial activity. Our strong finish to the year reflects the consistent disciplined execution of our capital plan, which is designed to support growth while staying closely aligned with our affordability, safety and reliability commitments. We completed $760 million worth of capital investment projects during 2025, with $170 million dedicated to serving our growing customer base. An example of the investments we're making is the new pipeline announced in December, where ONE Gas will invest roughly $120 million to deliver over 100 billion cubic feet of natural gas annually to Western Farmers Electric Cooperative in Southeastern Oklahoma. This project will support a new natural gas fuel generation plant and create capacity for future economic growth across the region. We have also broken ground on a project to serve an advanced manufacturing plant outside of El Paso, which is on track to be in service by the third quarter of this year. This is another project that supports reliability and system growth without increasing costs for residential customers. Both projects were included in our guidance. Beyond these projects, we continue to add about 23,000 new residential customers each year. Growth in our customer base allows us to spread costs more efficiently, helping keep service affordable. In addition to our customer-focused growth strategy, our overall approach to running the business ensures customer affordability remains a key priority. Sid alluded to some of the steps we take to mitigate gas cost. Examples include sourcing gas at the Waha Hub, which often offers favorable pricing, increasing our storage by 20% and using physical and financial hedges to mitigate temporary price fluctuations like we saw last month. We're also focused on long-term value and efficiency as we make staffing and operational decisions. Our in-sourcing program is a good example. While onboarding and training new employees temporarily increases cost, the long-term benefits are clear: our teams operate more efficiently, deliver stronger performance and create a pipeline of future talent. We completed 1.3 million line locates last year and now perform about 40% of that work in-house. In-sourcing this work has delivered significant operational improvements as our ratio of total excavation damages per 1,000 locates, a common industry metric, decreased by over 14% year-over-year even though we experienced an 8% increase in ticket volumes. Bringing this work in-house reflects our broader focus on improving execution, reducing long-term cost and strengthening our operational capabilities. Our efforts to run the business efficiently have paid off as we have kept our cumulative residential bill CAGR below inflation at just under 2%, while continuing to deliver top-tier safety performance. And now I'll turn it back to Sid for closing remarks. Robert McAnnally: Thank you, Curtis. Yesterday, we announced that Curtis will take on an expanded role as President and Chief Operating Officer. As our system continues to grow and the number and scale of new projects increases, this change will allow us to leverage the experience that Curtis brings from both his time in operations as COO and his financial experience as CFO in the early years of our company. We're fortunate to have someone that combines deep experience across the business with strong leadership skills to take on this expanded role at an exciting time for our company. Operator, we're now ready for questions. Operator: [Operator Instructions] First question comes from Gabe Moreen with Mizuho. Gabriel Moreen: Congrats to Curtis. I'm sure he's looking forward to saving all that time on conference calls talking through only one Texas regulatory jurisdiction at this point. . Curtis Dinan: Thank you, Gabe. Gabriel Moreen: I want to start off on the -- some of the non-GAAP adjustments here. I'm curious why, first of all, maybe you couldn't -- didn't feel like you could speak to this in December. But then sort of as a larger picture here, given that this, I think, is a bit of a material step change as far as kind of your starting point here for EPS growth. Does that also play into kind of equity issuance -- or needed equity issuance? How you think about your cap structure, your dividend payout ratio? Or does it matter less because this is sort of, as you mentioned, regulatory versus financial accounting? Christopher Sighinolfi: Gabe, it's Chris. On the timing, A couple of things to note. We -- this was obviously a legislation passed in June, and we studied it throughout the period. As you may recall, the Railroad Commission had a 270-day window to draft and pass procedural rules associated with this legislation. We've been party to that process throughout the fall and the early part of the winter. And so we were a participant in comments. We looked at early drafts. The final rules are on the RRC agenda for approval at next Tuesday's meeting. So if there was a final step to solidify our understanding of the state's intent in this legislation, we feel very confident that we know with the final rules sitting for approval where the state's intent is. And so that was kind of the final step of it. It was the increase in the magnitude of the delta between regulatory books and GAAP books, and then it was the conclusion of that process that led us to take action on this at this point and not at an earlier juncture. As it pertains to your question as to the capital market side of the plan, it really doesn't have an effect in a meaningful way on that. The house bill accounting treatment is in the early part of it, more impactful to earnings than it is to cash flow. And so I wouldn't expect that it would change that in a material way. It may over time, but not initially. Gabriel Moreen: Got it. And then maybe if I can just pivot a little bit to some of the, I think, growth opportunities with the Western Farmers announcement and the like. Can you just talk about sort of the competitive landscape, and I think some of the backlog within the projects that I think you're in negotiation on? How you're competing with, I think, some other providers, like midstream providers that also may be looking to lay their lines to additional power gen facilities? How that shapes up within kind of, I think, the regulatory construct that you're probably pitching to potential customers? Curtis Dinan: Gabe, it's a really good point. The -- what we tried to do early in the process, we have lots of these opportunities coming towards us. And one of the early filters we apply to it is do we have a competitive advantage to serve that facility. There are some situations where we are very competitively advantaged because of assets we already have nearby to the opportunity, and there's other situations where we're not as competitive. We don't have assets in those areas, so we quickly try to move on from those. You're right, though, where those 2 things are maybe equal between a midstream provider and us, the tiebreaker often is our regulatory structure and being able to be very transparent about what's included in our rates, how top charges to that customer would be funded if there are any customer payments required for the construction. It's very transparent by being able to look at our tariffs. So I think in many ways, just that transparency gives us a competitive advantage, but that's just one of the pieces of it, in addition to what I was describing as the geographic advantages we have sometimes. Operator: We now turn to Paul Zimbardo with Jefferies. Paul Zimbardo: Congratulations Curtis as well. Curtis Dinan: Good morning, Paul. Paul Zimbardo: The first question, is there any way that you could frame the potential benefit from that proposed Kansas legislation you mentioned, whether earned ROE or net income? That would be helpful. Curtis Dinan: So Paul, it's still in the early stages. I think just this morning, the proposed bill cleared the House of Representatives. The main parameters in the bill as it's written that's going to the Senate is an increase in the types of capital that can be included. Essentially all of the capital that we invest directly in Kansas would now be part of that GSRS filing, so an expanded universe, so to speak. And then the cap would increase. Today, it is $0.80 per month of impact to a customer. That $0.80 would increase to $1.35. But I would emphasize it's -- the point it is, it's cleared the house. It still has to go through the Senate process. So I would characterize this still as in early innings. Paul Zimbardo: Okay. And how much of -- you said it would make substantially all the capital qualify. How much will qualify currently? Curtis Dinan: Currently, what qualifies is safety-related expenditures, so system integrity type of work as well as cybersecurity. So this would add in any growth capital we're doing facilities that we're putting in place, those types of things that are directly in the state of Kansas. Any corporate allocation such as an ERP system and that applies to all of the company, that would have to go through a full rate case to be able to be included. So it substantially includes all of the capital we're spending up there other than those corporate items. And you've seen our filings each year, at $0.80, it's been about an $8 million GSRS filing. So it would increase from that $0.80 to $1.35. Paul Zimbardo: Okay. That's helpful. And then a bigger picture one, just as you add in the Texas legislation benefit to the adjusted profile, any direction you're providing on, kind of where within that growth rate range? I think latest vintage was around the midpoint, long term. Any refreshed thoughts on that as you shift? Christopher Sighinolfi: Paul, it's Chris. No, not specifically. When we offered guidance last year, we had noted the high end of the range. This year, we noted the midpoint. It's so -- and we are just 6 weeks in. I would stick to that for now. Operator: [Operator Instructions] We now turn to David Arcaro with Morgan Stanley. David Arcaro: Congratulations, Curtis as well. Best wishes to you in the new expanded role here. I was wondering -- let me see -- just to check, does the guidance and the adjusted EPS level, does that assume the latest Texas rate case outcome essentially that you just got in terms of what cost of capital is being embedded in there? Christopher Sighinolfi: Yes, it does. Our original guidance back in the fall embedded the best estimate for what we thought that would prove to be and it's pretty close to that. So it's in on the GAAP side and obviously carries forward from there to the non-GAAP. David Arcaro: Got it. Okay. And I didn't quite catch it, Chris, but is the adjustment -- is there a cash component to that? Like in terms of the higher earnings from the regulatory perspective, are you getting that as a cash recovery, like a boost to cash in some way or is that all pure just on paper in terms of the accounting? Christopher Sighinolfi: The accrual and deferral is not. But once obviously, that gets rolled into the GRIP filing, it will be a larger cash flow item than it would have been without the legislation. So there is a cash component, but the cash component shows up as it would in normal rates and not in the deferral accrual. David Arcaro: Got it. Yes, that's clear. And then just last quick one. I was curious, how are treasuries and the current kind of treasury curve lining up against your guidance expectations at this point? Christopher Sighinolfi: We've seen pretty strong market performance from issuers that have gone so far. I would say, David, if we were to move with something today, it's probably slightly favorable to what we embedded in our refinancing for the year. But that term loan that we put in place last year does not mature until September. And so I'm always nervous to take today conditions that may or may not exist by the time we access the capital markets. But specific to your question, it's favorable to it today. Operator: That concludes the question-and-answer session. I would now like to hand it back to the ONE Gas team for closing remarks. Erin Dailey: Thank you again for your interest in ONE Gas. We look forward to seeing many of you at upcoming conferences in Chicago and New York. Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in May. We'll provide details on the conference call at a later date. Have a wonderful day. Operator: This concludes the ONE Gas Fourth Quarter and Year-End 2025 Earnings Conference Call and Webcast. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to fourth quarter 2025 CVR Partners LP Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Richard Roberts, Vice President, FP&A and Investor Relations. You may begin. Richard Roberts: Thank you. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 fourth quarter and full year results, let me remind you that this conference call may contain forward-looking statements as that term is defined under Federal Securities Laws. For this purpose, any statements made during this call are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2025 fourth quarter earnings release that we filed with the SEC on Form 10-K for the period and will be discussed during the call. Let me remind you that we are a variable distribution MLP, and we'll review our previously established reserves, current cash usage, evaluate future anticipated cash needs and may reserve amounts for other future cash needs as determined by our general partner's Board. As a result, our distributions, if any, will vary from quarter to quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves deemed necessary or appropriate by the Board of Directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark? Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us for today's call. Before we get into the results, I would like to introduce our new Chief Operating Officer, Mike Wright. Mike also serves as COO of CVR Energy, a position he's held since January of 2022. Mike is nearly 35 years of experience in the refining and petrochemicals industries in a variety of operations and commercial roles, and we are excited to have him leading our fertilizer operations teams. Turning to the results for the fourth quarter of 2025. We reported net sales of $131 million, a net loss of $10 million, EBITDA of $20 million. The Board of Directors declared a fourth quarter distribution of $0.37 per common unit, which will be paid on March 9, to unitholders of record at the close of the market on March 2. For the full year 2025, we reported EBITDA of $211 million and distributions of $10.54 per common unit. We had another year of solid operations from our facilities with an ammonia utilization rate of 88% for the year. For the fourth quarter of 2025, our ammonia plant utilization was 64%, which was impacted by the planned turnaround and subsequent delayed start-up at the Coffeyville facility. While the turnaround was completed in early November as scheduled, we experienced additional downtime following approximately 3 weeks of start-up issues at the third-party air separation plant. Although production and sales volumes were lower than we expected, pricing for nitrogen fertilizers remain strong throughout the quarter, and we continue to be optimistic about the spring planting season, which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results. Dane Neumann: Thank you, Mark. Turning to our results for the full year 2025. We reported net sales of $606 million and operating income of $129 million. Net income for the year was $99 million or $9.33 per common unit and EBITDA was $211 million. For the fourth quarter of 2025, we reported net sales of $131 million and an operating loss of $3 million. Net loss for the fourth quarter was $10 million or $0.97 per common unit and EBITDA was $20 million. Relative to the fourth quarter of 2024, EBITDA decreased primarily due to lower production and sales volumes and higher direct operating costs associated with the planned turnaround of Coffeyville. Total ammonia production for the fourth quarter was 140,000 gross tons, of which 62,000 net tons were available for sale and UAN production was 169,000 tons. During the quarter, we sold approximately 182,000 tons of UAN at an average price of $355 per ton and approximately 81,000 tons of ammonia at an average price of $626 per ton. Relative to the fourth quarter of 2024, UAN and ammonia sales volumes were lower as a result of the planned turnaround and subsequent start-up issues at Coffeyville that Mark discussed previously. Fourth quarter prices for UAN increased approximately 55% and ammonia prices increased approximately 32% relative to the prior year period. Direct operating expenses for the fourth quarter of 2025 were $81 million, which included turnaround expenses of approximately $14 million. Excluding inventory and turnaround impacts, direct operating expenses increased by approximately $9 million from the fourth quarter of 2024, primarily related to higher repair and maintenance and personnel expenses. Capital spending for the fourth quarter was $27 million, of which $17 million was for maintenance capital. Capital spending for the full year 2025 was $57 million, of which $35 million was maintenance capital. We estimate 2026 maintenance capital spending to be $35 million to $45 million and growth capital spending to be $25 million to $30 million. As a reminder, we expect a significant portion of the 2026 growth capital spending will be funded from the cash the Board elected to reserve over the past several years. We ended the quarter with total liquidity of $117 million which consisted of $69 million in cash and availability under the ABL facility of $48 million. Within our cash balance of $69 million, we had approximately $3 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $20 million and had net cash needs of approximately $16 million for interest costs, maintenance CapEx and other reserves. As a result, there was $4 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $0.37 per common unit. Looking ahead to the first quarter of 2026, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses to be $57 million to $62 million, excluding inventory impacts, and total capital spending to be between $25 million and $30 million. With that, I will turn the call back over to Mark. Mark Pytosh: Thanks, Dane. In summary, although we were disappointed about the extended downtime associated with the third-party air separation unit during the quarter, nitrogen fertilizer market conditions continue to be constructive and pricing has remained robust. With the 2025 harvest complete, the USDA is now estimating a record crop year with corn yields of nearly 187 bushels per acre on nearly 99 million acres of corn planted. Soybean yields are estimated to be 53 bushels per acre on over 81 million planted acres. U.S. inventory carryout levels are expected to be above the 10-year average for corn and below for soybeans. Despite the record harvest, May, corn prices remain around $4.45 per bushel, and current expectations are for approximately 95 million acres of corn to be planted in 2026. At this level of planting, we expect to see continued strong demand for nitrogen fertilizers through the spring. On the supply side of the equation, inventory levels around the world continue to appear tight. Geopolitical tensions remain a key risk to nitrogen fertilizer supplies, given the significant production capacity reside in countries across the Middle East, North Africa and Russia. We continue to monitor developments in the Middle East that could impact energy and fertilizer markets, and we expect 2026 will likely be a continued period of higher than historical volatility in the business. Natural gas prices in the U.S. saw a sharp increase earlier this year due to extreme cold weather across several regions of the country. However, prices have since declined and have been trending between $3 and $4 per MMBtu. Meanwhile, natural gas prices in Europe averaged over $10 per MMBtu for the fourth quarter and had been over $13 since the beginning of the year. The cost to produce ammonia in Europe has remained durably at the high end of the global cost curve. And production remains below historical levels, which creates opportunities for U.S. Gulf Coast producers to export ammonia to Europe for upgrade. We continue to believe Europe faces a structural natural gas supply issues that will likely remain in effect through 2026. We continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates. The goal of these projects is to support our target of operating our plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds. For 2026, we are focused on water and electricity reliability and quality at both plants and expanding our DEF production and load-out capacity among other projects. We also continue working on construction and design plans for the feedstock diversification and ammonia expansion project at the Coffeyville facility. As a reminder, this project should provide us the ability to choose the optimal mix of natural gas and third-party pet coke depending on prevailing prices. The Board elected to continue reserving capital for these projects in the fourth quarter that we expect to spend over the next 2 years. Our focus is on improving reliability and redundancy at the 2 plants in efforts to provide better production rates and lower downtime in the future. The funds needed for the 2026 projects are coming from the reserves taken over the last several years. The fourth quarter demonstrated the benefits of focusing on reliability and performance. In the quarter, we continue to focus on all of the critical elements of our business plan, which include safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors and communities, prudently managing costs, being judicious with capital, maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for all their hard work during the Coffeyville turnaround and continuing to deliver on our marketing and logistics plans, resulting in a distribution of $0.37 per common unit for the fourth quarter. With that, we're ready to take any questions. Operator: [Operator Instructions] Your first question comes from the line of Rob McGuire of Granite Research. Robert McGuire: Just a few questions. One is, what are you seeing in terms of UAN imports out there? Are you seeing a dearth of imports from Trinidad? And in particular, what are you seeing from Russia and any other color you can give to us? Mark Pytosh: I wouldn't say that we are seeing anything outside the norm. We're still importing some tonnage. The one big item in Trinidad is obviously the Nutrien plant is down, an upgrade is down. So there's less tonnage coming in from Trinidad. So I think that's keeping the market tight for UAN in particular, in the states. And I just -- I've seen some of the commentary from Nutrien and it doesn't feel like that plant is likely to return to service soon. So there's a combination of ammonia and UAN tightness that was a product that was being imported here. The Russian product has been -- that's been pretty consistently flowing. And I wouldn't say there's any new up or down. The market is watching closely. There have been some drone strikes on either Russian fertilizer plants or export terminals. And so that -- the market is watching that to see. And -- but I would say, generally, it feels like the supply-demand balance in UAN is pretty, I would say, on the tight end of the curve. Robert McGuire: Switching topics. The current deferred revenue was $23 million at year-end, and that was down from $51 million year-over-year. Does that mean there was less product presold this year rather than relative to last year? Mark Pytosh: Yes. And I would just say it was a timing issue because it was not -- we typically would see more activity in December for tax planning purposes by the customer base, but we didn't see as much this year, but that's all been picked up in January and first part of February here. So we're, I'd say, normal, if anything, maybe a little bigger book or for the spring than we typically see. So it was just -- it didn't fall in December like normal, but the customers were in buying product, and we've got a big book on for the spring. Robert McGuire: And then is it safe to assume that ammonia and UAN pricing will increase sequentially, heading into the first quarter of 2026? Mark Pytosh: Yes. If you look at our book of business today, it's at higher prices than the fourth quarter. And so yes, there will be an uptick. It won't be dramatic, but there'll be an uptick from the fourth quarter to the first quarter. Robert McGuire: Great. And then do you feel confident about the air separator issue at Coffeyville being resolved at this point? Might you receive compensation from the operator for downtime and related shortfall on that? Mark Pytosh: So let me start -- I'm confident that the issues that caused the delayed startup have been dealt with. We are not happy with the performance. And we are in discussions with that service provider about the go-forward strategy for the operations and maintenance of that facility. So we're working on, I'd call it not an amended contract, but an amended business plan which would involve us being more active with the ongoing activities there. And so we're not going to just sit by and just accept those events. We're going to engage and work on a different approach than what happened in November. The contract does have penalties and there were some penalties paid for that, but it's a fraction of our lost production level at the facility. So -- it is a thorn in the side, and it's meant to incentivize the provider to provide us really good service and onstream, but it can't make up for the shortfall of lost production. So -- but again, we're revisiting our -- how we do business together. And in the coming quarters, we'll talk more about what the go-forward strategy is there, but it won't be status quo. Robert McGuire: I appreciate that. And then last question, Mark. I always appreciate your commentary on the market acreage is supposed to be down for corn this year, as you mentioned in your opening remarks. And I'm just kind of curious I would think that would hurt demand just a little bit, then again, there are more supply constraints. So can you kind of just give us how you feel the spring is going to work out? And why are you feeling so optimistic about it? Mark Pytosh: Sure. Well, if you asked me 3 years ago and said it was going to be 95 million acres of corn, we'd be thrilled. 95 million acres is really at the top end of -- except for last year. And so that's a large amount of acreage and it's going to -- because of the 99 million acres and how much we planned, we've -- corn consumes nitrogen from the soil, so you have to replenish it. So the soil has been depleted of nitrogen and you got to come back in and fertilize it. And so to your point, it's going to be a really good demand season. Last year was peak. And we don't -- I would say, even when 99 million acres are planted, sometimes the application rates can be lower. So it's not apples-to-apples. So you can't just take 99 million and 95 million and compare them because if on the acreage that you plant, if you plant more productive acreage and you want higher yields, you're going to put more fertilizer on. So it's hard to -- the nuance there is the apples-to-apples. But the supply side of the equation continues to be and we can talk about every region of the world. There are reasons why the supply is constrained. There's been natural gas availability issues in certain countries. There's still ongoing conflicts in certain areas. We're watching what's going to happen with Iran. Iran is a big producer of nitrogen, big exporter. If there's some activity in the Strait of Hormuz or some activity with that constrains Iran's ability to produce, that can have a -- we're right on top of the spring coming up here in 6 weeks. So that's going to -- we got to keep our eye on that. But the supply side has really been even a bigger issue. Demand side has been super solid, but the supply side is not able to keep up with the demand side. I would just tell you, suggest, we're seeing -- I know it was cold a few weeks ago, but -- if you look in the Midwest, we're already seeing ammonia movement across a pretty broad swath of up into even Iowa and Illinois to a degree but all the way down into the Southern Plains. And so that's a good omen for the spring when we have the ammonia running this early. We're only -- we're third week of February. So really feel -- I think, generally, the optimism is high for the spring, and we've got a good jump on it. When you get a good start to it, it really could lead to a much better spring. So we feel really good about where we are. We have a good book of business for the company. We've got a good order book, and we just need to run like we normally have, except for the last quarter. So they will run at a high utilization and move the product for our customers. Robert McGuire: That was really helpful. And just one other follow-on is just with product moving at this point, is there a change in trend in terms of the farmer living food-to-mouth? Or are they starting to plan early at this point in time or it's just that the application is starting earlier given the weather opportunities. Mark Pytosh: I think it's your last comment there, the conditions have come into place here in February rather than March. So I would say it's probably pulled up by maybe a couple of weeks or 3 weeks. I mean, it doesn't seem like a lot, but in farming -- in farmland, that's a lot. And so if you can get a jump on -- if you're a farmer and you can get a jump on your ammonia application, that really helps you get prepared for the spring. And so that always makes everybody feel better when the ammonia runs starts earlier because then you can have a longer process of getting it applied and planting behind it. So just a lot of optimism around conditions. We started the year with super cold everywhere, all the way to the Canadian border, but we've turned the corner here from a weather perspective. And so we are able to -- been able to move -- we've been moving product from our plants out to the field. Operator: There are no questions at this time. I will now turn the call back over to Mark Pytosh for closing remarks. Mark Pytosh: Again, I'd like to thank all of you for your interest in CVR Partners and being on the call today and our employees for their hard work and commitment towards safe, reliable and environmentally responsible operations. And we look forward to reviewing our first quarter results here in a couple of months. Thank you for being here today. Thanks. Operator: Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Greetings, and welcome to Nutrien's 2025 Fourth Quarter Earnings Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Jeff Holzman, Senior Vice President of Investor Relations and FP&A. Jeff Holzman: Thank you, operator. Good morning, and welcome to Nutrien's Fourth Quarter 2025 Earnings Call. As we conduct this call, various statements that we make about future expectations, plans and prospects contain forward-looking information. Certain assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions is contained in our quarterly report to shareholders as well as our most recent annual report, MD&A and annual information form. I'll now turn the call over to Ken Seitz, Nutrien's President and CEO; and Mark Thompson, our CFO, for opening comments. Kenneth Seitz: Good morning, and thank you for joining us today to review Nutrien's 2025 results and the outlook for the year ahead. At our Investor Day in 2024, we outlined an ambitious 3-year plan with clear performance targets that included increasing upstream fertilizer sales volumes, growing downstream retail earnings, reducing operating costs and optimizing capital expenditures. Our results reflect the strong execution of this plan, contributing to higher earnings and free cash flow, lower net debt and increased cash return to shareholders. In 2025, we generated adjusted EBITDA of $6.05 billion, up 13% from the prior year. We delivered record fertilizer sales volumes of 27.5 million tonnes, utilizing the strength of our end-to-end supply chain to efficiently serve our customers. We raised our potash sales volume guidance twice during the year and strong offshore demand offset a shortened fall application window in North America. We achieved 49% potash mine automation, a significant accomplishment that provides safety benefits and further strengthens our low-cost advantage. Our potash controllable cash cost averaged $58 per tonne for the year, below our $60 per ton goal. We increased nitrogen sales volumes to 10.9 million tonnes and achieved a 4 percentage point improvement in ammonia operating rates, supported by reliability initiatives and the completion of low-cost debottlenecks. Excellent performance from our North American nitrogen plants helped offset the impact of a controlled shutdown of our Trinidad operations in the fourth quarter. In phosphate, our operating rate averaged 87% in the second half of 2025. Reliability improvements and a strong commercial footprint enabled us to deliver within our guidance range despite lower North American demand in the fourth quarter. Our downstream retail adjusted EBITDA increased to $1.74 billion through decisive cost reductions, strong proprietary margins and solid execution of our Brazil margin improvement plan. Our unwavering focus on controllables allowed us to manage through weaker agricultural commodity markets and persistent geopolitical volatility, ultimately delivering results consistent with our guidance set at the beginning of the year. We surpassed our $200 million annual cost savings target and reduced capital expenditures to $2 billion, well below our Investor Day target of $2.2 billion to $2.3 billion. As a result of these efforts, we have structurally grown free cash flow, strengthening the company today and providing significant headroom for capital deployment going forward. At our Investor Day, we also communicated a plan to simplify our portfolio with the goal of concentrating our capital on assets with the highest quality earnings and cash flow streams. We initiated this journey in 2024 by canceling our Geismar clean ammonia project and divesting smaller noncore assets. In 2025, we put further rigor to the analysis of our portfolio by comprehensively evaluating each asset on the merits of free cash flow contribution, return on invested capital and relative competitive position. This review highlighted assets that could be optimized or monetized while sharpening our focus on improving capital efficiency. Where an asset did not meet our threshold or was not a strategic fit, we took action and generated approximately $900 million in gross proceeds from divestitures. We utilized the increased free cash flow and proceeds from noncore asset divestitures to progress 2 key capital allocation priorities. We reduced short-term debt by over $600 million compared to the prior year and continue to position the balance sheet as a strategic asset that provides flexibility to act countercyclically. We also delivered a 30% increase in cash returned to shareholders in 2025. This was achieved through the execution of ratable share repurchases throughout the year, an approach that is aligned with our focus on driving growth in free cash flow per share. The reduction in share count also supports our long-standing track record of providing shareholders with a reliable and growing dividend per share while keeping total dividend expense broadly stable. To summarize, our performance in 2025 demonstrated resilience and consistency in an evolving environment. We expect to build on this momentum in 2026 with a focus on delivering growth from our core businesses and maintaining capital allocation discipline. In addition, we will continue to advance portfolio initiatives in 3 key areas. First, as previously announced, we launched a review of strategic alternatives for our phosphate business in the fourth quarter of 2025 and are on track to solidify the optimal path in 2026. Second, we continue to assess options for our Trinidad nitrogen operations and focus on enhancing our core North American assets, improving the margin profile of our nitrogen business. Lastly, we made significant progress on our retail margin improvement plan in Brazil over the past year. However, macroeconomic headwinds have kept returns below what we would view as appropriate to support the capital deployed there. We will continue to take actions to drive improved performance in 2026 while actively reviewing alternatives for each component of our Brazilian business in the optimal way to participate in the long-term growth in this market. I will now turn it over to Mark to speak in more detail on our 2026 outlook and capital allocation plans. Mark Thompson: Thanks, Ken. As Ken highlighted, our 2025 results reflect excellent operating performance paired with prudent cost management and capital optimization across the company. As we look ahead to 2026, we see constructive fundamentals for our business. Potash demand is projected to grow for the fourth consecutive year in 2026, supported by strong relative affordability, large nutrient removal and low channel inventories. We've seen good engagement across all major markets with most benchmark prices approximately 20% higher compared to 12 months ago. We anticipate relatively tight fundamentals through 2026 as trend line demand growth is testing existing global operating and supply chain capabilities. Our potash sales volume guidance of 14.1 million to 14.8 million tonnes is consistent with our global demand projection. Canpotex was committed through the first quarter much earlier compared to the past several years, and our domestic winter fill program was very well subscribed. As a result, we expect first quarter sales volumes similar to the same period of 2025 and selling prices that reflect the year-over-year increase in benchmark values. On a full year basis, we expect controllable cash cost per ton at or below our goal of $60 per tonne. Global nitrogen markets are currently being influenced by supply issues, while demand is expected to grow in line with historical rates, driven by increasing use in agricultural markets such as Asia and Latin America. Global ammonia markets remain tight due to project delays and planned outages, while strong seasonal urea demand and geopolitical uncertainty have pushed urea values higher. Our nitrogen sales volumes guidance of 9.2 million to 9.7 million tonnes is supported by reliability initiatives and low-cost debottleneck projects and assumes no production from Trinidad and New Madrid in 2026. These facilities accounted for approximately 1.6 million tons in 2025 or approximately 15% of our nitrogen segment sales volumes. However, they contributed minimal free cash flow. Our cost structure in nitrogen now reflects production tied entirely to AECO and Henry Hub gas, raising the margin profile of our business and providing greater stability to our cash flow. In phosphate, we expect continued reliability benefits to support higher sales volumes with guidance of 2.4 million to 2.6 million tons. The majority of the year-over-year volume growth is projected in the first half. However, we also anticipate elevated input costs to pressure margins in the near term. Retail adjusted EBITDA of $1.75 billion to $1.95 billion represents continued growth in our downstream business, consistent with historical rates. The midpoint of our range is underpinned by 4 key items. First, we expect high single-digit growth in our proprietary products gross margin in 2026, supported by the launch of new products, organic growth in our core retail geographies and the continued expansion of our international business. Second, we expect a mid-single-digit increase in our North American crop nutrient sales volumes with margin rates similar to 2025. The recovery in volumes is driven by the need to replenish soil nutrients following a record crop and a shortened fall application window. Third, we assume improved weather conditions in Australia that are expected to drive higher crop input demand compared to the first half of 2025. And finally, we continue to drive cost management efforts across all of our geographies, which is expected to support incremental EBITDA margin improvement. We see the majority of these drivers being structural and supportive of growth in retail earnings beyond 2026. Now turning to capital allocation. For 2026, our priorities remain unchanged. We expect cash from operations to be supported by constructive fertilizer market fundamentals and organic growth drivers that I highlighted in each of our operating segments. Further, we ended 2025 with a working capital build due to the delayed timing of customer purchases. We expect the majority of this to unwind in 2026, supporting a meaningful improvement in cash conversion. Our capital expenditures guidance of $2 billion to $2.1 billion is consistent with 2025 and approximately $200 million below our Investor Day target. We've committed capital to sustain safe and reliable operations and to progress a set of targeted growth investments that have a strong fit with our strategy, provide returns in excess of our hurdle rates and have a relatively low degree of execution risk. Our most recent dividend declared yesterday marks the eighth consecutive year we've raised the dividend per share, and Nutrien's Board of Directors has also authorized the repurchase of up to 5% of our outstanding common shares over the next 12 months. We've repurchased shares at a pace of approximately $50 million per month year-to-date, and shareholders should continue to expect that ratable repurchases will be a consistent staple in our capital allocation framework going forward. I'll now turn it back to Ken for closing remarks. Kenneth Seitz: Thanks, Mark. Over the past 18 months, we have taken purposeful steps to position our organization as one that is committed to excellence and determined to deliver industry-leading results. We have streamlined leadership structures, established clear accountabilities and centralized functions and decision-making. As a result, Nutrien today is an organization that is leaner, more disciplined and better positioned than ever to deliver on its potential. We have aligned the company around a proven set of strategic priorities, simplifying our business, driving operational improvements and maintaining a disciplined approach to capital allocation. I believe our unrelenting focus on these strategic priorities is delivering clear results and positioning Nutrien for long-term success. I'm proud of what we have achieved and excited about the extraordinary potential to build on this momentum. In closing, 2025 has been a defining year, and our focus in 2026 remains unchanged. I want to express my sincere appreciation to our 25,000 employees for their focus, hard work and dedication. Thank you all for your time, and we would be happy to take your questions. Operator: [Operator Instructions]. The first question comes from Joel Jackson from BMO Capital Markets. Joel Jackson: Wondering if you could bridge us -- I know you for a couple of years, you held the guidance range for this year for retail to $1.9 billion to $2.1 billion. So let's call that $2 billion. You're planning to deliver $1.85 billion this year, that's $150 million. Could you bridge us when you think about the last couple of years, the differences there? And maybe when you do that, could you please highlight proprietary products, Brazil, North America, retail tuck-ins that got you to $1.85 billion for this year? Kenneth Seitz: Yes, you bet. Thank you. So the 2026 target is about $150 million above where we are midpoint for 2026 sits today in our guidance. And then there's a few reasons owing to that. One, the main driver is we have assumed the macro fundamentals would be modestly better than they are today. And I think that would be most of it. And so that the result is a bit slower proprietary product growth, and we've been a bit more selective on tuck-ins. And because of modestly -- sort of modestly lower ag fundamentals or poor ag fundamentals, we have taken action in service of 2026 EBITDA. And so what have we done, we've paired growth of the market with what we've seen in the market, and that is accelerating our cost reductions. We've talked about that. That's Latin American restructuring and the Brazil margin improvement plan. We've closed underperforming assets. That's 50-plus locations, both in North America and Australia. We've reduced headcount by over 400 positions. We've restructured noncore and unprofitable businesses. So we've really taken action on the cost reduction side. We've optimized our capital expenditures. We've increased the contributions from Nutrien Financial and certainly better working capital management. And we see additional opportunity on the working capital front as well. So that -- since 2023, we have increased earnings in our retail business by $400 million. And I think an important point there is that we believe that, that's structural. So that's 6% growth rate beyond -- up until 2026 and beyond. So we look at the business and we say, yes, ag fundamentals modestly sort of not where we had thought that they would be. We react with cost reductions and business improvement. And through all that, we've increased EBITDA in our retail business by $400 million structurally since 2023. Operator: Your next question comes from Chris Parkinson from Wolfe Research. Christopher Parkinson: Can we just go over real quick the demand dynamics that you're seeing in potash markets? I think most people are pretty decent on the supply. But just what surprised you? What's been in line with your expectations, where you think inventories are? It just seems like there are a couple of moving parts, which we'd like to keep track on. So any color there would be very helpful. Kenneth Seitz: Yes. Thanks, Chris. So we're projecting 74 million to 77 million tonnes this year. So up about 1 million tons from what actually happened last year. And at that level, we're starting to reach sort of thresholds where it tests operations and supply chain capabilities. We do believe that underlying consumption is meeting shipments so that there hasn't been a large inventory build. If you look at that sort of record early settlement in China, it's very strong evidence of depleted inventories and same thing in Brazil, where domestic inventories are at multiyear lows. So we -- again, we see that shipments is equal to consumption when we say 74 million to 77 million tonnes because we don't see inventory building. As a result, we've seen good prices. Brazil at $375 and again, low inventory. Our U.S. winter fill program, we were fully subscribed at the price there now $355 per short ton. Southeast Asia is firm at $375, albeit there's some inventory there on a strong program -- purchasing program last year. India, $349, and we do expect India to come forward with an earlier settlement given that there's a lot of volume now going to China and the Indians are going to have to step in as well. So that Canpotex with the volume moving offshore is also now committed through Q1. So Chris, I think for the fourth year in a row now, we've seen demand growth, and it's getting from the demand destruction of 2022 to 2023 right back on to trend level demand here into 2026, fourth year in a row, 74 million to 77 million tonnes where inventories aren't building. In other words, consumption is equaling shipments and probably reaching a point where you're -- again, you're starting to test supply chain and operating capabilities, hence, some of the firming that we've seen in price. Operator: Your next question comes from Hamir Patel from CIBC. Hamir Patel: Ken, given the high end of your production -- potash production guidance range would be close to your current capacity. How do you think about how quickly you could bring on additional potash brownfield capacity in your system? And when might you look to action further capital projects there? Kenneth Seitz: Yes. Thanks, Hamir. Yes, the beauty of having 6 mines is that we have just a solid understanding of where that next ton is going to come from and certainly at what cost. And so as we map out our trajectory of volumes, not just this year and next, but over the medium term, we have a very strong sense of where they're going to come from, when we can bring them on and at what cost. And so yes, Hamir, this year, we have 50 million tons of capability. And as the market grows, we have line of sight today to just continue to grow with it. When we say 19% to 20% market share in a growing market, again, we have line of sight to continue to expand our volumes as the market grows. 6 mines, these investments are rather granular. It's conveyance, underground, it's mining machines. And so we can do those as long as we get the purchase orders in for those mining machines in time the turnaround and installation of those things, we can move that relatively quickly. Incredibly low capital costs. Again, we talked about that $150 to $200 per tonne. That would be, what, 10% of what a greenfield investment would be. The last thing I'll say is not to underestimate the benefits of mine automation as we expand our production volume. As we said in the comments, we cut half of our ore in either fully autonomous or remote mode. And the safety benefits, absolutely. But the productivity benefits and the flexibility benefits associated with automating these mines, it's really proving out. So that when we talk about, as you say, we're expanding volume consistent with the way the market is growing and our maintenance of market share, our ability to do that pace at a low capital and maintaining our $60 cash cost per tonne, we see that all coming together really very nicely as we sort of innovate on mine automation. Operator: Your next question comes from Ben Isaacson from Scotiabank. Ben Isaacson: Just a quick question on Brazil. You generated a loss, I believe, in '24, and you were close to a breakeven in '25. Can you talk about the expectations for '26? What is the upside case? Or what are the swing factors there? What should we expect out of Brazil? Kenneth Seitz: Yes. Thank you for the question, Ben. The Brazilian market continues to be challenged, I would say. Yes, we have been making great progress on our margin improvement plan. We've talked about idling blenders and closing unproductive locations and rationalizing workforce and focus on collections. And that's all yielded results that, as you say, Ben took us from a loss-making position in 2024 to making a bit of money in 2025. And if we look into 2026, again, given the ongoing challenges in that country, I would describe it as sort of modest improvement over what we did in 2025. And in light of some of those modest improvements and in light of the ongoing challenges in Brazilian agriculture, we continue to assess and reassess our presence there, whether it be with seeds, certainly with proprietary products where we see opportunity to grow. But on the retail front as well, what is the best way to approach the Brazilian market. We know we're going to be supplying potash there forever, and we're going to be a meaningful supplier there. So when we put that all together, I suspect there will be changes to sort of how we operate in Brazil in 2026, and we're just working through that now. Operator: Your next question comes from Vincent Andrews of Morgan Stanley. Justin Pellegrino: This is Justin Pellegrino on for Vincent. I was just hoping you could kind of discuss the proprietary product mix in retail again. Is there a level that you're looking to achieve at some point in the distant future? Is there a target percentage mix? And then can you kind of just frame for 2026 and beyond what the drivers of below or above expectations would be for that percentage mix? Kenneth Seitz: Yes. So thank you for the question, Justin. And yes, we do have growth aspirations as it relates to proprietary products. I mean it's growing to about a gross margin of about $1.2 billion to date. And that's been -- we've been experiencing sort of high single-digit growth rates over the last 5 years, and we expect that to continue for all kinds of reasons. So yes, we do have growth aspirations, and that's true for the shelves that we currently put those products on the innovations associated with new products, and we are introducing new products this year and then looking abroad as well, international markets where we're seeing some green shoots in terms of our ability to supply in different agricultural regions. But Chris, did you want to say any more about proprietary? Christopher Reynolds: Yes. Justin, thanks for the question. Part of that growth story also is that, for example, we're going to be introducing 26 new products here in 2026 as part of the proprietary products range. And as we look across the health of the grower today, their focus is very much on yield. And when you think about sort of the average to maybe a little below average crop commodity prices today, that's where their focus is. And their growing confidence in these proprietary products to help that yield outcome just continues to grow, as we said, not just domestically in North America, but also growing internationally as well. So a big component of our growth, as we've mentioned this morning, is around that proprietary products range, and we feel very good about that long into the future. Operator: Your next question comes from Andrew Wong of RBC. Andrew Wong: So in the retail guidance, you're assuming a mid-single-digit growth in crop nutrient volumes in North America. Just curious, how does that differ in your view across like nitrogen, potash and phosphate? And how does that take into factors such as crop switching between corn and soybean and versus the need for nutrient replenishment after the really strong yields last year? Kenneth Seitz: Yes. Thank you, Andrew. And yes, we're saying for corn, 94 million to 96 million acres and for soybeans, 84 million to 86 million acres. So -- and we're now staring down at some catch-up with crop nutrients going down on the ground from a wet fall or weather challenged fall. Indeed, we had about a $300 million working capital build in the fourth quarter, which we expect to be released onto the ground here in the first half of the year. In terms of fertilizer mix, I wouldn't say that it's going to be different than what we've seen in previous years. I think it's going to be a balanced fertilizer mix. I mean it's true that the -- that North America took a record crop out of the ground last year right across the board, corn and soybean. So there was a lot of crop nutrients removed out of the ground last year, and those need to be placed. But I wouldn't say that we're looking at a mix that's anything different than we've seen in historical years. So that we expect that the gross margin contribution from fertilizer in our retail business this year should be about $1.5 billion. Operator: Your next question comes from Steve Hansen of Raymond James. Steven Hansen: Recognize it's still early here, but any incremental thoughts on the optimal path for the phosphate strategic review? And maybe just give us an update where you're at and time lines that you might be starting to put together, again, recognizing it's still early. Kenneth Seitz: Yes. Thanks, Steve. No, no conclusions on optimal path. We are -- and you phrased it well. We are still in the midst of a strategic review. And when we announced it last quarter, we said that, that could be anything from sort of revised operations all the way through to a sale. We are preparing. Our team is preparing for the typical market testing process to gauge interest in those assets. I can tell you at this stage, we have had significant inbound, significant interest in entering a discussion around those assets. But we're not in a position to do that until we have all of our ducks in a row as it relates to data information and characterizing -- clearly characterizing the assets so people can understand what the business is and the state of the assets and all those things that you go through. So we're in a -- we expect to be in a position in the next quarter where we'll be out in the market doing exactly that market testing and gauging what may be done there. In the meantime, parallel bodies of work to understand when we say revised operations, what do we mean by that? We have different assets here. There's Aurora with an extended life of mine, White Springs with a life of mine that's just early into the next decade, but with additional resources in the area that we're having a look at and then there is our feed plant. So -- so when we say revised operations, what might we do with those assets and everything in between that then, Steve, in terms of sale assets and revised operations. So certainly, we want to have conclusions. We want to be able to tell you here in 2026, what's the plan, but we're just working through that at the moment. Operator: Your next question comes from Lucas Beaumont of UBS. Lucas Beaumont: So I just wanted to follow up on the potash costs. So I mean the controllable cost kind of came in at $58 a tonne this year. I mean it was a bit up year-on-year, but similar to sort of what you've done a couple of years before that. So I mean just going forward with increasing production profile, sort of what you're doing on the automation front, how do you sort of see those costs trending into 2026 and beyond? Kenneth Seitz: Yes, Lucas, it is our goal to keep that number at $60 per tonne cash cost per tonne. And we define that as controllable cash cost. But yes, per tonne for the foreseeable future. And why do we say that? It's -- we're in an inflationary environment. We've been successful fighting back inflation with the things that you just described with mine automation, which is our mining machines get further and further away from our conveyance shafts, we were able to put our machines either in teller mode where you don't have operators traveling many kilometers underground to get to the equipment. They're just sitting on surface, operating machines or in the case of Rocanville, fully autonomous machines just tunneling around underground on their own to flip the switch, those -- that yields obvious productivity benefits, which goes right to that $60 or less cash cost per ton. And yes, we're absolutely -- we talked earlier about our market share in a growing market where we'll expand volumes, and we're expanding more volumes over a fixed cost base, which, of course, contributes to helping us fight back inflation for that $60 target. So great question, Lucas. We've been proud of our ability to be at that $60 or less, and the plan is to keep it there. Operator: Your next question comes from Matthew DeYoe of Bank of America. Matthew DeYoe: I have 2 for you. So I wanted to gauge your thoughts on the Trinidad asset and particularly given the changeover we've seen in Venezuela. I know the Dragon pipeline could have a potential implication on Trinidad and gas supply, but I also don't know how much stock you want to put into something like that. And then on the retail business, if I look on a 2-year stack, seed sales are down like 7.5%. And maybe this is overly simplistic, but if I were to assume prices in there, too, maybe volume is down 10%. Maybe that's not right. But why do we see this kind of headwind on the seed side, specifically for revenues in retail? Kenneth Seitz: Good. Well, I will share a few thoughts on Trinidad, and then I'll hand it over to Mark and Chris to provide some thoughts on seed. So Trinidad, gas availability, I mean, Matthew, it's a great question. Obviously, a lot of activity in the Caribbean there. But I would also say a lot of uncertainty. And I think that maybe that's an obvious statement. Yes, the ability for Trinidad to operate those industrial plants on the coast and certainly supply domestically for energy and then LNG as well requires full gas, full complement of gas, and that has to come from Venezuela. And as you know, those discussions have been taking place over years now where you sort of unlock what was once sanctioned Venezuelan gas, build the pipeline over to the industrial complex in Trinidad and liberate Venezuelan gas either for LNG or for the industrial complex along the coast there and one of those is our plant. I don't have significant confidence for the near to medium term given that there will be ample gas supply over to the island of Trinidad from Venezuela, and it's just owing to that sort of level of uncertainty as it relates to the region. So as we have looked at, there's a number of factors at play here. Obviously, our plant has been throttled at 80% because of lack of gas for some period of time. In addition to that, now, we're facing increased costs for the gas and the natural gas companies has been very clear that gas prices are going up in an environment where we really don't make any money off our Trinidad plant's 3% of earnings and 1% of cash flow. And so for us, that was and is untenable and hence our plan to shut down. We are working with -- we continue to talk to the Trinidad government about whether there is a path forward here on affordable gas access to port at affordable fees and one that would allow us to operate at some, albeit slim margin. In the meantime, we have move to sort of revised operations where we're taking care of our idle plant with the core workforce. Over the coming months, we will look at -- continue to look at these alternatives and try to seek an arrangement where we can run this plant, but we'll see. So more to come on that front. Mark Thompson: Matthew, it's Mark speaking. So on your second question on retail seed sales, I think there's 2 primary drivers of that. One of them would be intentional and strategic and within our control and the second, probably more out of our control and weather related. So on the first factor, as we've implemented the margin improvement plan that Ken spoke to in Brazil, some of that has involved moving away from lower-margin seed business, managing our expense profile, which while seed sales have declined, it's made the overall business healthier, as you've seen and generated significant improvement in Brazil, and that was a very intentional choice to improve the nature of our business operations there. The second would be the historic weather events that we saw in the U.S. South in the first half of 2025, which really resulted in a complete washout of some of the areas of the Delta and other places where we tend to have very high seed share and strong proprietary cotton and rice businesses. And as we spoke about that in the first half of last year, that clearly had an impact on seed sales, and we would expect some of that to reverse this year on that second factor. If we step back from seed, we go back to some of the comments that Ken made this morning. Over the past 2 years, notwithstanding those challenges, we look at the broader retail business, earnings have grown $300 million of EBITDA despite those challenges. And when we look at the broader proprietary business, we grew by about 5% in 2025. And as we've said, we think that business will grow again by high single digits in 2026. So again, we think some of the seed sales related to weather will reverse themselves. And from a broader retail standpoint, for those items within our control, we continue to drive strong business performance and growth. Operator: Your next question comes from Edlain Rodriguez of Mizuho. Edlain Rodriguez: Ken and Mark, we've seen what happened with phosphate when prices are too high. There was a pullback in demand in 4Q. Any concerns that something like that could happen in potash? Or is it that potash supply/demand is balanced enough that we are unlikely to see a fly up in prices? Kenneth Seitz: Yes. Thanks, Edlain. And yes, I mean, I think you're absolutely right. We saw that in the fourth quarter as it related to phosphate. Indeed, for our phosphate business, we felt that as well. We were able to manage through that with some -- with the commercial team and we're still within our guidance range. But it is true that their farmers pulled back on phosphate. On potash, it continues to be the most affordable crop nutrient. And if we look at the supply and demand balance for 2026, we do see some demand growth, and you can see that as we look to the -- our estimate of shipments $74 million to $77 million, up from the midpoint -- sorry, the numbers from last year at $74 million to $75 million. So demand growth, but we also see some new tonnes coming into the market from various places. I mean some would be our own but we see some additional tonnes coming in from FSU countries, maybe a little bit from Laos. Some of that's offset by declines in China and Chile. But we expect that, that combination of sort of smaller tonnes from these places, including our own when we talk about increasing production by 200,000 tonnes from last year, that we find ourselves in a somewhat balanced market. Let's see if we get into the higher end of that demand range, what the supply chains are able to handle. We do believe we're getting up to some of those more challenged numbers when you're at the top of the range for supply chains and maybe even for operating rates. But in the meantime, we're experiencing what we call balanced market, and you see that reflected in the price, $375 in Brazil, $348 in China, $375 Southeast Asia and a relatively stable market. So I think it is a different story than the phosphate story. Operator: Your next question comes from Kristen Owen of Oppenheimer. Kristen Owen: I wanted to come back to the topic of your Brazil retail channel and just sort of ask you what the long-term strategic value is there, just given some of the previously discussed market challenges and I think you've alluded that, that business doesn't meet your internal hurdle rates. So is there some action that you could take to further narrow the gap versus your initial 2024 Investor Day guidance or maybe even recast those targets ex Brazil, so we can understand what that stand-alone business looks like? Kenneth Seitz: Yes. Thank you, Kristen. And I would say that given that Brazil is really not contributing anything in terms of earnings or cash that the retail number is one ex Brazil. But at the same time, yes, I take your point about our future there and whether everything we're doing in Brazil makes sense for us. And so that's, again, the work of 2026. We've been pleased with our Brazil improvement plan. We've talked about that. And that met expectations for last year. It certainly did. So a lot of heavy lifting, but we got there. And we're on a similar path in 2026, but we are reviewing our seeds business and whether that's appropriate that that's within Nutrien or maybe better off in someone else's hands. We do have conclusions on our proprietary product business in Agricen down there where we do see opportunity to grow, and it is certainly synergistic with everything we're doing -- everything else we're doing with Loveland products. And we can sell those products on shelves all over Brazil, not just necessarily our own. We know that we will be a large supplier of potash into Brazil and a growing supplier and that, that will continue. That leaves really the retail business. And yes, we're struggling with how to think about our retail presence in Brazil, whether that business can meet our financial thresholds that we expect when we deploy capital, whether there's better places to deploy capital. And if we come to that conclusion, what we might do with those retail assets. That's the work underway at the moment, and we'll have more to talk about that through 2026 and certainly some conclusions on those answers in 2026. Operator: Your next question comes from Duffy Fischer of Goldman Sachs. Patrick Fischer: Just a question around your U.S. retail business. Investors have quite a lot of concern about the increase in Chinese generics in ag chem. We've seen a lot of pressure in Asia and Latin America so far. Do you see them trying to come direct in the U.S. trying to get labels, one? And then two, if they're not doing that, do you see them just kind of putting more pressure with lower-priced generics running through the retail chain here, but kind of dragging down ag chem? Is there a structural change happening there in your view? Kenneth Seitz: Yes. Thank you, Duffy. And yes, we do see some generic pressure, not the likes of what we see in some other parts of the world like Brazil, but we do see some. But I'll hand it over to Chris. Christopher Reynolds: Ben, thanks for the question. And as Ken said, we are seeing a little bit of that enter the market today, some of that direct-to-grower model. But what we really like there as we think about the future is, again, our proprietary products range. And like the -- as I said, the introduction of 26 new products this year. We've got a pipeline there. We're going to continue to develop going forward with our current supply partners. And so we like our position. We like the breadth of our network. We like the relationship we have with our growers as we continue to move those products. And so we don't see that sort of direct model today as a significant threat, and we really like the position we have with our proprietary product range. Operator: Your next question is from Ben Theurer of Barclays. Benjamin Theurer: I wanted to follow up on broader capital allocation and specifically on the share buyback. So over the last 2 years, you bought back 5% of shares outstanding, and you're basically saying now you could do up to 5% this year, which seems to be a decent increase. What are like -- what were internally like the alternatives looking creating maybe the dividend more or going more towards the share buyback? What were like the thought processes behind particularly where the stock price is right now? Kenneth Seitz: Yes. Thank you, Ben. Yes. So we did renew the NCIB. The Board approved that yesterday at a level of 5%. Last year, we were buying back our stock at a rate of about $50 million a month. And here in 2026 is probably depending on how the year unfolds, but I think it's probably a good number to use for 2026 as we watch the year unfold. How we think about the buying back -- return of cash to shareholders via the buyback versus the dividend, we continue to use the word stable and growing on the dividend, but of course, buying back our stock actually has allowed us in total, all the time long us to buy down the dividend. But Mark, maybe you want to say -- provide some additional color there. Mark Thompson: Sure. So yes, I'll just add a few points to what Ken mentioned. I think first and foremost and most importantly, our approach to capital allocation in 2026 will be entirely consistent with what shareholders have seen from us in 2025. So if we go through the high-level components of our capital allocation stack, we'll have total CapEx once again of $2 billion to $2.1 billion. That will be comprised of roughly $1.65 billion of sustaining CapEx and roughly $400 million of investments and growth CapEx. Capital leases, we expect to be consistent at about $0.5 billion. As Ken said, keeping dividend expense roughly stable at about $1 billion, and that leaves share repurchases. And so a real focus for us since the latter part of 2024 has been introducing ratability in that share repurchase program. And as Ken said, the 5% authorization is really just our authorization to be in the market. Last year, we bought back about 2% of the stock. And when we look at our run rate so far in 2026, we've been doing about $50 million a month in repurchases. And we think that level of ratability makes sense for us. So those would be the major capital allocation priorities. I think it's worth noting that this is all anchored by a very strong balance sheet. And through strong performance in asset sales in 2025, we were able to tune up the balance sheet and put ourselves in an even stronger position by paying down over $600 million in debt. So we feel good about where that sits right now, and that will support our ability to make good on these capital allocation priorities all through the cycle in all types of market environments. So I'd say the punchline here is just continue to expect from us, what you've seen from us so far over the last year. Operator: Your next question comes from Jeff Zekauskas of JPMorgan. Jeffrey Zekauskas: It looks like your inventories were, I don't know, $500 million higher in the fourth quarter than you wanted them to be. What is it that happened at the end of the year that led to that inventory build? And are there implications for the first quarter? Kenneth Seitz: Yes. The big one with Jeff, would be weather. And so farmers just weren't able to get out and put down a normal fall application season. So it wasn't normal. And as a result, that those inventories, working capital carried through into 2026. So that would be one. Two is proprietary products. We held some proprietary product inventory that is still on the books that -- again, we expect in 2026 that we'll release those products and that will be released working capital. Those would be the big ones. Operator: Your next question comes from Mike Sison of Wells Fargo. Michael Sison: Just curious, I appreciate the EBITDA sensitivities for potash and nitrogen. It feels like the base case is somewhere in the middle of those charts. But is that the case? And then what sort of gets you -- since you've given the wider range, what do you think drives it to the higher end of those charts and to the lower end of the charts this year, if at all? Kenneth Seitz: Yes. I mean, as we look at our guidance ranges, when we talk about volume on potash, it really is good weather, leads to strong demand in the regions that we serve and outgoes more crop nutrients. And the lower end of that range would be the opposite of that would be challenged weather and inability to get out of the land. So that's on the volume side. On the price side of potash, it's the classic supply and demand discussion. And we just talked about 74 million to 77 million tonnes. Weather, if you get into the higher end of that range, that's what puts pressure on supply chain and operating rates and whether the market can actually supply those volumes, which, of course, would put pressure on price and hence, again, be at the top of that range. If you go over to nitrogen for us, it's at our plants, it's operating rates. So higher operating rates, higher volumes and lower operating rates, lower volumes. It's true that we have 3 turnarounds this year, which we're going to be executing. That's a heavy turnaround year for us. And so when we talk about operating rates, it requires a strong execution across those turnarounds. We've planned well for those so that we expect we will have operating rates that would be analogous to what we saw last year, which is very strong. So that's on the volume side of nitrogen pricing, you go over to urea, you've got strong Indian demand, strong demand across the table actually, but you also have some supply uncertainty, particularly as it relates to what's happening in Iran and that geopolitical uncertainty. So urea prices are tight at the moment given those supply and demand dynamics, and we see a world where that could persist for a bit longer here in 2026. On ammonia, seasonally lower volume in ammonia right now. We've had some production come back online. Gulf Coast, although going for a planned shutdown, so ammonia, yes, ammonia prices have been strong, but with some seasonal weakness, we see ammonia prices weakening a little bit. But over the course of 2026, yes, you're looking at the right bar, the right charts and as volume and price, we think -- we would say we're constructive across the board. Operator: Your next question comes from Dave Symonds of BNP Paribas. David Symonds: Just a bit of a conceptual one. I noticed that LNG Canada is ramping up. Are you expecting any impact on AECO gas prices from that? And is there anything you can do to mitigate the impact? Kenneth Seitz: With the shift of Trinidad coming down, we were enjoying now 50% of our fleet being exposed to AECO gas and 50% of our fleet being exposed to Henry Hub. With Trinidad running, it was about 20% Trinidad, which is indexed to Tampa ammonia, and the other 80% divided between Henry Hub and AECO. The effect of Trinidad coming down and now just being exposed to North American natural gas has been to reduce sort of our effective gas price quite dramatically. So we like -- given that North America continues to be structurally advantaged on gas costs compared to places like Europe, we really, really like where our high-quality assets are sitting and running at the moment. As it relates to LNG and LNG Canada, we've talked about sort of the flattening world as it relates to natural gas pricing and LNG moving over the planet and what that means for that structural advantage in North America. We believe that the North American structural advantage persists mostly because there are almost infinite volumes sitting on the continent in a very, very cost-effective way to extract those. So we believe that there is that structural delta that persists. LNG Canada or other LNG, yes, might work to flatten that, but we're very pleased with sort of the structural advantage we have. Operator: There are no further questions at this time. I will now turn the call back to Jeff Holzman for closing remarks. Jeff Holzman: Okay. Thank you for joining us. The Investor Relations team is available if you have follow-up questions. Have a great day. Operator: Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter Tenaris S.A. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Giovanni Sardagna, Investor Relations Officer. Please go ahead. Giovanni Sardagna: Thank you, Gigi, and welcome to Tenaris 2025 Fourth Quarter and Annual Results Conference Call. Before we start, I would like to remind you that we will be discussing forward-looking information during the call and that our actual results may vary from those expressed or implied during the call. With me on the call today are Paolo Rocca, our Chairman and CEO; Carlos Gomez Alzaga, our Chief Financial Officer; Gabriel Podskubka, our Chief Operating Officer; and Guillermo Moreno, President of our U.S. Operations. Before passing over the call to Paolo for his opening remarks, I would like to briefly comment our quarterly results. During the fourth quarter of 2025, sales reached $3 billion, up 5% compared with those of the corresponding quarter of the previous year and 1% sequentially as our sales to Rig Direct customers in the United States and Canada continue to show resilience and in Argentina, we resumed our fracking and coiled tubing services. Our EBITDA for the quarter was down 5% sequentially to $717 million or 24% of sales. These results include the full impact of the 50% Section 232 tariffs in the U.S. Average selling prices in our Tube operating segment decreased by 1% compared to the corresponding quarter of last year and were flat sequentially. During the quarter, cash flow from operations was $787 million. Our net cash position at the end of the quarter decreased to $3.3 billion, following the payment of an interim dividend of $300 million in November last year, $ 537 million spent on share buybacks and capital expenditure of $123 million during the quarter. The Board of Directors have decided to propose for the approval of the general -- Annual General Shareholders' Meeting to be held at the beginning of May, the payment of an annual dividend of $0.89 per share or $1.78 per ADR, which includes the interim dividend of $0.29 per share or $0.58 per ADR that we paid at the end of November of last year. If approved, a dividend of $0.60 per share or $1.20 per ADR will be paid on May 20, up 7% compared to the dividend per share of the corresponding period of the previous year. Thanks to the benefit of our buyback program. Now I will ask Paolo to say a few words before we open the call to questions. Paolo Rocca: Thank you, Giovanni, and good morning to all of you. 2025 was a year in which Tenaris demonstrated the resilience of its operation in the face of a disruptive geopolitical environment and lower activity in key markets. Thanks to our extensive geographical presence, the depth of the service we offer to our customers and the commitment of our employees, we were able to respond rapidly to the various situations we faced. Our results remained remarkably stable through the year, which we completed with an EBITDA of $2.9 billion and a net income of $2 billion on net sales of $12 billion. Free cash flow amounted to $2 billion, all of which was distributed to shareholders through dividend and share buybacks. We are proposing a further increase of the annual dividend per share of 7% over that for the previous year. At the same time, we maintained a net cash position of $3.3 billion. In the U.S. and Canada, the U.S. was marked by further oil and gas industry consolidation and productivity improvement, a lower rig count and the extension of Section 232 tariff to the import of all steel products, including the steel bars we require for our seamless pipe operation Bay City, and the subsequent increase to 50%. In this environment, Tenaris raised the performance of its U.S. production and supply chain system with its Koppel, steel shop, main pipe production plants at Bay City, at Hickman and Enbridge and various pipe processing facilities acting in concert to achieve a record level of production and supply, 90% of our U.S.A. In both the U.S. and Canada, we strengthened our market position and extended the differentiation we offer under our Rig Direct service model. As customers targeted operational efficiency, we continue to develop and roll out our run-ready and well-integrated services that support them by increasing safety and reliability at the well site. Major oil and gas companies are seeking new production reserves to meet a more resilient long-term demand outlook and they're looking beyond the shales with their fast-to-decline curves, to deepwater development and exploration in frontier region. Tenaris with its capacity to develop product for complex operation and to support fast track development with service and the supply of advanced coated line pipe solution at scale is working with most of these companies as they develop such projects. As new offshore projects are sanctioned around the world, we see many opportunities to renew our order backlog, while we execute on existing commitments. Currently, we are delivering casing for Shell's Sparta 20K project in the U.S. deepwater extending our services for ExxonMobil's operation in Guyana and preparing a service base for TotalEnergies, GranMorgu development in Suriname while planning the production of seamless and welded line pipe and coating for the third phase of TPAO Sakarya gas development in the Black Sea. In Latin America, the Mexican government is taking steps to address the financial difficulties Pemex, which took a toll on oil and gathering activity in the country last year. While in Argentina, domestic companies have been able to raise more than $4 billion in financing to develop infrastructure and expand production operation in the Vaca Muerta fields. We supplied the Vaca Muerta Sur pipeline and are currently supplying the Duplicar North pipeline. We are also investing to expand our new fracking and coiled tubing service business and expect to put a third set of equipment to work before the end of the year. In Venezuela, following the intervention of the U.S. government, we are resuming our service to Chevron operation and building up our service capability in the country to support an increase in drilling activity. In the Middle East, we continue to consolidate our presence with the award of a long-term agreement for the supply of OCTG to the Northwest field development in Qatar, while in the Emirates, we enhanced our Rig Direct service to ADNOC, delivering a record amount of OCTG. Saudi Arabia, also conventional drilling activity was reduced during the year. We completed an expansion at our local large diameter facility, from which we are supplying line pipe for the development of gas infrastructure. In addition to the OCTG, we supply for Aramco drilling operation. Our global integrated industrial and supply chain operations have been key to our ability to respond effectively to the different events we faced during the year. We continue to invest and enhance the efficiency and digital integration of these operations as well as reducing their environmental impact. We made further progress towards our midterm target of reducing the carbon emission intensity of our operations as we brought our second wind farm in Argentina into operation. The 2 wind farms now supply essentially all of the energy requirement for our electric steel shop and operation in Canada. As an industrial company, our commitment to the safety of our employees and to the environment sustainability in our communities is absolute. Also, our indicator have improved this year. We continue to reinforce our preventive action and monitor our performance in this aspect. Tenaris, with its presence across the world, competitive differentiation in product service, the quality and compliance of its operation and the financial strength to support its strategy remains well placed to confront an unpredictable and volatile future. I would like to thank all our employees and the communities which sustain our operation for their constant commitment and engagement that have made possible our results and achievement this year. I would also like to thank our customers and our suppliers for their ongoing trust and support. Thank you very much, and we are open to any questions you may have. Operator: [Operator Instructions] Our first question comes from the line of Marc Bianchi from TD Cowen. Marc Bianchi: I wanted to start by asking about the outlook here in first quarter and maybe you could talk about, to the extent you're comfortable how things progress beyond first quarter. When you talked about being close to current levels in fourth quarter, is that -- should we interpret that as meaning flat? And are there any nuances with volume and price that we should be thinking about as we build that out? And then any comments sort of beyond first quarter would be great. Paolo Rocca: Well, thank you, Marc. Well, within our visibility today and considering many parts moving in the energy market and also in the general geopolitical environment, I think it will not be easy to have a medium-term forecast. Now what we see is a relative stability of our performance and our position in the market during the first quarter and it is not so easy. We do not see today a point that should disrupt our operation even in the second quarter. But for the time being, as we say, we feel comfortable in forecasting the first quarter in which the level of margin and in general, the results we can get are more or less in line with the 4Q. But it's difficult to have a more long-term forecast considering the volatility of the environment in which we are moving. Marc Bianchi: Yes. That makes sense. And then the other one maybe somewhat related, the margin resilience in the fourth quarter was quite good. And I'm curious how much of that benefited from some of the actions that you're taking? I think you mentioned Koppel in the press release to try to offset some of the tariff headwind that you've experienced. I think previously, we talked about that being something like $140 million a quarter of tariff costs that you're having to deal with. So I'm curious how much progress did you make on that in 4Q? And what is the opportunity going forward? Paolo Rocca: Well, we are, let's say, continuously operating in the efficiency of our operation, including our capacity to produce more steel in the U.S. So we expect for the first quarter of next year, that a lower level of tariff we get into our IFRS because in the end, we are operating on this even in the past few months. And we think that what is getting into our results in the first Q will be relatively slightly lower of what we have in the fourth Q. But on the other side, the indicator of prices in North America, I mean, in spite of the impact on the hot-rolled coils and other products of the steel industry are moving relatively slow in the pipe business and especially in a welded pipe. So considering the impact of slightly lower tariff and where we are in terms of Pipe Logix and so I think what is moving around in the world, I think that this is the component that justify our vision of a relatively stable top line and margin data for the first quarter. Operator: Our next question comes from the line of Matt Smith from Bank of America. Matthew Smith: My first question was around the international business and on pricing. Just whether you have seen any signs at all of pricing pressure given how some of the international benchmarks have traded down, I guess, since summer 2025? Any color you could give on different regions could be useful. Paolo Rocca: Thank you, Matt. I would say that, as you know, our business globally is composed of many different niche, high-demanding product, different region, different level of service. So I would say, to some extent that the price impact is more easy to understand and project in North America than internationally. But by the way, I will ask Gabriel to give you a vision of what we see in front of us on the ground. Gabriel Podskubka: Yes. Thank you, Paolo. Good morning, Matt. On the pricing on the international markets, we see, in general, some stability, a balanced demand and supply, especially on the premium products, where we are mainly focused. So premium is our service, high technical qualified pipelines. This demand is quite strong, driven by offshore, by Middle East, in gas and our service development. So we see the demand on these segments quite stable. We have, in many cases, long-term agreements that have some formulas related to raw materials. So I would say that the majority of our backlog and our business in international market are driven by stability in the pricing. It is true that there are some spot tendering where we're seeing a slight deterioration in the environment, especially when we are talking about lower end applications, but this is not the most important part of our business, and this is something that we monitor. So I would say, given all the moving pieces and the increasing component of our offshore during 2026 in our international mix, I would say that the pricing in the international markets are quite stable for Tenaris. Paolo Rocca: Thank you, Gabriel. Let me just add one point on which maybe -- that is the European. In Europe, maybe it's early to perceive the impact, but the CBAM and the safeguard that is supposed to raise the quota -- to raise the tariff to 50% and reduce the quota by almost 50% may have a favorable impact on relatively important segment of our international business that is all supported by the industrial power gen activity into Europe. To some extent, I think in the view of the overall say, future of our operation, maybe not immediately, but we should be able to maybe improve our situation and pricing in Europe. And also this reflects with the present exchange rate gets into our -- to our top line relatively well. Matthew Smith: I wanted to ask a second question around the buyback, if I could. So I appreciate the current tranche of $600 million is still ongoing, and we'll have to sort of await the next announcement later in the year. So I just wanted to ask, check whether your philosophy around the buyback has changed at all since last year? Or should we very much expect this to continue to be a material component of shareholder returns in the near future? Paolo Rocca: Yes, thank you. As you are saying, the General Assembly and the Board decided for a program of share buyback of $1.2 billion from May 2025 until May in 2026 divided in 2 tranches. The second tranche has been approved again in October. Now the decision obviously is to the assembly and the Board for the decision on this ground. But let's say, the factors that were relevant for the decision on the shareholder didn't change so much. So we will see if in the assembly in May and the Board after this should decide on this, when the second tranche of $600 million will be closed. They will consider the different factor, the level of cash availability in the company, the perspective of this. And on this basis, they will consider a possibility to continue the program of share buyback. Operator: Our next question comes from the line of Arun Jayaram from JPMorgan. Arun Jayaram: I was wondering if we could talk about your expectations around potentially getting to an inflection point in the Pipe Logix pricing indices, just given your thoughts on import trends and where -- when and where could do you expect us to see that pricing inflection point? Because it continues to trend down, call it, in low percentage points at this point, looking at the most recent pricing data? Paolo Rocca: Yes. Thank you, Arun. Well, the factors that are, let's say, having an impact on the Pipe Logix are different. But you should also consider that there is a Pipe Logix for seamless and the Pipe Logix for welded. What we see is that, to some extent, the Pipe Logix for welded is having a drag down on the overall impact, something that maybe we were not estimating -- fully estimating before. Why? When we saw the hot-rolled coil index going up as it is going up today, we were considering that this should have driven an increase in the welded pipe. But the import of welded pipe coming in based on the Chinese or Southeast Asia or other sources flat product is, let's say, containing movement in the Pipe Logix for welded. And this is, to some extent, having also an impact on the Pipe Logix for seamless product. Now the hot-rolled coil went up so much. There is clearing the way for some import in the welded product and putting under stress the producer of welding product based on hot-rolled coils coming from the U.S. In my view, this is kind of temporary because antidumping action against importation or import of welded will contribute to the gradual alignment of the Pipe Logix to the higher level of the hot-rolled. But this is not something that we can anticipate immediately for the first quarter. But over time, should be acting, should be a factor. Arun Jayaram: Great. And my follow-up, Paolo, I was wondering if you could just provide us your thoughts on how Argentina could play out in 2026 versus 2025? I know that you're adding a third frac fleet in Argentina, but give us a sense of how you see things progressing in the ground because we have seen some IOCs adding rigs in that market. Paolo Rocca: Well, let me tell you that as I was saying in the previous conference, after the election in Argentina in November, the confidence on the investment community is increasing in Argentina. And even the oil and gas companies have been able to finance more than $4 billion, collect financing from different tools that will be used to, let's say, promote and carry on investment planned during 2026. This process has been relatively gradual, but I think that over the second part of '26 and also following the biggest investment in the infrastructure, we will see this collection of financial capability will transform into a higher level of drilling in the country. This has been slower than probably we were expecting 1 year ago because opportunity are there, but also the level of country risk stayed a little higher after the election than we maybe were estimating. And this is maybe slowing down or at least is making more gradual -- the pickup has increased. Also some of these resources has been used for consolidation in the industry, especially by local player. And after this consolidation, the investment will go in operation in the development. First, some of the acquisition has been completed and gradually in this field, drilling will increase. I would expect in the second half of 2026, we will see something moving in this sense. I remember, part of the drilling containment has been coming by the reduction of the operation in the south part of the country. Now this is obvious. There has been a closure of operation in the South. So the key and the core of it -- of everything will be Vaca Muerta. Operator: Our next question comes from the line of Sebastian Erskine from Rothschild & Co Redburn. Sebastian Erskine: I'd like to just start on the margin trajectory for Tenaris in 2026. And I think, Paolo, you mentioned earlier about the impact of kind of hot-rolled coil on ERW margins. I mean, looking at that, I think in the U.S., those have compressed about sort of $350 a ton since August. So I guess that would equate to something like a sort of $35 million, $40 million quarterly cost headwind, but that will take a while to show up. So when does that flow through into COGS? Or is it something we shouldn't really be thinking about as a meaningful impact? Any color there would be helpful. And then I guess on top of that and more positively, when we look into the second half of the year, you've obviously got a lot of offshore work to materialize. So you mentioned Sakarya, Suriname and presumably, obviously, that's higher margin. So can we expect you to operate at the top end of your kind of 20% to 25% EBITDA margin guidance? Is that realistic going forward through the rest of the year and a kind of second half weighting? Paolo Rocca: Maybe, Gabriel, you can give an overview on part of the question. And then eventually, we will ask Guillermo on the other pathway. Gabriel Podskubka: Sure, Paolo. Good morning, Sebastian. Going to the part of your question related to offshore and how they will play out during 2026. I would say that the market in the offshore is quite operating at high levels. We have a strong backlog that we need to execute. As Paolo commented in the opening remarks, we are getting ready to deliver this impeccable execution. These are complex projects that require local deployment. You mentioned the Suriname project. We are building the new service base in Suriname. The new -- the first shipments will arrive in June. So we are ready to deploy the OCTG and the Rig Direct services there into the second half of the year. We are also, for example, producing today thermal insulation coating in Nigeria to support the Shell Bonga North deepwater development. So these are important part of our focus and attention is on delivering this high backlog of orders. And we expect revenues in the offshore in the first half of 2026 to be higher than the second half of 2025. When we talk about the second half, it's true we have an important backlog of Sakarya and other projects. Some of these awards -- additional awards require FIDs. We see some of the FIDs being announced towards the end of this year or even in 2027. So this will depend. So we don't have fully confirmed the backlog of second half of 2026. But we are confident that it will be at least as positive as the first half of 2026. So overall, I would say, the offshore contribution will be important for Tenaris. And if you look at the industry projections, the level of FIDs of deepwater that we are seeing for 2027 are pretty strong, higher than the average of '25 and '26. And we are engaging with our customers early on in those projects much earlier than the FID. So we believe that we're in an offshore cycle that is going to be sustained for a multiyear period. Paolo Rocca: Yes. This is very important. When we look at the estimate of the investment in deep offshore for '27 and '28, the number apparently of estimation are showing level of investment in the range of $120 billion in '28 that are almost 3x some of the low-end years in the past 2, 3 years. So long term, look promising for this. Now Guillermo, maybe you can add on the U.S. operation best vision. Guillermo Moreno: Yes. Thank you, Paolo, and good morning, Sebastian. Well, regarding your question about the trajectory of margins in the U.S. and particularly for our ERW pipes, clearly, the recent increase of prices of the hot-rolled coil and still the reduction of prices for the same products is putting a lot of pressure on our margins. And that is going -- that are going to be reflected mainly in the second quarter. For the following quarters, with all the volatility that we are seeing, it's more difficult to forecast, as Paolo explained before, but -- and will depend mainly on the ability of the Pipe Logix to recover that we think that eventually will based on the push of the cost hot-rolled coil and scrap and also because of the expectation that the imports will continue to go down in the future. Operator: Our next question comes from the line of Stephen Gengaro from Stifel. Stephen Gengaro: So 2 things from me really. One is, can you talk a little bit about your expectations in 2026 for any material changes in working capital as we sort of try to think about free cash flow generation? And then maybe aligned with that, what level of cash do you feel like you need on the balance sheet to run the business? Like what level is excess versus what's sort of normal necessary operational cash? Paolo Rocca: Thank you, Stephen. Well, in general, remember, it's not only a question of the capital we need to run the business, but we also need to have always in mind the capital we need to have available for any expansion or opportunity that may come in front of us. This is an important consideration for the Board, for everybody when we consider the financial strategy in the flows to the shareholder. But as far as the working capital is concerned, I would ask Carlos an overall view because there are some areas like the receivable from some of the clients that is improving. And so you can give us a view of how you see this. Carlos Gomez Alzaga: Sure. Thanks, Paolo. For the 2026, we expect to be quite neutral in working capital, but we will have some swings over the year. Especially in the first quarter, we're expecting an increase in working capital, mainly driven by our accounts receivable. As you saw during the fourth quarter, we have a big reduction in receivables, mainly driven by collections in some -- big collections from Pemex. I think with Pemex, we have arrived to a level that from now on will maintain or increase a little bit. So we won't be seeing a working capital reduction coming from there. And then we are seeing also some terms, we negotiate some terms with customers in the U.S. that might impact a little bit our working capital needs. And also, we are seeing some slight increase in sales for the first quarter that will also imply an increase in account receivables. Paolo Rocca: In terms of inventory, maybe for managing our -- in our balance sheet, the service component of the company is very visible. We have the fixed capital that is slightly higher than our working capital because in the end, we have a lot of inventory to support our service strategy and our Rig Direct strategy. You think, Gabriel, we can imagine some reduction of this streamlining inventory or basically you imagine a stable situation here. Gabriel Podskubka: In general, Paolo, we are always looking for opportunities to improve. This is the case in all our Rig Direct programs, we are managing and balancing the ability to supply and have the right stock at the right moment and have efficient working capital. So this is a constant work. We have done an improvement during the year that we will continue this year on the work in process material. So this is something related to our industrial efficiency where we have been improving, and we have more room to improve. And then there is a part of steel as we have this important LSAW pipelines that we need to buy the steel in anticipation. So typically, there is a longer lead time on these large pipelines that are also reflected throughout the year. But this is an area of attention, and we always think there is room for improvement. Paolo Rocca: It is important for projects like Sakarya. Gabriel Podskubka: For example. Paolo Rocca: Long term, long period of time. Gabriel Podskubka: Yes. Paolo Rocca: And also our operation may demand working capital for serving ADNOC with a long operation and stock demand. Gabriel Podskubka: We are serving every month 550 rigs worldwide. So this requires to have the raw material close to this rig. Paolo Rocca: Serving 550 rigs every day imply to keep all the inventory even in a remote region or at least like in the Gulf. But still, we're working every day to understand how we can optimize this by the way. Sebastian Erskine: No, that's very helpful. Operator: Our next question comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: The first one is really going back to the Q2 guidance. You mentioned a bit of an impact from higher raw material costs. I was wondering if you could perhaps quantify or give a sense of what that could be in Q2? And also, as we look throughout the year, I was wondering if there is any quarter where we could see an impact from mix, for example, more line pipe versus seamless and having an idea of the cadence of line pipe volumes, I think it could be quite interesting? And also on maintenance, whether you have any big maintenance quarters? And second question on Argentina. Can you comment on the level of competition you've seen there? We've seen an Indian company getting a contract for a pipeline. And I was wondering your thoughts about the competition there as volumes, as you pointed out, are going up possibly from second half? Paolo Rocca: Thank you, Alessandro. Well, on the first point, there is, let's say, the impact of the row. When we look at the medium term in terms of this, we always keep -- follow basically 4 points: the Pipe Logix for seamless, the Pipe Logix for welded, the cost of hot-rolled coil and the cost of scrap. So on these 4 variables that are moving are acting on our, let's say, the indicator in the formula of our contract many times and also the costs that are underlying. Up till now, I mean, what we see is an increase in the hot-rolled coils that is not followed by the Pipe Logix in welded because there is import from companies that could stay below the line of price, even paying 50%. This is hitting our -- to some extent, in our margin, but we think that this will be a reaction by the Pipe Logix some antidumping action to contain import. And I will ask Guillermo, if you see this happening in medium term, I mean, when we can recover the increased cost of the hot-rolled coils in our top line. Guillermo Moreno: Yes. I think that following what I said before, I mean, remember, there is always a lag between the Pipe Logix and how they reflect in our prices. So normally, we have 1 quarter delay. And while the impact of hot-rolled coils, it comes sooner than that. Our expectation would be that we should start to see some reduction in Q3, but particularly in Q4. Paolo Rocca: Thank you, Guillermo. Now on the line pipe seamless after the acquisition of Shawcor, the line pipe for us is very relevant, and we are I think very competitive. But maybe, Gabriel, you see some changes in the balance between 2. Gabriel Podskubka: Yes, Paolo. Alessandro, regarding your question about the cadence of the pipeline projects, I would say that it's quite stable during the 4 quarters of this year. This is the visibility that we have today and pretty much in line in volumes on what we had on 2025, where we had important projects like Sakarya -- I mean, like [indiscernible] in 2025 in Brazil. This year, we are concluding some pipelines in Argentina in the first quarter and second quarter. Then we will have Sakarya in the third and fourth quarter. We have, I would say, a relatively stable plan of pipelines in Saudi Arabia as well. And then the deepwater pipelines that we have in different parts of the world. So I would say, there is not a significant imbalance in our shipments of line pipe. Paolo Rocca: Thank you, Gabriel. On the last point on the tender in Argentina. Well, this was a tender for a large project for producing LNG in Argentina. The project is carried on by a private company that, let's say, include different shareholders, but it's a private company. They made a tender, a very open tender to everybody. And basically, we lose the tender because they were higher than the lowest bidder. The bidder, as you were saying, was an Indian company. Things like this happens, obviously. Now what we are doing, we are analyzing the offer to see if this is an offer that is following the trade practice or is exposed to potentially an antidumping case raised by us. For the time being, we didn't take the decision here. We are just studying the condition, the condition of the local market for the Indian company, the condition of the pricing of this because we think this is important. We also remember that Argentina had signed an agreement with the United States in which both parties are committing themselves to address the unfair trade practices in both countries. It is logical for U.S. to advance or introduce close of this in the relation with different region, different areas. And this is part of the agreement, the reciprocal trader investment agreement between Argentina. So we think there should be a good environment to analyze the specific situation of this offer and this tender. Alessandro Pozzi: All right. I don't know if I can squeeze in a last one on Venezuela. In your opening remarks, you mentioned that Chevron is ramping up drilling activities. Could you quantify the Venezuela opportunities short term, longer term for Tenaris? Paolo Rocca: Yes. On this, Gabriel, you follow closely this. Gabriel Podskubka: Yes, Alessandro on Venezuela, clearly, the situation is evolving. It's a dynamic environment. But clearly, there are signs that things are going to move positively with the hydrocarbons law and the recent of licenses, I think there are clear signs that some resumption of activity will occur. Today, Tenaris is in a unique position. We are fully serving the Chevron, the only major that is operating in Venezuela. They have a plan to accelerate rigs and demand for 2-wheelers, and we are ramping up for that. This is today something limited, but we expect to expand into 2026. So we are also following the licenses of the other majors that might be coming back to Venezuela soon. So this is, I would say, still in the $50 million for 2026, but with a clear perspective of a higher potential into 2027 and when maybe more clear plans about the other majors are materialized. But overall, a big upside potential in the midterm, depending on how things evolve. Paolo Rocca: Remember, Chevron will not be alone. There will be other company moving. I think our position in Venezuela is unique. Remember, in Venezuela, we're operating the only seamless pipe plant until the plant was expropriated in 2008 by the government by [indiscernible] and at that time, we were the company serving the oil industry in Venezuela. So we also have human resources or people that are familiar with the operation in Venezuela, the service, the complexity on this, the product demand and so even if a lot of time passed, but we still, I think we have a very competitive and differentiated position. Alessandro Pozzi: Right. Sorry, did you say $15 million EBITDA, 1-5? Gabriel Podskubka: $50 million of revenue, 5-0. Operator: Our next question comes from the line of Luigi De Bellis from Equita SIM. Luigi De Bellis: Just one for me. On the Middle East and Mexico, could you share your view on the evolution for the coming quarter for both Middle East and Mexico? Paolo Rocca: Thank you, Luigi. Well, starting, let's say, from Mexico. Mexico, there has been a number of positive events in supporting Pemex. The government capitalized Pemex with a program of $20 billion that is important. And now Pemex is also issuing bonds and getting access into the market for important sum like $1.7 billion. I mean, relevant access with government guarantee. Now what we do not see yet is the definition of the plans that the Pemex will execute during 2026. We do not have clear indication of this. And the private company are moving slowly. And some of the group is moving. Obviously, Woodside in the Trion is moving on. But some of, let's say, the contract that may have enabled private company to come and develop the resources. In my view, this is moving relatively slowly today. Maybe by the end -- the middle of 2026, we will have a better understanding of how they will organize, let's say, the development of the clearly huge resources that Mexico has. Now the question on Middle East, medium-term vision, I think, Gabriel, you also may comment on this. Gabriel Podskubka: Yes, sure. Luigi, for the question on Middle East, I would say, there's not much change on what we have been reporting in the last couple of quarters. Activity remains high. All the main key countries are investing. We have a strong position there with our long-term agreements in Saudi, UAE, Qatar and part of the market in Iraq as well. So I would expect our revenues and shipment in the next 2 quarters, first and second quarter of '26 to be pretty much in line with the last 2 quarters of 2025. The only noticeable news is a probable uptick of drilling activity in Saudi. This is still to be confirmed, but probably during the second quarter of '26, maybe later in the year, we will see a comeback of rigs in Saudi, which reduce rigs during 2025. So we'll monitor that, and there could be a potential upside, but for the second half of this year on the [indiscernible] side. Operator: Our next question comes from the line of Marco Cristofori from Intesa. Marco Cristofori: My question which relate on shale oil, shale industry in the U.S. Let's say that since the end of 2023, we have seen declining rig count, but a growing crude output. So -- and also breakeven are going strongly down according to oil [measure]. So do you think that this trend could allow a further increase of your volumes in the U.S.? And secondly, there are several insights that the shale in the U.S. could reach a plateau in the second half of 2027. So how do you see the evolution of the shale industry in the U.S.? Paolo Rocca: Yes. Thank you, Marco. I would ask to Guillermo to give his view on the evolution of this. In the question of plateau, frankly, I wouldn't -- I don't think we are able to predict the plateau. It will depend on the overall price of oil around. And there are many issues that are unpredictable concerning the major production region and so on and so forth. So in U.S. the plateau has been forecasted in the past at a lower level, and it is continuous surprising us with higher. And so I wouldn't bet on where this number will be in '27. Guillermo, on the question of the productivity. Guillermo Moreno: Yes. I mean, as you said, I mean, the operators in the U.S. have been increasing their efficiency and productivity big time in the last 2 years. So with a much less number of rigs, they are not only producing more, but they are drilling almost the same amount of wells, and they are even going longer. So we are seeing much less rigs, but more production and slightly reduction in the consumption of OCTG compared to what we used -- I mean, so there is no such correlation that we used to have with the rig count. Now looking forward, we still see kind of a stable market for 2026 compared to 2025. We may see some reduction of activity, slight reduction in oil offset by an increase of activity in gas. And as Paolo said, difficult to predict about production. Everybody is talking about plateauing, but at the same time, we see them becoming more creative and producing more oil from each well with the new technologies in terms of fracking, but also in terms of the level of chemicals they use. So we need to see as to where the innovation of the industry can go. But clearly, if we are not at the peak, we are not far from it with this level of activity and rig count. The other variable that we need to take into account is that during the last 2 years, there has been a reduction of drilled by uncomplete wells. So some of the increase of the activity was also coming from wells that were previously drilled but not completed. The level of inventories of those wells has gone -- has come to kind of a bottom. So we don't expect much more of this in the coming quarters. Operator: Our next question comes from the line of Kevin Roger from Kepler Cheuvreux. Kevin Roger: I just have one question to follow on the U.S. and all those stories on the tariff implemented by the Trump administration and notably on the recent news flow that the Trump administration could reduce the tariff on steel and aluminum. I was wondering if you comment a bit more on what should be the implication on your side from a potential reduction on the tariff if, for example, we come back to a 50% steel tariff to 25% or something like that. Just to understand the potential impact on the U.S. OCTG market if we move in that direction, please? Paolo Rocca: Thank you, Kelly. Well, we don't know which is -- I mean, we only have an article on the newspaper. We do not have a written definition. If I should say, the issue may come from the impact of the U.S. economy of the extension of the 232 to the derivative of steel. There are in many products, derivative of steel, which means that they contain steel, there are basically affect price level in the states, but are not having a beneficial impact of industry in the states that is not producing this. Now this universe of derivative increased so much that I think the comment of Trump maybe are just indicating a willingness to reshape what is considered derivative and what is not. Remember, there has been stages of expansion of the definition of derivative 1, 2. And before going to the third, he is considering what would it be, let's say, not creating undue distress in the pricing system. So this is what I understood. We will reconsider the derivative more than reconsidering the level of 50 for 25 because this is a key component of the 232. I don't see this to change. Operator: Our next question comes from the line of Jamie Franklin from Jefferies. Jamie Franklin: So firstly, and apologies if I missed the answer to this one, but I just wanted to focus on your other business segment. Obviously, a big revenue and margin recovery in 1Q, driven by your fracking and coiled tubing services in Argentina. Can you just talk about how you expect that to trend through 2026 and whether we can expect a similar contribution in the first and second quarter and beyond that? And then the second question, just if you could give us an update on your CapEx expectations for 2026 and kind of an outline of where you expect to be spending? Paolo Rocca: Thank you, Jamie. On the oil and gas, I was saying, during the second part of 2026, we are considering that the activity of oil and gas fracking should go up. The drilling activity will also pick up later on. There will be more need to frac. We are just bringing in one additional set of fracking because we are anticipating some increase by the end of the year. And this should drive to some increase on our activity in the second half of '23. This is basically the position on this. The other point, CapEx, I mean, the CapEx will be more or less in line with what we have been spending in 2025. Looking at the forecast, we see even something lower. But I imagine that during the year, new need may come out. Usually, there is something that is coming out from specific intervention. So there will be something lower when we look at this from a planning point of view today. But maybe in the end, we will be close to the level of today. Operator: Thank you. At this time, I'm showing no further questions. I would now like to turn the conference back over to Giovanni Sardagna for closing remarks. Giovanni Sardagna: Well, thank you, Gigi, and thank you all for joining us today. Bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to Evergy's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Peter Flynn, Senior Director, Investor Relations and Insurance. Please go ahead. Peter Flynn: Thank you, Liz, and good morning, everyone. Welcome to Evergy's Fourth Quarter 2025 Earnings Conference Call. Our webcast slides and supplemental financial information are available on our Investor Relations website at investors.evergy.com. Today's discussion will include forward-looking information. Slide 2 and the disclosures in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. They also include additional information on our non-GAAP financial measures. Joining us on today's call are David Campbell, Chairman and Chief Executive Officer; and Bryan Buckler, Executive Vice President and Chief Financial Officer. David will cover our 2025 highlights and recent economic development activities. Bryan will cover our full year results, electric load growth potential and our financial outlook. Other members of management are with us and will be available during the Q&A portion of the call. I will now turn the call over to David. David Campbell: Thanks, Pete, and good morning, everyone. I'll begin on Slide 5 by first thanking our employees who worked tirelessly throughout the year to advance our strategic objectives of affordability, reliability and sustainability. The team's hard work and execution laid the foundation for the transformative growth opportunity before us. Today, we are raising our long-term adjusted EPS growth target to 6% to 8% plus through 2030 off of our 2026 guidance midpoint of $4.24 per share. We expect EPS growth to exceed 8% annually beginning in 2028 and through 2030. Our updated growth outlook is bolstered by the recent execution of electric service agreements for 4 data center projects that I will discuss shortly. With respect to 2025, we executed on our capital investment plan to improve reliability and resiliency, investing $2.8 billion in infrastructure to modernize our grid and replace aging equipment. Our financial results in 2025 were negatively impacted by weather and weak industrial demand throughout the year. Despite meaningful results and cost and mitigation actions, we were unable to fully offset these impacts. While the negative drivers were outside of our control, we fully understand that consistent financial performance is a hallmark of long-term value creation. We have confidence in our updated financial outlook, which has been tested against a range of outcomes, and we are committed to delivering against our objective of sound financial execution. Bryan will discuss earnings drivers in more detail later in his remarks. In 2025, we made significant progress in advancing economic development opportunities, growing our pipeline to over 15 gigawatts. A major milestone involved approval of new large load power service tariffs, the LLPS, in both Kansas and Missouri last November. These tariffs established a framework under which new large customers will pay a premium demand rate to locate in our service territories while adequately paying their fair share of existing and new system costs. This, in turn, will drive affordability benefits for existing customers and support economic growth in Kansas and Missouri. In Missouri, the passage of Senate Bill 4 in 2025 marked another successful legislative outcome that signaled strong support for infrastructure investment and growth. Among other features, SB 4 includes provisions that enhance our ability to invest in and timely recover costs associated with new natural gas generation while also extending the PISA sunset provision of 2035. SB 4 reflected the support and combined efforts of the Missouri Public Service Commission, legislative leadership, the Governor's office, commission staff and many other key stakeholders, and we appreciate their leadership and collaboration. In Kansas, we are pleased to reach a unanimous settlement agreement in our Kansas Central rate review. The settlement provided a balanced outcome for our customers and communities and reflects broad alignment around our infrastructure investments while ensuring we continue to provide reliable and affordable electric service. We also received approvals from the KCC and MPSC to construct 3 new natural gas facilities and 3 solar farms totaling nearly 2,200 megawatts. These projects further advance our all of the above generation strategy to support rising customer demand. Safety is at the core of everything we do, and I'd like to thank our generation, transmission and distribution teams for their commitment to safety and a significant reduction in the injury rate last year. Reliability performance also improved as we achieved the strongest results in the company's history for SAIDI, with reductions in both average outage duration and frequency. Our infrastructure investments and the hard work of our operations teams continue to drive benefits and enable us to deliver affordable and reliable power to customers no matter the conditions or the weather. In November, we raised our dividend 4% to an annualized $2.78. As our dividend continues to grow, we expect the payout ratio to decline over time to a revised target of 50% to 60%. As Bryan will discuss, this target is part of our financing plan as we enter a period of elevated growth and investment and is similar to the approach of many peer utilities. Moving to Slide 6. I'm very pleased to announce new electric service agreements for 4 major data center projects. This includes 2 new data centers and significant expansions of 2 existing projects. In aggregate, these 4 projects represent 1.9 gigawatts of steady-state peak demand. Taken together, these projects alone amounts to nearly 20% increase in our total peak system demand and an even higher level of usage growth given high expected load factors. As these customers ramp up, we'll be able to deliver affordability benefits for our customers and communities to the strong LLPS tariffs. Of course, these facilities will take time to construct and reach their maximum megawatts. We've included 1,300 megawatts in our retail load growth forecast in 2030, with the remainder ramping up after that year. This outlook reflects our expected case, which is informed by the specific load ramps as outlined as part of each customer ESA. And finally, we're making strong progress with several additional large customers and expect at least 1 more executed ESA in 2026. This upside is not captured in either financial outlook or sales forecast we're sharing with you today. These commitments solidify Missouri and Kansas as premier destinations for data center customers, now the product of strong partnerships with world-class customers in Google, Meta and Beale. We'd like to thank for their investments in Kansas and Missouri. As customers complete construction, they are responsible to pay their fair share of costs incurred to serve them, including the LLPS premium pricing. As an additional protection, if their actual usage falls short of annual expectations, they are subject to minimum bill provisions, which provides strong visibility to our 8% -- 6% to 8% plus EPS growth outlook and the affordability benefits we can expect to provide our current customers. Slide 7 summarizes the progress we've made in converting our Tier 1 large customer pipeline to signed agreements. Starting in the top row, the 2.4 gigawatt includes the 4 ESAs announced today and the large customers that have already commenced operations. This Tier 1 demand enables a transformative growth opportunity for Evergy, supporting our expected retail load growth of 6% annually through 2030, well above the historical 0.5% to 1%. Moving to the section shaded in green. We remain in advanced discussions with multiple customers whose load represents a 2 gigawatt to 3.5 gigawatt opportunity. We expect to execute at least 1 more large customer ESA in 2026 from this group. In aggregate, these potential customers have executed various service agreements, posted financial commitments and otherwise demonstrated their significant interest in locating in our service areas. The remainder of our pipeline totaling over 10 additional gigawatts highlights the robust activity and sustained interest in our region. The opportunity to serve this load will require creative solutions. And the ongoing dialogue also underscores the readiness of customers to step in, should others exit the queue. The announcements we've made today serve as clear proof of concept that Evergy is well positioned to capitalize on this historic opportunity, reflecting the geographic advantages of our region, support of business and energy policies and a shared approach amongst our many stakeholders to capitalize on economic growth. On Slide 8, we summarized key customer and shareholder protections as provided by our LLPS tariffs. Early last year, we set out on a cross-functional effort to address a key opportunity and challenge: how can Evergy serve new large loads while supporting affordability for existing customers and fairly addressing cost allocation related to new infrastructure investment to serve these large loads. The follow-up work culminated in the approval of settlement agreements in both Kansas and Missouri on a tariff that addresses this challenge. It reflects significant collaboration with commission staff, consumer advocates, industrial groups, the data center coalition, Google, Meta and others and ultimately garnered strong support, as reflected by the approvals of both the Missouri and Kansas commissions. As outlined in the tariff, new large customers are committed to minimum term lengths and minimum monthly bills regardless of usage shortfalls that cover no less than 80% of their contracted capacity at a premium demand rate. Additionally, customers must meet creditworthiness standards and collateral requirements. Termination fees are required should the customer decide to cancel a project or leave early, and these fees would cover the remaining minimum monthly bills for the term of the contract. All told, these tariffs established the framework through which new large customers will pay their fair share for capital investment while bringing massive new projects to Kansas and Missouri. Slide 9 is illustrative and expands upon how the provisions of the LLPS tariffs will work in practice and critically, mitigate impacts on existing customers. Customers taking service under the LLPS tariff will pay a premium demand rate 15% to 20% higher than the rate for existing industrial customers, as well as all the direct costs to serve them. This premium in the revenue is driven by the customers' high load factors will generate significant benefits for existing residential, commercial and industrial customers. As laid out in the flow chart, our future rate requests will be reduced by the revenues generated from LLPS customers. As the higher load from these customers is factored into our requests, system costs are then spread over a higher base, which in turn puts downward pressure on future rate requests. This is a critical aspect of our affordability proposition, as over time, we will be investing at higher levels to serve growing demand. Our existing customers will share in all the benefits of a modernized grid and new best-in-class generation technology without encountering the same level of costs they otherwise would have faced without large new customers. In short, we have a unique opportunity to upgrade the grid and replace aging infrastructure much more affordably than we could without this robust level of load growth. Moving to Slide 10, we highlight a few of the expected benefits of data centers. It's important to recognize that these projects deliver substantial long-lasting value to the communities we serve. Beyond the benefits and protections of the LLPS tariffs, these projects generate tax revenues typically far in excess of the local services needed to serve them. These tax revenues in turn support local budgets for education, infrastructure, parks and other community services. Data centers also strengthen the economic ecosystem, given the growing importance of automation and low latency. These attributes will likely feature more and more prominently in sectors such as health care, finance, transportation, logistics and advanced manufacturing. By enabling leading applications in these industries, data centers will help to attract and support high-quality job creation. These data center projects also represent multibillion-dollar capital investments, with construction job growth often sustained by ongoing equipment upgrades. They drive the need for new and updated fiber optic infrastructure, which can then create a virtuous cycle for additional data-focused industries. In summary, data centers are major investments that can also serve as powerful engines for economic development. They support affordability, generate long-term tax revenue, expand industries, support job creation and catalyze infrastructure investment. This is the kind of growth that strengthens communities for decades, and we are proud to do our part. On Slide 11, we highlight the major gains in regional rate competitiveness our company has achieved since 2017. This success directly supports the growth opportunities that we're discussing today. Since 2017, our rate trajectory has remained well below regional peers and far below inflation. The cumulative change in Evergy's all-in rates over that time is approximately 4.9% compared to our regional peer average of 19% and inflation of 29%. Holding rate increases to a 0.5% annual rate reflects the scale benefits and cost savings from the merger that created Evergy, promises we made and promises we kept. As we enter a new era of economic development, we'll maintain our relentless focus on cost discipline, affordability and competitiveness of our states. Slide 12 lays out our updated capital forecast. Our rolling 5-year investment plan totals approximately $21.6 billion from 2026 to 2030, equal to a $4.1 billion increase over the prior plan. The increase includes over $3 billion of new generation investment to support growing customer demand and meet higher generation reserve margin requirements in the Southwest Power Pool. Our 5-year investment program is expected to result in an 11.5% annualized rate base growth through 2030, which compares to our prior forecast of 8.5%. We'll take a flexible approach to financing our capital plan, utilizing a prudent mix of debt and equity with optionality around timing and execution, as Bryan will describe. I'll conclude my remarks on Slide 13, which highlights the core tenets of our strategy. I'll focus specifically on affordability. Keeping rates competitive and affordable has been a strategic priority since our company's formation in 2018. Evergy stands out as one of the best utilities in the country in managing customer rates and keeping rate increases well below inflation. We will continue to prioritize affordability in our long-term plan. While capital investments are higher than historical levels, so too is load growth, which will allow us to spread system costs over significantly higher kilowatt-hour sales. We expect to see customer rate increases over the next several years being in line with or below inflation for the majority -- the significant majority of our residential customers. Missouri West is our smallest utility today with the lowest rates in our system and some of the lowest rates in the nation, partly because the utility is in need of infrastructure investment, in particular, new dispatchable baseload generation. As a result, as new generation plants come online to serve that jurisdiction, customers may see rate increases above inflation over the next 5 years. However, these investments will help to reduce the rate volatility that Missouri West customers have experienced as a result of utilizing more market-provided energy. In addition, as the full benefits from large load customers are realized, we are confident that we can manage residential rates to a level consistent with inflation, and Missouri West customers will benefit for decades to come. By prioritizing affordability, we contribute to the robust economic development pipeline ahead of us and support the substantial economic potential within our states. As outlined in our capital plan, we will continue to invest in grid modernization to ensure reliability as well as grid resiliency, strong customer service and generation availability. Our primary sustainability goal is to execute a cost-effective all of the above generation strategy, as reflected by our planned investments in natural gas, storage and solar to support our Kansas and Missouri customers. We look forward to continuing to advance a balanced mix of resources over the coming years to support growth and prosperity in our states. And with that, I'll turn the call over to Bryan. W. Buckler: Thank you, David. Thank you, Pete, and good morning, everyone. Let's begin on Slide 15 with a look back at our financial results. For the full year 2025, Evergy delivered adjusted earnings of $894 million or $3.83 per share compared to $878 million or $3.81 per share for the same period last year. As shown on the slide from left to right, the year-over-year drivers are as follows: first, 0.3% growth in weather-normalized demand primarily driven by the commercial class resulted in an increase of $0.04 per share margin. These results were weaker than projected for both residential and industrial, including in the fourth quarter, which led to our final 2025 adjusted EPS results falling short of the guidance we provided on our third quarter call. Regarding residential and industrial load, early indications in 2026 are strong in comparison to 2025, and we expect to return to normal residential load growth in 2026. Secondly, recovery of and return on regulated investments, driven by new retail rates and FERC regulated infrastructure investments, contributed $0.56 in EPS in 2025 as compared to 2024. Unfavorable variances for the year included higher operation and maintenance costs and depreciation and interest expense due to increased infrastructure investments, which drove a $0.43 decrease in EPS. Other items had a negative $0.10 impact for the year. And finally, dilution from our convertible notes led to a $0.05 decrease for 2025. Let's move to Slide 16 to lay out how we expect to deliver on our 2026 EPS guidance midpoint of $4.24. Again, starting on the left side and beginning with 2025 adjusted EPS of $3.83, which modeled a reversion to normal weather in 2026, which would add approximately $0.13 per share. Next, we expect a $0.26 increase from demand growth in 2026, which reflects a forecasted 3% to 4% increase in weather-normalized retail sales. This exceptional level of load growth is driven primarily by the continued ramp of the Panasonic advanced manufacturing facility as well as the ramp up of the data center customers with signed ESAs in our Metro and Missouri West jurisdictions. Next, updated recovery of costs and return on our regulated investments are expected to contribute $0.35 of EPS for the year, primarily related to new rates at Kansas Central that went into effect in the fourth quarter of 2025, as well as the recovery of FERC regulated infrastructure investments. Offsetting these positive drivers is an increase in O&M as well as the combined impact of higher depreciation and interest expense net of AFUDC earnings and PISA deferrals, which is expected to drive a $0.20 unfavorable impact. Lastly, we assume $0.08 of drag related to dilution from convertible notes and expected common stock equity issuances, as further described in a moment. We have high confidence in this 2026 guidance, and it is bolstered by the execution of electric service agreements that we've announced today. Moving to Slide 17, we highlight our large load demand growth profile in our financial plan. Over the past 2 years, we've been hard at work to advance competitive frameworks for capital investment in Kansas and Missouri that would enable our ability to invest for growth in a way that promotes economic prosperity for our customers and communities while solidifying our region as a premier destination for advanced manufacturing and data center customers, the passage of the LLPS tariffs, our operational team's execution on transmission and generation capacity planning, as well as strong collaboration with customers and local stakeholders and legislative efforts have all culminated in what we believe is one of the most compelling growth stories in the sector. As indicated on the chart, the large load customer ramps are already underway and will continue building through 2030 and beyond, supporting our retail load growth CAGR of approximately 6% through 2030. This tells a powerful story of growth anchored by long-term contracts and clear parameters on monthly billings, providing significant visibility into our earnings growth and cash flow streams. We are able to share this level of detail with you because our teams are no longer just talking about a pipeline. Now they are also talking about the successful inking of actual electric service agreements with the very high-quality customers David described earlier. To drive home this point further, the execution of these ESAs was the milestone needed to solidify Evergy's growth trajectory as a company, as these were the final binding agreements to be signed between Evergy and these customers. The numbers on Slide 17 that you see reflect our planning assumptions around the capacity demand that will drive revenue during our planning period, growing from 350 to 400 megawatts of served capacity by year-end 2026 through up to approximately 1,700 megawatts of served capacity by 2030. As a reminder, this plan reflects the contributions from customers under signed ESAs for 4 major projects. Furthermore, we are making strong progress with several additional large customers and expect at least 1 more executed ESA in 2026, whose load would represent upside to the back end of this forecast. As David described, we'll continue working in a measured fashion through our 10 gigawatt plus balance of pipeline to build on the success we're sharing with you today. Okay. So Slide 18 converts that megawatt capacity usage you see on Slide 17, along with our broader customer base, which is also expected to grow, into a view of the strong load growth profile we see ahead. In particular, it highlights generally accelerating annual load growth from 3% to 4% in 2026 to an average annual rate of 7% per year from 2027 through 2030. It also highlights the growth we're seeing across our entire system, growth that will ultimately drive affordability benefits for our customers in every jurisdiction. We believe the ranges on this page will assist analysts and investors in the modeling of our 6% load growth CAGR over the next 5 years across jurisdictions and importantly, reflects the positive momentum we expect to build in our financial results throughout the 5-year planning period. On Slide 19, I will briefly highlight our 5-year investment plan. As David referenced earlier, our $21.6 billion capital investment plan represents a $4.1 billion or 24% increase compared to the prior 5-year plan. A key feature is higher generation investment, which captures approximately $3.4 billion of the total increase and largely consists of new natural gas power plant investment needed to serve growing demand and to meet SPP reserve margin requirements. The T&D portion of our plan emphasizes strengthening system reliability through grid modernization efforts, including replacing assets that are at or near the end of their useful lives. Deploying these critical infrastructure investments to the benefit of our grid operations and for our customers and communities is expected to result in a rate base CAGR of 11.5%. Let's now turn to our updated financing plan on Slide 20. As mentioned on Slide 19, our projected capital investments over the 5 years through 2030 now stands at $21.6 billion. We'll utilize a prudent mix of debt, equity and hybrid securities to finance our capital investments, targeting an FFO to debt ratio of approximately 14% through the forecast period, with strong annual growth in FFO that will provide the potential for even stronger metrics towards the end of the 5-year plan. Moving from left to right, we expect $13.5 billion of cash flow from operations. Our $3.6 billion dividend assumption reflects our expectations of growing the dividend throughout the period while targeting a 50% to 60% payout ratio. Recently, our dividend payout ratio has been in the 65% to 70% area, and we plan to grow the dividend annually at a rate below our EPS growth projection of 6% to 8% plus. We expect to achieve the 50% to 60% ratio in the latter half of the plan. And retaining more of our earnings and equity in the business allows us to efficiently fund our capital investments and keep the level of common equity issuances at lower levels than would otherwise be needed. Next, we forecast $8.4 billion of incremental debt and hybrid securities, net of upcoming maturities. Our plan incorporates $1 billion of equity credit from hybrids, which may assist you in your modeling. Finally, our expected common equity need across 2026 to 2030 is forecasted to be a total of approximately $3.3 billion and now incorporates the benefits of operating cash flow that comes from customers taking service center to LLPS tariff, as well as our revised nuclear PTC assumptions. Of note, we currently assume no equity issuances of our plan in 2030 as the cash flow generation of our business improves and improves. This results in an annual need of $700 million to $900 million from 2026 to 2029. Of course, we'll continue to evaluate the appropriate level of equity funding, particularly as upside capital opportunities make their way into our plan. Now let's close on Slide 21. It's a recap of our growth outlook summary for the next 5 years. First, with the successful execution of electric service agreements with large load customers, we expect strong load growth through 2030 and beyond as the initial 1,700 megawatts will support a 6% consolidated retail load growth CAGR through 2030. This provides us with a visible runway of predictable earnings and cash flow growth into the next decade. As a reminder, this forecast includes load from 4 projects under ESAs and other non LLPS large customers already announced. And we're making strong progress with multiple additional large customers and expect at least 1 more executed ESA in 2026 that is not yet captured in our financial plan today. We continue to believe Evergy has one of the most compelling customer growth opportunities in the industry that could drive robust growth not just in our 5-year forecast, but well into the next decade, resulting in sustainable growth and affordability benefits for our customers and communities and a great long-term outlook for all of our employees. Next, I'll reiterate our capital investment and rate base growth outlook. The foundational earnings power of the company will be fortified by our $21.6 billion capital investment program. Our higher levels of infrastructure investment are in large part related to supporting economic development in Kansas and Missouri and will drive grid modernization and the addition of incremental generation capacity to support our growing customer demand and SPP reserve margin requirements. Our capital plan is expected to drive a 11.5% rate base growth through 2030, fortifying our earnings foundation. Our projections of regulatory lag and financing costs convert this 11.5% rate base growth to an earnings growth projection exceeding 8% annually beginning in 2028. We plan to file rate cases on a time frame corresponding to the in-service states of new generation projects to ensure the financial strength of our utilities while incorporating the affordability benefits of large loads. It is critical that we deliver on our forwardability and reliability objectives for the benefit of our customers. And as our capital investment plan grows, we will utilize a prudent mix of debt and equity financing to support our strong investment-grade credit rating and FFO to debt target of 14%. We will take a flexible approach and evaluate all available financing options, including the use of hybrid debt securities that receive equity credit, to meet our financing needs. We anticipate approximately $700 million to $900 million of equity annually from 2026 through 2029 and currently assume no equity needs in 2030 due to improving cash flows from operations. That being said, upside capital opportunities do exist, and we'll continue to evaluate the appropriate level of equity funding. Altogether, this plan lays the foundation for a transformative growth phase ahead as we expect annual adjusted growth of 6% to 8% plus through 2030 off of our 2026 midpoint guidance of $4.24 per share. As an additional note for the analyst community, we currently expect 2027 EPS growth in the lower half of our 6% to 8% range before accelerating to a level in excess of 8% beginning in 2028. I speak for the entire leadership team in saying that we are excited about the future at Evergy, and all of our employees are deeply committed to successfully executing our business plan and delivering results for our customers, communities, employees and shareholders. And with that, we will open up the call for your questions. Operator: [Operator Instructions] Our first question comes from Stephen D'Ambrisi with RBC Capital Markets. Stephen D'Ambrisi: Just had a couple -- I mean it's a great update, and thank you very much for giving all the color on the added ESAs. Just the one thing that stuck out to me was on the equity issuances in 2030, that you have no planned equity issuances beyond '29. So can you just talk a little bit about what that means for steady-state equity needs for the company? Obviously, there's upside capital that we can talk about. But just to the extent we roll forward a year, what do equity needs look like in '31 and '32? W. Buckler: Yes, it's a great question, Steve. It's a plan that we're really excited about. And our metrics really are fortified by the ESAs you mentioned. They have that level of predictability. And your future revenue outlook really, really just strengthens our profile as a company. When we look at $21.6 billion that's currently in our 5-year plan, this is definitely an elevated CapEx, level of CapEx compared to what we've had in the past. But as David mentioned, we also have an elevated level of load growth. So in this big construction phase, these next few years, we certainly have an equity need like many of our peers, and we're excited to be able to issue that kind of growth equity. So just as we see it today, no need for equity in 2030 because our FFO just greatly improves each year, kind of is illustrative -- or illustrated, rather, quite well by that Slide 17, where you can see the megawatts grow each year of capacity served. There's a potential we win more ESAs. I think we have high confidence in that. And what comes with a growing company like that is often more capital. So we'll have to reevaluate 2030 as more capital opportunities come into plan. But Dave and I were just talking yesterday, when you get into the early 2030s and when we finish our full infrastructure build out, you're going to have some tremendous FFO in the plan and really will make an even stronger balance sheet. David Campbell: Yes. To build on that, I think -- we expect at least 1 more ESA to sign this year with -- that's not in our plan currently. That's not in our sales outlook or the earnings outlook we described. There'll be capital to serve those customers. Now we'll be in an environment where we've got strong FFO to debt levels, but we do expect incremental upside capital investment opportunities. And with that, we'll come up with a financing strategy alongside it. So we won't get ahead of what that update will be when we have those additional ESAs, but we're really excited that it will be an upside potential for our customers and communities and for the company. Stephen D'Ambrisi: Okay. That's very helpful. And just not -- again, not to get ahead of the -- front run the update, I guess, but can you just give a little bit of flavor of the 2.0 to 3.5 gigawatt potential for advanced discussions where you expect 1 more ESA? Like how many customers does that represent? Or how many sites? Just so that we can maybe -- any way we can get some type of idea of what an additional ESA could potentially mean for you guys? David Campbell: Sure. And it's -- I would describe it as -- we want to be purposeful in saying we do expect at least 1 more executed ESA in 2026. So each one of those words, at least and 1 more, are purposeful. So we've worked hard to identify potential transmission, distribution solutions, capacity opportunities. So we feel like we're really tracking well for at least 1 more this year. You can have a sense for the potential size of these customers from the first 4 ESAs that we've signed. We're talking about additional sizable opportunities in that category and we haven't yet included in our plan. So we're -- the team is working hard, and we're -- our confidence is based not only on our assessment of the capacity in the transmission and generation side, but also the status of our discussions and where those customers stand with respect to lining up land permits and advancing commitments to us. So we're optimistic we'll be there. I think it's fair to say that the bulk of the impact from additional ESAs will come after 2030, but there's some additional potential before the bulk of the impact after -- in 2030 and beyond. But what we like about that, of course, is the ESAs we've announced today are transformative for our company in our service territory. The additional ESAs will help to sustain and extend and expand that opportunity well into that next decade. So we're really excited about the pipeline, and we're committed to executing on that and really do expect at least 1 more sizable large customer ESA executed this year. Operator: Our next question comes from Paul Zimbardo with Jefferies. Paul Zimbardo: Thanks for all the disclosure. So much to ask, but I'll keep it concise. And thank you for the commentary on what '27 looks like as well. Is it fair to think you're targeting like an 8% plus CAGR as well? I know it accelerates in the back half, but should we think about better than 8% as we look 2026 to 2030 as well? David Campbell: I think, Paul, we've tried to be pretty explicit in how we've described it. So I won't change how we describe it, but kind of reiterate. So let me just walk through it again. The overall formulation, 6% to 8% plus. As Bryan described, '26, '27 in the bottom half of the 6% to 8% range. For that, we expect to accelerate to exceed 8% annually beginning in 2028 then through the 2030 time frame. So I think that gives you a sense for how we see that earnings power and how it evolves over that time period. The overall rate base growth is in the 11.5% range annually. As we think about the gap between rate base growth and earnings growth, the historical guidance we provided was about 8.5% rate base growth, and we were in the top half of the 4% to 6% range. It was about 300 basis points. We expect that to be in the range of a 250 basis point gap over time. There's a lag that comes from issuing equity and regulatory lag as you -- in a heavy investment mode. But that's what we're looking at over time is that sort of that range of a 250 basis point gap between rate base growth and earnings growth. But the formulation, we tried to be explicit in that 6% to 8% plus, what you see in '26, '27, and then we expect that to accelerate to -- in 2028 and beyond. Paul Zimbardo: Okay. I understand that part. And then just on the credit metric discussion, apologies if it was clear to others. But the 14%, is that an average that you're targeting over time? Because I know you emphasize things get stronger in the back end, just -- any kind of color on the shaping or just how to think about the 14%, if that's kind of a trough or an average, that would be helpful. W. Buckler: Yes. Paul, I think of it as an average, it's pretty consistent throughout the 5-year plan. We do see it getting a bit stronger in year 4 and 5 of the plan. There's just such a heavy cat -- construction phase, '26 through '29, and doesn't really abate that much in 2030. But the level of FFO certainly is just building on itself each year and getting stronger and stronger. So what I would just point out is just our cash flow projections we believe are some of the most predictable in the industry. They're fortified with these electric service agreements with top quality counterparties underpinned by that strength of the LLPS tariffs in Kansas and Missouri, including the minimum monthly bill provisions that escalate over time in conjunction with that rising capacity levels, which are actually spelled out in those ESAs that we're mentioning. So you put all that together, it's a really strong, consistent plan throughout the 5-year period with consistently strong EPS growth and very solid metrics throughout. Operator: Our next question comes from Shar Pourreza with Wells Fargo. Unknown Analyst: Actually, it's Andrew [ Canaby ] on for Shar. So on the ESAs, how prescriptive are the -- is the ramp rate? How much clarity do you get on how much load you'll be serving on a year-by-year basis? And then when do the minimum monthly bills begin to kick in? Do they kick in during the ramp period or once the customer is fully ramped? David Campbell: So the ESAs, the great thing about the electric service agreements that we've signed is that they include a schedule, which includes an annual capacity levels that are specified by year starting in the first year. And the -- they'll be charged the levels that they use. But if they don't meet the minimum levels, then they'll be charged at that 80% level based on the schedule of contracted capacity that's laid out in the ESA. So it's a level of specificity and commitment that's laid out contractually with these counterparties. So we're really excited to reach the agreements with Google for 2 of these, 1 new and 1 expansion of a previous project. With Meta, also an expansion, and then with Beale Infrastructure, which is a Blue Owl company. So these ESAs include those ramps. They're specific. They're [indiscernible] megawatts by year. And the LLPS provisions on minimums and on requirements are tracked directly with that schedule. Unknown Analyst: Great. And then just changing gears a little bit. You mentioned that weak industrial demand played a part in the results for this quarter. What gives you confidence that will turn around in 2026? How much of your overall industrial load is represented by the Panasonic project? W. Buckler: Yes. Andrew, this is Bryan. Thanks for the question. Industrial load in 2025 was -- we're kind of fighting it all year long. January and February of 2025, we had massive snowstorms in Kansas City and some of our largest businesses closed their doors for many days. And then we had a large oil refinery to add an outage early in the year. And then industrial demand picked up with Panasonic and -- but ultimately, by the end of the year, fourth quarter, it was a disappointing level of industrial demand again. And with industrial demand, there's a price component to lower price if you hit a lower peak demand. So that had a kind of a double effect on our '25 earnings. Now we've embedded all this recent weakness in industrial load into our 2026 model already. So we -- our forecasting team, we kind of did a gut check and said, how comfortable already with these load numbers in 2026. We did modify them down, and that's fully reflected in the $4.24 of guidance for EPS in 2026. So we feel like we're in good shape there. The January '26 books, we just closed maybe 10 days ago, and those numbers came in really strong. So we're pleased with our start to '26. It's only 1 month, of course. And then lastly, I'll just say with Panasonic, they certainly started out '25 at a slower pace than we had hoped. But in recent months, they're drawing a considerable amount of load, more and more each month. We certainly expect the load in '26 to be within the range of our planning assumptions. In a recent press release, a Panasonic executive mentioned that they plan to start 2 new production lines at their Kansas facility this year, and we'll wrap up the kind of 50% of total capacity early this year. So I don't know that we've given explicit megawatt numbers for Panasonic. And so I can't really give you that kind of detail around its percentage of industrial load. Operator: Our next question comes from Michael Sullivan with Wolfe. Michael Sullivan: Wanted to try just -- I know there's moving pieces and it might be tough, but just in terms of like sensitivities or rule of thumb, can you give us any sense of incremental load growth, what does that do for CapEx and earnings? And then how much of incremental CapEx needs to be financed with equity? Any help you can give us there? David Campbell: Michael, just to clarify, are you talking about additional CapEx and load growth beyond what we're describing today? Michael Sullivan: That's right. Yes. So if you get another customer, that ESA, what does that do to CapEx and earnings? And then how do you finance the associated CapEx? David Campbell: Yes. Well, I'll put the how do we finance question to Bryan in terms of if we had $1 billion of additional capital, what would the general rule of thumb be. I'd say, Michael, it's -- every ESA is going to be dependent on what you ultimately reach with that customer. As I described, we expect at least 1 more ESA in 2026. We think it will be in the general size range that was reflected in the 4 we've announced today, at least at large. I also described, there's some upside in the '29-'30 time frame, but the bulk of the impacts are in '30 and beyond, so we end in the next decade. So I would really describe it as much powering -- it certainly reinforces the plus and it also helps to extend and fortify that growth trajectory into the 2030s. So I won't get ahead of the specific announcements, that will all depend. The great thing about these ESAs and why we were able to provide the level of detail that we did on Pages 17 and 18 is they do include specific schedules. They do include annual ramps in them. So we'll give that specificity when we announce specific customer. Hope that makes sense. And Bryan, how would you describe if we have incremental capital, what the general financing rules of thumb might be? W. Buckler: Yes, absolutely. And so Michael, we've kind of historically cited 50-50 on debt equity funding of incremental capital, which over the long term is a rule of thumb used by many in the industry. So I think that is fine for you to use as a rule of thumb still for us. Being mindful, of course, that the addition of more ESA customers, like David mentioned, could still benefit the very back end of the plan, '29, 2030, think of it, a potential benefit there. And the ramp rates of existing customers could also play a factor. In addition, as we move into future years beyond 2030, these ESAs will reach their peak capacity levels in that early 2030s, maybe in the mid-2030s for the next round. But these contracted cash flows will be correspondingly higher levels throughout that period of time really, in the next 10 years. So super powerful to our cash flows as we think ahead. So irrespective, we do expect this CapEx plan to grow, and it would be accretive and we'll be prudent with our mix of debt and equity in hybrids because we want to continue to create incremental value, not only for you, our investors, but also for the economic growth of our communities. Michael Sullivan: Okay. That's very helpful. And then just -- this was kind of asked, but in terms of what you're embedding in terms of the ramp rates here, are you assuming the like 80% minimum bill level or the full ramp? Or is that basically what the range is between those two? David Campbell: Yes, Michael, let me give you a sense of the general approach we've taken to these, and that is that we typically in the first couple of years of the ESA, we look to the 80% minimum level. And again, if the customer uses more, they'll be billed more. There're different constituents listening here. Minimum build does not mean if you use more electricity, you only be billed the minimum. That's what you'll be billed if you use less. But we -- typically in the first 2 years, we'll bill -- we model it in our plan at the 80% level. And then in the third year and beyond, we use more of an expected case, given what we've seen and what we expect from the customer. So it's more of an expected case. There's a range of upsides and downsides as you move out further in time. But the first couple of years across ESAs, we typically are using that 80% level to be a little more on the conservative side. Operator: Our next question comes from Paul Fremont with Ladenburg Thalmann. Paul Fremont: I guess my first question is, can you tell us roughly what your industrial rate is in terms of dollars per megawatt hour? David Campbell: Well, so it varies by jurisdiction, Paul, and it's in a typical range. I don't know if, Chuck, do you want to comment on one of our typical industrial ranges again, with the varies by jurisdiction? W. Buckler: Paul, I'll let these guys jump in. I'll just remind you that our LLPS rate is a premium, 15% to 20% premium on the demand charge on the rate that we're about to give you. Paul Fremont: Okay. David Campbell: Go ahead, Chuck. Charles Caisley: Yes. Our typical range is in the vicinity of $0.06 to $0.07 a kilowatt hour. Yes. So we -- $60 to $70 a megawatt hour if you want to use that metric, typically cited in cents. But yes, $0.06, $0.07. Paul Fremont: Perfect. And then if there's a cancellation, is that rate essentially sufficient to allow you to recoup all of the costs? Or would there be any exposure in the event of an early cancellation? David Campbell: So the provisions of the LLPS are quite specific on what the results are of a cancellation. So it's in effect through the term of the agreement, the counterparty is responsible for the minimum bill. So that will depend on what the total megawatts are of the contract. In general, that's a very strong protection if you think about size of these customers because we're -- the rates from the LLPS under the large load power service tariff, our demand rate is 15% to 20% higher than the standard industrial rate, which you just heard from Chuck Caisley, is the standard rate of $0.06 to $0.07. So you've got very good protections for your customers. Also in that scenario, Paul, which is a great situation, you will have a set of infrastructure, new infrastructure that you built in place for existing customers, and you've effectively had customers alongside who funded a very large portion of it. And again, the exact math will depend on the size of that customer, the specific ramp they have over time. But we -- these LLPS provisions are strong. The customers with whom we've contracted. One of the hyperscaler customers put out a statement last week, their commitments around meeting their incremental costs are high. Their interest in being in our region and in having as much capacity as we're able to serve them is very high. So we're -- we feel great about the benefits that these contracts will offer for our existing customers and the protections that are embedded on the explicit terms of the LLPS. Paul Fremont: And then for the contract that's in late-stage negotiations, is that -- would that be a new customer? Or would that be an expansion of an existing customer? David Campbell: It could be either one. Paul Fremont: Okay. And last question for me. With respect to the ESAs, are the 4 signed contracts roughly equivalent in terms of megawatts? So should we assume like an average of 300 megawatts per ESA? David Campbell: Well, so we won't disclose the size by customers, but the total steady state is 1.9 gigawatts. So obviously, the average of the 4 is -- comes close to 500 megawatts. But we're not -- we haven't broken it out by individual customer, and we want that -- that is confidential. But the total size we have described not only in aggregate, but how we expect that to feather in over each year, and that's laid out in our slide presentation. Operator: Our next question comes from Anthony Crowdell with Mizuho. Anthony Crowdell: I appreciate the detail. I just wanted to jump on Paul Zimbardo's question earlier. Just if you could help me out, where did you end the year on an FFO to debt basis? And then thoughts -- and this maybe was the heart of Zimbardo's question. Just as you're going into very significant CapEx cycle, thoughts of maybe adding a cushion to the downgrades right -- to your downgrade threshold? W. Buckler: Anthony, our FFO to debt 2025 was right around that 14% area as well. And that was despite the weakness we had with weather and the industrial demand weakness. We talked a lot about the 14% FFO to debt target. And this will be a little bit repetitive to what I said to Paul, but we really do expect this growth in cash flows from operations each year throughout the 5-year plan to be quite robust. And with the CapEx plan at the level it is to, we have inserted planned common equity issuances of $3.3 billion. So this is a robust equity issuance plan, and one that we believe will be appreciated by the rating agencies. We're also moderating our level of annual dividend increases, allowing us to retain higher levels of earnings within equity each year. These are 2 very meaningful steps that our Board supports to the benefit of our balance sheet. So keeping a strong balance sheet and our credit ratings is really important to us. And as I pointed out earlier, we believe we absolutely have some of the most predictable cash flow projections in the industry because they are fortified by those ESAs with top quality counterparties with that strong LLPS tariff protection and inclusive of monthly minimum bills that David mentioned. And those escalate over time with the annual -- those -- the ESA agreements are very specific each year, what those minimum bills will be based on. It's an expanding capacity level each year to 5-year ramps and then a 12-year contract at a steady state peak after that. So just we're in a little better position than I think many peers, Anthony, in the sense that our revenue stream is just 4 to 5 of those ESAs are more predictable than they've ever been with just tremendous counterparties. So that went into our thinking too when we targeted the level of 14%. Anthony Crowdell: And just apologies, is that a change in the third quarter, your FFO to debt target? David Campbell: Yes. Moody's lowered our downgrade threshold a year ago from 15% to 14% after our February call. So this is our first update -- comprehensive update that we've given since last February. Operator: Our next question comes from Ryan Levine with Citi. Ryan Levine: Is Evergy seeking DOE energy-dominant financing capital for its transmission plan? Or any color you could share around maybe alternative subsidized forms of capital outside of capital markets? David Campbell: So as of today, the plan that we announced today is through the traditional financing mechanisms that are available to the utility and will be, as Bryan described, we have a prudent mix of debt and equity with some optionality around how we move things forward, but with a real commitment to a strong balance sheet. For that next tier in our pipeline, we're absolutely open to and will be considering different paths. That could be in the form of some of the creative ideas that are coming out of Washington now and presenting that. It could be participating more directly with large customers. The LLPS tariff actually is embedded within it. If customers bring their own capacity solutions, explicitly contemplated, if they are amenable to man response, it could reduce the capacity requirements. That's also embedded feature in the LLPS, that both those factors could positively impact the rate. So I think particularly getting into that next year that beyond the first 2 categories we list on Slide 7, the next 10 gigawatts, creative approaches are going to be important. We're committed to exploring those. And I think a range of different options will be there. I think the size and scale of the opportunity before our country as well as our company is such that it warrants exploring those opportunities. But I would emphasize, though, is just with the announcements we've made today, it's a transformative growth opportunity for our company, backstopped by ESAs with large customers, great customers. We really appreciate their commitment to our region. So Google and Meta and Beale. But we're excited that we think we can assign at least 1 more this year and keep moving beyond that. And as we go further and further, I think those kind of creative options are absolutely things that we'll be open to and we'll continue to explore. Ryan Levine: And then a follow-up on that. Does that imply that you looked at the [ Kayak ] structure for the existing deals but passed on it and maybe would reconsider that on future deals? Am I reading too much into that? W. Buckler: Could you expand on your question a little bit? David Campbell: I really have acronyms that I don't -- that are different from the ones I'm typical used to, but go ahead. I want to make sure I answer your question. Ryan Levine: Yes. Just in terms of having some of the customers prepay for some of the associated capital in advance in terms of the [ Kayak ] structure, but just in terms of just that concept. David Campbell: I got it. So that's -- the LLPS tariff does not go down that route. But it certainly, as I mentioned, that for additional potential opportunities and down the road, either that kind of setup or customers bringing their own -- potentially their own generation solutions that either brought directly or contracted for, those kind of approaches are absolutely things we're open to and the tariff explicitly contemplate. So that could be a direct -- an SPP, and we're part of the process there is looking at different ways for large loads to bring their own generation on different products that they've advanced and we'll be advancing with FERC. And so it could range from customers bringing their own generation to bring their own capacity they've contracted and thereby reducing their LLPS rate. Those are all different mechanisms we could use. What we've announced today is under the structure of the LLPS and supported by generation that we're bringing, but some of our current customers. And if you look in past announcements have are contracting with potential resources. And if they bring those, then those will be things that we'll contract for and will be an offset for the rate. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to David Campbell for closing remarks. David Campbell: Thank you, Liz. I want to thank everyone for participating in the call today. I want to thank our customers for their commitment to our region. With that, have a great day. That concludes our call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Now we would like to open for questions. Unknown Analyst: So the first question is on the new guidance on Page 9. The revenue guidance on constant currency basis was revised down by 2%. So we understand the ship hold in the SIS division was kind of unfortunate. But I think, as Bob said, it is a one-off. So -- but looking at Page 35, it also looks like the GIS division forecast has been revised down. And I'm assuming the weakness is mainly in the U.S., maybe a little bit in Japan, but Olympus launched a really competitive GI scope that no other player has in the U.S. market, yet the third quarter came in flattish on a constant currency basis in the U.S. So could you talk to us about what went wrong in the third quarter that you had to revise your forecast? Was there the -- why was there a delay in the demonstration scopes or possibly is a certain competitor offering price to gain share as the other competitors suggested on their call? And are we sure we're going to see growth in the U.S. in the fourth quarter? I'm asking this because I'm really struggling with how this downward revision reconciles with the disciplined execution that Olympus has repeatedly stressed in the recent quarters? That's my first question. Robert White: Thank you for the question. This is Bob. I'll start, but then I'll ask Keith actually to comment both what we saw in GI in Q3 in the U.S. and then what gives us confidence in Q4 moving forward. But before I do, you were right to frame it that ship hold, and I'm sure we'll talk about that dramatic impact on the SIS business. There was some ship holds as well in GI, not nearly as significant. And we saw good GI growth around the globe. So we've got confidence in Q4. But Keith, why don't you talk about execution in Q3 and then what gives us confidence in Q4? Keith Boettiger: All right. Thanks, Bob, and thanks for the question. So first, I'll start with, we're not satisfied with the performance in Q3 out of the U.S. And the performance is not about declining competitiveness or clinician preference. We still see strong engagement with Olympus products and our sales teams. And we continue to see interest across our portfolio, including new technology, like you stated, like EDOF and EUME3. The issue here is really commercial execution. We had a pipeline and we didn't convert that pipeline. So we need to be sharper in how we position the value of the portfolio. We need to do a better job managing that pipeline, and we need to convert opportunities with much greater discipline in the United States. And I just want to draw one example, and I'm going to draw an example of China. And I think this is a pretty good a pretty good example of kind of how we approach this. Last summer, when we saw sustained underperformance in China, we really tightened our go-to-market focus, but we also improved our discipline around managing the pipeline with weekly oversight calls with the sales team and the sales leaders. And we got a really good idea of what that pipeline looked like and how we could better manage that pipeline to conversion. And what you saw in Q3 in China, after several quarters of double-digit decline, we saw 6% growth. And I'm not going to -- I'm not saying that every region will react the same and everything is going to happen similarly. But when we see declines like this in the market, and we can diagnose the execution issues and we can put tighter oversight in place. And as Bob stated earlier, we have KPIs that we track. We can put in place -- can put -- we'll put in place things to make sure that we're doing better execution with the sales team. So again, I wouldn't say that every region is the same. But in the U.S., this is clearly an execution issue, when we've put things in place to make sure that this won't happen again, and we expect to see Q4 growth return in the U.S. Unknown Analyst: The second final question, the FDA inspection. So it looks like you received multiple observations from the FDA. Could you elaborate again on the observations that were found? I may have misheard you, but it sounded like these observations were in areas that weren't anticipated. So are the observations set addressable in a reasonably short period of time? Or should we not assume that the JPY 10 billion in other costs for Elevate will go away in 2027? This is my final question. Robert White: Yes. Thank you. A really good question. And let me frame the FDA inspections and observations. Again, the FDA conducted inspections at 8 of our facilities across U.S., Europe and Japan late in the last calendar year. Some of those inspections, in fact, resulted in observations. And many of those observations predated the work we had done in Elevate. That's okay. We own that. Others reflect where we've got to advance the maturity and consistency in the integration of our quality systems. But importantly, it's very much of an open matter with the FDA because the FDA is still completing their evaluation of the observations and the actions. And importantly, we're taking proactive actions. So the steps I outlined in my opening remarks. So -- and importantly, and this is such an important point you raised in the last part of your question, which is I've committed to 100-plus basis points of margin expansion for Olympus in our midterm plan beginning in FY '27. So I wouldn't put this on the same category of cost that was in the Elevate thing. And regardless, I'm committing to making sure we handle that. So the observations reflect areas where we need to get better, advance the maturity, the consistency, the integration of our quality systems and processes. Like I said, it's an open matter, but we're direct active conversation with the FDA, but I wanted to share it on this earnings call to put it in context for you because we proactively put a number of products on ship hold, as I mentioned. And then through the quarter, worked through those, not all of them, but we're still working through those. So I believe we have a very clear set of actions in place to address this. Thanks for the question. Unknown Analyst: My first question is about the situation in China. So the third quarter last year, with a 10% high single-digit level of decline. But for the fourth quarter, is it going to be the positive trend is going to continue? I want to confirm, many med tech companies and the endoscope competitors, they're taking a tough outlook of the China market. But you are expect -- can you expect a strong recovery? So from January and the -- in terms of the -- there's a pressure in terms of CapEx for new building of the hospitals. Is it a headwind for your business in China? What type of risk do you see in the China market? Robert White: Thank you very much for the question. And let me frame how we think about China very specifically. So China moved from a very significant growth driver for Olympus to more recently a double-digit decline, as you mentioned. During that process, Olympus pivoted our strategy very clearly, local manufacturing, dedicated resources, continue to invest in physician training and service capabilities in the China marketplace, better government relations. So while risks exist in China, what you're seeing us believe is that we have a strategy that gets China to where we think the market is growing in China for mid-single digits. So we're coming from a position where China was underperforming, and this is gradual. I mean, the reason we highlighted China in this quarter is we see the specific strategies that we put in place begin to show signs of growth, small signs, but positive growth, 5% growth from double-digit declines. But we're very mindful of the dynamics in the China marketplace. As I mentioned, we're very excited to have a new President of China, Rosa Chen, starting in March. Rosa has demonstrated exceptional leadership in China in health care, most recently coming from Danaher, China. So I believe we've got the right strategy to win in China. But please understand, I also view it as gradual, but it's one that we believe we've turned the corner on. So thank you for the question. Unknown Analyst: So this is my follow-up question. This is about optimization of the headcount. We have talked about the net reduction, 2,000 positions. So it is an increase of the cost of JPY 31 billion. Have you gone ahead in this initiative? And if we look at next fiscal year, in terms of the cost and effect, how much should we put in? Robert White: That's great. Izumi-san, why don't you take that question, talk about the spend. Izumi Tatsuya: Hello, this is Izumi. I would like to explain. Initially, in terms of the structural form-related cost, JPY 12 billion has been in other costs, but we have revised that to a JPY 31 billion of cost. Because the -- rather than the progress has been accelerated, rather than that, it's more of an accounting procedure. There are items that we can provision it as cost from an accounting perspective. So that is the reason why we have put JPY 31 billion. So maybe this JPY 12 billion of outlook has been conservative in the first place, this JPY 31 billion, that is about 90% of overall cost for the cost that's going to spend for this fiscal year, the remaining 10% is going to be allocated next fiscal year. So the reduction of JPY 24 billion effect, that outlook is unchanged. But how much is going to be generated next fiscal year? That will be explained in May in the next year's business plan. That's all from me. This is a confirmation. So next year, has been provisioned and that has been -- we can provision that for this fiscal year. Yes. It's not the overall cost has increased because initially in total, this JPY 31 billion plus is the cost that we have anticipated in these 2 years. We thought that JPY 12 billion would be generated this year, but we have been able to accelerate the provisioning of this. That's all for me. Unknown Analyst: Slide 8, about the actions for ships and the impact of JPY 9 billion. I would like to ask once again about this. FDA inspection, while it was -- it's still going on. Should we expect more of the ship holds because I believe that the reinspection will continue to happen. So should we expect the risk of this expense occurring in the next fiscal year as well? And also, 4 different areas were impacted. And I think there's some overlap with the products that was basically export banned in June. But is the GI not affected or is it affected? Can you please give us more details? Robert White: Yes. Thank you very much for your question. And I hope my answer will be very clear. First, of course, there could always be more inspections because there were facilities that were not inspected. I mentioned there were 8 facilities across U.S., Europe and Japan that were inspected. As I mentioned, yes, some of those observations during some received observations. During this process, we proactively out of an abundance of caution, put a number of products on product hold for patient safety. We then went through a very thorough process of evaluating patient safety. And then we've begun to release, as I mentioned, those products back into the markets, about 70% of that. There's still 30% that we're still remediating. But importantly, as you mentioned, while cost continues, what my commitment to you is that we're going to handle that largely with inside of SG&A. So as we delivered 100 basis points of improvement plus year-on-year, your mid-range modeling should be what I offered to you back in November, which is 3, 4, 5 with 100-plus basis points of margin improvement. Now this remains an open matter with the FDA, as I mentioned. So they're still both completing their evaluations of our -- of the observations, but also our proactive actions that we took, which included, as I mentioned, a risk-based review of our product portfolio, continued global harmonization of our quality systems, targeted strengthening of our quality and regulatory capabilities. So we're moving through this. And then the last part of your question was -- these actions did specifically address 4 areas: GI-ET, urology, respiratory and surgical. So GI, to your point, did have a products that were impacted. And again, I won't go through the specifics because they were across all of the products, but some of those have already been released and some of those were continuing to remediate at this point. So hopefully, that provides a great deal of clarity both on where we are and what we're doing about it. Thank you for the question. Unknown Analyst: A follow-up question. You're showing us a range now. And is this range based on expected additional ship holds? Or is this range based on something completely different? And for the next fiscal year, will we see another kind of range forecast based on remediation or related to remediation? Robert White: Yes. So thank you for the question. I actually -- and we believe that ranges are a more transparent and accurate framework to express the outlook considering both internal and external factors. They don't anticipate any additional ship holds. It just -- as I mentioned, as we move these products back into the marketplace throughout Q4, there's a dynamic nature of that. And also, which you're undoubtedly familiar with, range is the common practice for our peers in the industry, in the med tech industry. So I would anticipate continuing to do ranges going forward, but it has nothing to do with less confidence and more about providing transparency in terms of the dynamic nature of what's happening. I would like Tatsuya to comment as well on that. Izumi Tatsuya: Yes, I would like to add. Providing guidance within range. Well, I think the investors that follow us would compare us against the U.S. med tech companies. And we believe that this range would make it easier. And as Bob has just mentioned, ship hold products, we expect the ship hold to resolve in the fourth quarter for these products. And depending on the timing of the release, the sales could be higher or lower depending on the situation. So we wanted to include that in this range. That's all from me. Unknown Analyst: So I would like to talk about the core operating margin for the mid- to long term and what your idea is about that. The core -- the adjusted core operating margin, you have been reduced that from 2 to 3 percentage points. In the previous announcement for next fiscal year onwards, more improvement from 1 percentage point or more for the adjusted core operating margin. Is that the baseline that I should use and what is your future outlook of your adjusted core operating margin? Robert White: Thank you for the question, and it's a really important question. We are not lowering margin expectations in our 3, 4 and 5 plan. So while the first step is a bit of a longer step from FY '26 to '27, we're not suggesting that you reset your models for the next 3 years. We simply have -- and there were some conservatism. The bottom line is it needs to be more than 100 basis points per year in annual profit improvement, and those are the steps that we're putting in place. And hopefully, that's very clear. So this is just the first year, we've got a little more work to do to get there, but we've not changed our destination nor our timing to be a mid-single-digit revenue growth player and a 20-plus percent operating margin company. Thank you for the question. Unknown Analyst: This is a follow-up question. One thing I want to follow up is that in terms of your revision, the core base gross margin has been reduced. So is it based on the ship hold? Is there's no change in the profitability of the products because there's a single-use products and the contribution of new products that are being talked about. I just want to ask that this is due to the change in the product mix. Can I confirm about that point? Robert White: It's another good question. Now this has less to do with mix shift and more to do with the specific dynamics related to the product holds that hit us in the COGS line from the field corrective action, some of the inventory work that was done. So it's -- that's why on a go-forward basis, we're not resetting our gross margins at all. We've got to deal with these proactive actions that we've taken, but we believe our fundamental mix has not shifted. We're excited about single-use, but think about that as market expansion as opposed to replacing or cannibalizing some of the reusable scopes that we had. So that's -- we think the pie gets bigger for that. Izumi-san, anything to add on the gross margin profile, please? Izumi Tatsuya: I think Bob has explained this clearly. But this time, the decline in gross margin, the increase in COGS basically is due to ship hold and due to the disposal that we go to the inventory or the -- some costs for the recalls that we conducted. This is one-off factors. In terms of the fundamental product mix impact, it is very, very limited. That's our understanding. Unknown Analyst: Slide 15, leadership team. And Izumi-san is leading the organization. And I see most of these people on this slide being non-Japanese. Manufacturing and R&D are more Japan-centric. So I'm wondering how can they motivate the Japanese employees. I'm not talking about sales activities. I'm talking about manufacturing and R&D. How can they motivate the employees to really drive the product development for the future? Robert White: Thank you for the question. We believe firmly that leadership is not a function of one 's passport, but leadership comes down to the experience and authentic approach that one has. So specifically, with the new leader who will be responsible for global operations, David Shan. David Shan has operated globally in many factories around the world and has a very wonderful track record of connecting and building great relationships across culture. And I believe fundamentally, in Olympus, people want to be on a winning team, and they want to continue to get better and better. So I'm excited about our global operations transformation. I want to be really clear, though, the heart of Olympus will always remain in Japan, and we have tremendous factories here in Japan. And we know that we also can do a better job driving sustained cost improvement year-over-year by doing things better and more efficiently in digitization. So I'm really excited about the experience and the expertise that David brings. Similarly, with R&D, Syed has been the Chief Technology Officer for a while. But importantly, leaders surround themselves with great people. And when I look at both the leadership teams surrounding David and Syed, they're made up of exceptionally talented Japanese leaders. And we continue to work on the development and succession planning as well. So I'm excited about the team that's here, but please note that intentionally, we are developing amazing Japanese talent within each one of these functions as well. So thank you for the question. Unknown Analyst: So SIS voluntary recall, so for Izumi-san, in terms of the ship hold, the cost of ship hold for the first quarter onwards, it will not appear. I just want to confirm that. Another point is that to Bob, so this voluntary recall, you consider the patients, I think it has been a good move. But Olympus in the past, in the SIS area, you have been continuously conducting these recalls. And after a ship hold, then another product will have to be voluntarily recalled from the market. I think you have repeated that cycle. So for that point, fundamentally, this -- is there any way to change that culture, so to speak? Do you have any thoughts about that? Robert White: I'll take the question second. Izumi-san, you want to take the first question? Izumi Tatsuya: I would like to first answer from my side. In terms of the impact of the ship hold in itself, it will continue into the fourth quarter because of the ship hold, because we're going to lose the revenue, that is about JPY 18 billion impact in the fourth quarter is going to appear. On the other hand, the costs related to ship hold, for instance, disposal of inventories, basically, that will be ended in the third quarter. There's no additional cost that will appear in the fourth quarter related to those types of costs. Robert White: Pick up your question on surgical, and I'll ask Seiji to comment here as well. He's right next to me. Importantly, you correctly pointed out that patient's safety is fundamental to Olympus, and it's my personal top priority as Chief Executive Officer. So we will proactively in an abundance of caution when we see a signal, take a product temporarily off the market to make sure, and that's what you saw us do in Q3. Your question though gets deeper than that, which is, is there a fundamental cultural issue here with inside of surgical? I don't believe so. When I think about where we're at in our quality journey of strengthening the global harmonization of our quality systems, strengthening our quality capabilities, advancing the maturity and consistency of our quality systems and processes. We're doing that across. And Seiji, I'd like you to comment on how you feel about the quality of the products and your approach within side of SIS. Seiji Kuramoto: I'm Kuramoto from SIS. I would like to respond to your question. So as Bob has just mentioned, specifically in SIS, I do not think that there is a fundamental issue in SIS because we are always putting patients first and the products that I sell in SIS, like energy devices, therapeutic devices, there are some products that have a higher risk. So we put patient's safety first. And we have taken proactive actions to put some products off the market. Going forward, from our point of view, for the therapeutic devices, because we want to grow in this area, we want always to put patients front and center and enhance the quality to be able to answer this. So this is essential. This is a thing that we have to go do for growth, and we want to go forward on this initiative. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Thank you for joining us for Navios Maritime Partners' Fourth Quarter 2025 Earnings Conference Call. With us today from the company are Chairwoman and CEO, Ms. Angeliki Frangou; Chief Operating Officer, Mr. Efstratios Desypris; Chief Financial Officer, Mrs. Erifili Tsironi; and Chief Trading Officer, Mr. Vincent Vandewalle. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners website at www.navios-mlp.com. You'll see the webcasting link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call will also be found there. Now, I will review the safe harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties, which could cause actual results to differ materially from the forward-looking statements. Such risks are more fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows. First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners' segment data. Next, Mrs. Tsironi will give an overview of Navios Partners' financial results. Then Mr. Vandewalle will provide an industry overview. And lastly, we'll open the call to take questions. Now, I turn the call over to Navios Partners' Chairwoman and CEO, Ms. Angeliki Frangou. Angeliki? Angeliki Frangou: Good morning, and thank you all for joining us on today's call. I am pleased with the results for the quarter and year-end 2025. For the quarter, we reported net income of $117.3 million and EBITDA of $224.8 million. For the full year, we reported net income of $285.3 million and EBITDA of $744.6 million. Earnings per common unit was $3.99 for the quarter and $9.59 for the full year. We are also pleased to announce a 20% increase in our distribution policy to $0.24 per unit annually commencing for first quarter of this year. We are witnessing the evolution of a new world order with new trade agreements arising out of the dust of the game institution. At the same time, it seems trade is now a tool of national policy as governments prioritize exports and strategic control of supply chains. National security interest are now a dominant consideration in the decision-making metrics. In addition, conflicts and geopolitical tensions are rerouting trade, increasing voyage distances, cost and transit times. As political calculations increase, trade routes are no longer based only on efficiency considerations. As you can see on Slide 3, our fleet has an average age of 9.6 years compared to an industry average of 13.5 years for our 3 segments. Our fleet modernization program has created a fleet that is almost 30% younger than the average and more than 50% younger in comparison to the tanker fleet. Please turn to Slide 4. Navios is a leading maritime transportation company, owning, operating, and chartering a modern fleet of 171 vessels across 3 segments and 15 asset classes. Our fleet is split in 2/3 by value, with about 1/3 in each of the tanker, dry bulk, and container segments. The overall value of our fleet, including our newbuilding program, is $8.8 billion. For our fleet in the quarter, we have $4.1 billion in net vessel equity value. We continue to make headway in reducing our net LTV towards our target of 20%, 25%. At year-end, we had a net LTV of 30.9%. Our balance sheet is strong with $580 million available liquidity and credit ratings of Ba3 for Moody's and BB for Standard & Poor's. Please turn to Slide 5. We believe that diversification is strength when embedded in a culture of risk management. We have a business providing significant optionality in decision-making. For example, if we are unable to secure long-term charters that provide a reasonable return, we patiently wait. We allocate capital similarly, waiting for either opportunistic purchases or acquisitions that can be hedged by long-term charters. Our organization promotes a strong risk management culture. We are continuously monitoring and assessing risk. We evaluate and structure transactions with risk management professionals. We also obtained robust insurance coverage, and we have implemented many tools to manage operational risks. Please turn to Slide 6. At the end of 2025, our fleet gross LTV was 37.3% and net LTV was 30.9%. Our contracted revenue continues to grow and is now at $3.75 billion. Overall, we have sufficient features for the year to exceed our cash breakeven. Please turn to Slide 7. Revenue visibility for 2026 demonstrates our strong execution. We secured coverage for 71% of our available days with contracted revenue exceeding cash operating cost by $172.7 million. This provides significant earnings visibility while preserving meaningful market exposure to the remaining 29% of our available days, representing 15,565 days that are either open or indexed to spot market. Our portfolio positioning reflects a thoughtful approach across segments, as shown in the bottom right of the slide. Containers, 99% fixed coverage. We secured healthy rates. Tankers, 84% coverage, high visibility with selective spot exposure. Dry bulk, strategic market exposure through available days positioned to capture upside. Importantly, we continue to actively pursue long-term charter opportunities that enhance our earnings stability. In the fourth quarter of 2025 and year-to-date, we secured $261 million in new charter commitments. Please turn to Slide 8, where we outline our return of capital program. As I mentioned earlier, we increased our annual distribution by 20% to $0.24 per unit annually. This increase was funded primarily through savings generated from our unit repurchase program. As you can see on the right side of the slide, we reduced units outstanding by 5.3%, employing approximately $73 million to repurchase 1.6 million units. This provided value accretion of approximately $5.20 per unit based on analyst estimates of NAV. Also, we currently have approximately $27 million of capacity under our original authorization. Please turn to Slide 9. Navios is a proven platform and has executed its strategy through an exceptionally challenging environment. When I opened this discussion, I highlighted the unprecedented uncertainties facing our industry: geopolitical risks; regional conflicts; a shifting global tariff regime; and evolving trade patterns. Despite this complexity, we remain disciplined and focused. Over the past 4 years, we built a platform of excellency, growing contracted revenue by 11% to $3.8 billion, achieving an EBITDA run rate of around $750 million and expanding our fleet value, including our newbuilding program to $8.8 billion. Importantly, we have not sacrificed financial discipline in achieving these goals. We reduced our net loan-to-value by 31%, to 30.9%. We recognize that there is more work ahead. But in an uncertain world, we believe our proven platform combining a diversified fleet with a disciplined risk management culture position us to continue delivering value through any market condition. I now turn this presentation over to Mr. Efstratios Desypris, Navios Partners' Chief Operating Officer. Efstratios? Efstratios Desypris: Thank you, Angeliki, and good morning, all. Please turn to Slide 10, which details our operating free cash flow potential for 2026. We fixed 71% of available days at a net average rate of $26,865 per day. Contracted revenue exceeds estimated total cash operating costs by about $173 million, and we have $15,565 remaining open or index-linked days that should provide significant additional cash flow. Moving to Slide 11. We continue to maintain a strong backlog of contracted revenue that creates visibility. During the quarter and year-to-date, we added $261 million of contracted revenue, $97 million from 5 containerships chartered-out for a net average daily rate of $29,572 for an average duration of about 2 years. We also contracted 3 dry bulk vessels, providing a minimum revenue of $93 million. These vessels were chartered-out at an average net daily rate of $23,974 for an average duration of 3.6 years. Two of these vessels has also profit sharing above their base rate. Lastly, we chartered-out 3 tanker vessels for 2 years at an average net daily rate of $31,944, generating $71 million in contracted revenue. Total contracted revenue amounts to $3.8 billion, $1.3 billion relates to our tanker fleet, $0.3 billion relates to our dry bulk fleet, and $2.2 billion relates to our containerships. Charters are extended through 2037 with a diverse group of quality counterparties. Slide 12 summarizes the fleet developments for Q4 and year-to-date 2026. We acquired 2 newbuildings, scrubber-fitted Japanese Capesize vessels for $134.3 million. These vessels have been chartered-out for about 5 years. The charters are based on the new BCI index with an average floor rate of about $25,000 per day, an average fixed premium over the index of about $3,000 per day, and a 50-50 profit sharing if the adjusted index and premium exceeds the floor. This traction with floor and profit sharing mechanism provides protection and stable return and participation on the upside. The vessels are expected to be delivered in the second half of 2028 and first quarter of 2029. We also sold 2 VLCCs with an average age of 16 years for a price of $136.5 million. The vessels are expected to be delivered in the second quarter of 2026. Finally, we took delivery of the newbuilding aframax/LR2 vessel, which has been chartered-out for 5 years at a net daily rate of $27,431. Please turn to Slide 13. We are constantly renewing our fleet in order to maintain a young profile. We reduced our carbon footprint by modernizing our fleet, benefiting from new technologies and advanced environmental friendly features. We have 26 newbuilding vessels delivering to our fleet through 2029, representing $1.9 billion of investment. Based on our financing, both agreed and in process, we have about $197 million equity remaining to be paid. In containerships, we have 8 vessels to be delivered with a total acquisition price of about $0.9 billion. We have mitigated the residual value risk with long-term charters with creditworthy counterparties expected to generate about $0.6 billion in aggregate revenue over a 5-year average charter duration. In tankers, we have 16 vessels to be delivered for a total price of approximately $0.9 billion. We chartered-out 10 of these vessels for an average period of 5 years, which are expected to generate aggregate contracted revenue of about $0.5 billion. In dry bulk, we have 2 vessels to be delivered with a total purchase price of about $0.1 billion with a minimum contracted revenue of about $0.1 billion. We also continue to opportunistically sell older vessels. In 2025 and 2026 year-to-date, we sold 14 vessels with an average age of 18 years for about $372 million, 6 were dry bulk vessels, 5 were tankers, and 3 were containerships. I now pass the call to Erifili Tsironi, our CFO, who will take you through the financial highlights. Eri? Erifili Tsironi: Thank you, Efstratios, and good morning, all. I will briefly review our unaudited financial results for the fourth quarter and year ended 31st December, 2025. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. Slide 14. Total revenue for the fourth quarter of 2025 increased by 10% to $366 million compared to $333 million for the same period in 2024 due to higher fleet combined time charter equivalent rate despite lower available days. Our fleet TCE rate for the fourth quarter of 2025 increased by 10% to $25,567 per day, while our available days decreased by 2% to 13,390 days, compared to Q4 2024. In terms of sector performance, our TCE rate per day was high in all 3 sectors as follows: 15% increase to $19,588 for our bulkers; 9% increase to $29,158 for our tankers, and 2% increase to $31,315 for our containers. EBITDA, net income and earnings per common unit for the fourth quarter and full year 2025 were adjusted as explained in the slide footnote. Adjusted EBITDA for Q4 '25 increased by $25 million to $207 million compared to Q4 2024. The increase was driven primarily by a $33 million increase in revenue, partially mitigated by $4 million increase in time charter and voyage expenses, and a $3 million increase in [indiscernible] mainly due to a 3% increase in the daily OpEx rate to $7,153 per day and a $1 million increase in general and administrative expenses. Adjusted net income for Q4 '25 increased by $21 million to $100 million. Adjusted earnings and earnings per common unit for the fourth quarter of '25 were $3.4 and $3.99, respectively. Revenue for the full year '25 increased by $10 million to $1.3 billion. Our combined TCE rate for 2025 was $23,509 per day, 3% higher compared to 2024. In terms of sector performance, the average TCE rate for our containers increased by 3% to $31,239 per day compared to 2024. In contrast, our dry bulk average TCE rate was approximately 3% lower to $16,408 per day. The TCE rate for our tanker fleet was marginally below 2024 levels at $27,011 per day. Adjusted EBITDA for the full year '25 decreased by $4 million to $728 million compared to last year. The decrease in adjusted EBITDA despite higher revenue and lower time charter and voyage expenses was mainly driven by a $22 million increase in vessel operating expenses as a result of a 3% increase in both OpEx days and OpEx daily rate to $7,009 per day, a $7 million increase in general and administrative expenses mainly due to higher euro-dollar exchange rate prevailing during the year as well as the expansion of our fleet and a $4 million increase in other expenses net. Adjusted net income for 2025 decreased by $46 million to $296 million compared to 2024. The decrease was mainly driven by a $30 million increase in depreciation and amortization and a $10 million increase in interest expense and finance cost net. Adjusted earnings and earnings per common unit for the full year '25 were $9.94 and $9.59, respectively. Turning to Slide 15. I will briefly discuss some key balance sheet data. As of December 31, 2025, cash and cash equivalents, including restricted cash and time deposits in excess of 3 months were $413 million. In addition, we have another $167 million available under 2 reducing revolver facilities. During the year, we paid $250 million under our newbuilding program, net of debt. We concluded the sale of 11 vessels for $190 million, adding about $145 million of cash after debt repayment. Long-term borrowings, including the current portion and the senior unsecured bond net of deferred fees increased to $2.2 billion following the delivery of 6 newbuildings during the year. Net debt-to-book capitalization improved to [Audio Gap] Slide 16 highlights our debt profile. With our recent $300 million senior unsecured bond, we further diversified our funding resources in addition to bank debt and leasing structures. The bond has a fixed interest rate of 7.75% and following the completion of the bond, 43% of our debt is fixed at an average interest rate of 6.2%. We have also mitigated part of the increased interest rate cost by reducing the average margin for our floating rate debt and bareboat liabilities for in the water fleet to 1.8%. I would like to note that the average margin for the committed floating rate debt for our newbuilding program is 1.6%. In December '25 and January '26, Navios Partners completed 4 financings for a total amount of $325 million. The $90 million sale and leaseback facility at 2% margin relates to an asset swap under an existing facility with no penalty in order to assist our charters with the trading of the vessels in the U.S. and China. Our maturity profile is target with no significant balloons due in any single year until 2030 when the bond matures. I now pass the call to Vincent Vandewalle, Navios Partners' Chief Trading Officer, to take you through the industry section. Vincent? Vincent Vandewalle: Thank you, Eri. Please turn to Slide 18. Geopolitical developments continue to shift worldwide trading routes, whether due to tariffs, trade agreements, the Red Sea or conflicts. The extradition of Maduro to the U.S. is reshaping trading patterns for Venezuelan oil with more imports to the U.S. and the elimination of sanctioned vessels. Civil unrest in Iran has led to a volatile regional situation. U.S. is building a significant maritime force in the region. In return, Iran attempted to board the U.S. tanker and closed parts of the Strait of Hormuz. Any sustained closure of the Strait of Hormuz would have a severe impact on the oil and tanker markets. In the meantime, nuclear and other talks are ongoing between the U.S. and Iran. Sanctions decreased export from Russia. Prohibitions on importing Russian crude and related products are just starting to affect trades as continuous seizures of sanctioned vessels. Despite the truce in Gaza, transit through the Red Sea and the Suez Canal continues to be limited, increasing tonne miles for most vessel types. In addition, the Houthis announced that they would join any retaliations against U.S. and related targets should anyone attack Iran. With this uncertainty, Maersk is allowing one of its services to transit the Red Sea with naval escorts, while CMA CGM has ceased service there entirely. The Ukraine war continues to impact trading patterns with limiting grain exports out of the Black Sea, while benefiting exports out of Brazil and the U.S.A. Russian crude and product exports continue to [indiscernible] Rosneft and Lukoil, elevating rates for non-sanctioned vessels. Please turn to Slide 20 for the review of the dry bulk industry. Demand growth for dry bulk trade has been relatively stable over the last 25 years and at about 4% average annual tonne mile growth. The current order book stands at about 12% of the total fleet and will remain low due to high newbuilding prices, uncertainty about new fuel regulations, yard availability, and general market outlook. The fleet is aging quickly with 39% of the vessels 15 years old. With older vessels far exceeding those on order, supply should be constrained over the medium-term. Please turn to Slide 21. The main driver of dry bulk demand will be strong Atlantic Basin iron ore growth over the next several years with new projects in Guinea, Brazil and Liberia. The largest new project is Simandou in Guinea, which started shipments at the end of last year and is expected to ramp up to 120 million by '27. Vale in Brazil has 3 new projects totaling 50 million tonnes expected to start exporting by the end of '26. Liberia will add 10 million of exports in '26. In total, these 180 million tonnes are all long-haul tonne miles trading, creating demand for an additional 249 capes. With the current order book at only 231 capes, a further tightening of supply and demand is expected over the next few years, benefiting rates. Overall, the dry bulk market looks positive based on steady long-term demand growth and constrained supply of vessels. Please turn to Slide 23 to -- for the review of the tanker industry. As to supply, we see a relatively low tanker order book of 18%. About 50% of the fleet is already over 15 years old, rising quickly over the next few years. With older vessels exceeding the order book and yards offering first deliveries in late '28 or early '29, supply is set to be tight for several years. Please turn to Slide 24. After the U.S. capture and removal of President Maduro in early January, the U.S. is helping Venezuela move from a sanctioned exporter of crude oil to an exporter of crude oil to non-sanctioned buyers. Improvements will take time, but even raising crude exports from near-term lows of 0.8 million barrels per day to 1.8 million barrels per day with increased demand for more crude tankers. Please turn to Slide 25. The U.S. Office of Foreign Assets Control, OFAC, the E.U. and the U.K. continue to sanction Russian, Venezuelan, and Iranian oil revenue and ships delivering their crudes and products. Most recently, countries started to see sanctioned tankers with U.S. seizing 9, France seizing 1, and India seizing 3 small tankers, further reducing the efficiency of the dark fleet. These tight sanctions have 2 main effects. Sanctioned oil volumes from these 3 countries have more difficulty finding willing buyers, raising demand for compliant barrels and non-sanctioned vessels to carry that oil. Since the end of December, Russian crude export to China and India have reduced by 30% and 70%, respectively. With 822 tankers now sanctioned, the fleet has already seen a significant reduction of about 15% of the total capacity. The tanker market also looks positive over the medium-term based on a lower order book, an aging fleet, and a reduced fleet due to sanctions. Please turn to Slide 27 for a review of the container industry. After the COVID pandemic, the ordering of container ships was mainly for biggest units with fleet expansion in large ships set to continue at high level. Currently, 78% of the order book is for ships with 9,000 TEU capacity or greater and only 20% of the order book is for 2,000 to 9,000 TEU capacity where Navios is most active. Smaller segments of the fleet are well positioned to take advantage of shifting trading patterns. As shown on the right-hand graph, growth in non-mainland trades far exceeds the traditional mainland trades to the U.S. and Europe due to tariffs and higher growth in developing countries. Trading involves the Southern Hemisphere, mostly served by smaller-sized vessels, are expected to see continued healthy growth as this trade shift continues. Overall, Navios fleet is well positioned within the container market and continues to benefit from long-term employment with our high-quality charters. This concludes our presentation. I would now like to turn the call over to Angeliki Frangou for her final comments. Angeliki? Angeliki Frangou: Thank you, Vincent, and we'll open the call to our -- to the questions. Operator: [Operator Instructions] We'll take our first question from Kristoffer Skeie with Arctic Securities. Kristoffer Skeie: Just first on the quarter. Have you made any changes to your accounting of depreciation given the relatively large drop versus Q3? Angeliki Frangou: No. Actually, in Q3, if you recall, we had a one-off -- write-off $27 million relating to the termination of certain bareboat charters. So this was a one-off just for Q3. Actually, the economic rationale of those vessels is the ones that we got back, and we re-entered in a very healthy market. [indiscernible] and accounting adjustment. Kristoffer Skeie: And when it comes to the net LTV, it has dropped quite fast the recent quarters. Can you share some color on when do you expect the net LTV target to be reached? And when that happens, what can we expect in terms of buybacks and dividends? Angeliki Frangou: It's a good question. We think we have the right balance to meet all the challenges and opportunities in this market. I mean, you have seen that we have covered our 2026 all our expenses, and we are about $170 million extra above our -- extra contracted revenue above our cash operating cost. And we still have 16,000 days open. So basically, this flexibility allow us to bring down our LTV, increase our liquidity and be opportunistic on the most profitable reinvestment opportunities. We continue on our buyback, and we continue -- and as you see, we increased our dividend, which is primarily driven by savings from repurchase units. Kristoffer Skeie: Sure. Great. And the last question for me. I mean, you have exposure towards dry bulk, tankers, and container now. Are you seeing any other interesting segments that you sort of wish to invest in? How do you see that? Angeliki Frangou: We're always looking for opportunities, but I will say that today we are sitting in a good position on -- with all our container exposure fixed and having -- and we are having dry bulk and VLCC mainly days open, which is, I think in a good -- we are in a very good position. Operator: Thank you. And this concludes our Q&A session. I will now turn the call back to Angeliki for closing remarks. Angeliki Frangou: Thank you. This completes our quarterly results. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Choice Properties Real Estate Investment Trust Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Simone Cole, General Counsel and Secretary. Please go ahead. Simone Cole: Thank you. Good morning, and welcome to Choice Properties Q4 2025 Conference Call. I am joined this morning by Rael Diamond, President and Chief Executive Officer; Erin Johnston, Chief Financial Officer; David Muallim, Senior Vice President, Leasing and Operations; and Niall Collins, Executive Vice President, Development and Construction. Rael and Erin will provide a recap on our fourth quarter operational results and annual highlights before we open the lines for Q&A, where Niall and David will join to answer your questions. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook and similar statements concerning anticipated future events, results, circumstances, performance or exceptions that are not historical facts. These statements are based on our current estimates and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that can impact our financial results and estimates and the assumptions that we have made in applying and making these statements can be found in the recently filed Q4 2025 financial statements and management discussion and analysis, which are available on our website and on SEDAR+. And with that, I turn the call over to Rael. Rael Diamond: Thank you, Simone, and good morning, everyone. Welcome to our Q4 conference call. Before I begin my comments, I want to provide an exciting update on our team. I'm pleased to share that David Muallim has returned to Choice Properties as SVP, Leasing and Operations. David brings exceptional experience back to Choice from his time at Loblaw overseeing their real estate leasing and new store development. Previous to that, David spent a decade with our organization, and we are very excited to welcome him back. With David's return, Niall Collins is transitioning back to his primary role of EVP, Development and Construction, where he will be focused on delivering our robust development pipeline. I want to thank Niall for his leadership and the stability he provided leading both our operational and development teams over the past 2 years. This transition underscores the depth of our leadership team as we continue to execute on our strategy for unitholders. With that, I'll now focus on our results. We are pleased to deliver another strong year of operational and financial results as our team continues to execute on our strategic priorities. Our full year performance in 2025 demonstrated the strength of our necessity-based retail portfolio, our well-located industrial portfolio and our ability to create value through development. Together, these factors enabled us to once again meet our earnings outlook, delivering same-asset cash NOI growth of 2.2% and FFO per unit growth of 3.6%. We completed this while further strengthening our industry-leading balance sheet, ending the year with leverage at 7.0x. During the year, we remained extremely active in our capital recycling, completing $801 million of real estate transactions. This included $460 million of acquisitions and $341 million of dispositions for net acquisition activity of $119 million. We also continue to create value through our development, transferring 17 new commercial projects totaling 836,000 square feet. These projects were completed at an average yield of 7.4% and resulted in $47 million of value creation. Given the strength and stability of our business and our strong performance in 2025, our Board of Trustees has approved our fourth consecutive distribution increase effective March 2026. This increase reflects our ongoing commitment to returning capital to unitholders. Turning now to our fourth quarter results. The momentum in our business continued, and we finished the year in a solid position. Our portfolio occupancy increased 20 basis points to 98.2% in the fourth quarter, primarily due to new leasing in our industrial portfolio, combined with favorable renewal spreads of approximately 22%. This drove healthy same-asset NOI growth of 2.4%. Our leasing spreads in the quarter were completed on 1.6 million square feet, representing very strong retention rate of 92.4%. We also completed 233,000 square feet of new leasing, highlighted by positive absorption in Ontario retail and Alberta industrial portfolios. In retail, we continue to see robust demand for necessity-based centers nationwide. In the quarter, we completed 596,000 square feet of renewals and 89,000 square feet of new leasing. This drove our retail occupancy up 20 basis points, ending the year at 98%. Renewal activity was particularly strong with leasing spreads of 16.8%, led by Atlantic and Quebec regions and tenants in the dollar store, liquor and office supplies categories. Looking ahead, our team views vacancies and potential backfills as opportunities to re-lease space at both higher rents and to higher covenant tenants. Beyond our existing portfolio, we remain active in advancing retail intensifications and new greenfield developments at attractive risk-adjusted yields. Erin will speak more about our development completions shortly. Our industrial portfolio has remained remarkably resilient with occupancy increasing another 50 basis points in the quarter to end the year at 98.8%. The leasing progress is consistent with what we outlined at the beginning of the year. During the quarter, we had a very strong retention rate of 93.8%, completing over 1 million square feet of renewals at a spread of 26%. Included in our leasing activity was 514,000 square feet of renewals in the GTA where the tenant had a fixed rate option, resulting in a spread of 17%. Excluding this renewal, our spreads averaged 40%. Our team also completed 138,000 square feet of new leasing at rents, 31% above our average in-place rents. This leasing activity highlights the significant mark-to-market and embedded growth in our industrial portfolio. We continue to see a stabilizing industrial market broadly for high-quality generic assets in the right markets and remain focused on advancing our industrial development pipeline at Choice Caledon Business Park. Lastly, in our mixed-use and residential portfolio, we delivered stable performance in 2025, reflecting the high quality of our office assets, which are primarily leased to affiliate entities. While select residential properties have experienced some pressures from new supply, they remain supported by strong long-term fundamentals in urban markets, and we remain committed to our pipeline of high-quality transit-orientated residential developments. Finally, touching on transaction activity in the quarter. We remain active on our capital recycling program, completing approximately $261 million of real estate transactions during the quarter. This included $67 million of acquisitions and $195 million of dispositions. Our most significant transaction in the quarter was a new 50-50 joint venture with Wittington across 2 office towers at Yonge and St. Clair in Midtown Toronto. This transaction included the third-party acquisition of 2 St. Clair Avenue East for $43 million at Choice's 50% share, excluding costs, while concurrently selling a 50% interest in the Western Center to Wittington for $76 million. Overall, the transaction represents a net $33 million office disposition for Choice. This was a strategic transaction as the 2 buildings are directly adjacent and operate as an integrated complex with shared common areas, including a shared loading dock. Choice will manage both properties going forward. During the quarter, we also disposed of a nonstrategic industrial asset for $18 million and $101 million of retail assets that we disclosed last quarter. All dispositions were completed above IFRS values. We also acquired a retail center for $23 million in Peterborough and subsequent to the quarter, completed $28 million of additional retail acquisitions. Overall, 2025 marked an active year of capital recycling as our team remained focused on maintaining the quality of our market-leading portfolio while leveraging our balance sheet to grow our business through net acquisitions. With that, I will turn the call over to Erin to discuss our financial results and additional capital allocation activity. Erin? Erin Johnston: Thank you, Rael, and good morning, everyone. We are very pleased with our financial performance this year. As Rael noted earlier, we closed the year from -- with a position of strength, having achieved each of our financial objectives. When we set our 2025 outlook a year ago, the economic environment was highly uncertain. Our ability to each -- to meet each of our core financial targets underscores the quality and resilience of our portfolio and our team's ability to deliver consistent results for unitholders. Turning to our fourth quarter results. Our reported funds from operations was $189.9 million or $0.262 on a per unit diluted basis, representing an increase of 0.8% year-over-year. FFO in the quarter was driven by year-over-year total cash NOI growth of 4.4%, which included higher same-asset NOI and contributions from transactions and completed developments. This was partially offset by the timing of lease surrender revenue, higher interest expense from refinancing activities and lower investment income. AFFO in the quarter was $0.201 per unit, an increase of $0.05 year-over-year. This increase was largely driven by the timing of maintenance capital projects, which commenced earlier in the current year compared to the prior period. On a full year basis, our AFFO payout ratio of 88% was in line with prior year. Turning to our property performance. Same-asset cash NOI increased by $5.9 million or 2.4% compared to the prior year. By asset class, retail same asset cash NOI increased $3.1 million or 1.6%. This was driven by higher base rents and recovery revenue. And excluding bad debt expense, year-over-year growth was 2.1%. Industrial same-asset cash NOI increased by $2.9 million or 6.2%, primarily due to higher rental rates on renewals, new leasing and contractual rent steps. Mixed-use and residential same asset cash NOI decreased by approximately $0.1 million or 1.8%, primarily as a result of lower rent at certain residential properties. Moving to our balance sheet. IFRS net asset value or NAV for the quarter was $14.43 per unit, a decrease of $72 million or approximately 0.7% compared to the third quarter. The decrease was primarily driven by an $87 million fair value loss on our investment in the units of Allied Properties and a net fair value loss on investment properties of $29 million. This was partially offset by a net contribution from operations of $45 million. As a reminder, we're required under IFRS to mark-to-market our investment in Allied to its trading price at each period end. The fair value changes on investment properties in the quarter were primarily driven by adjustments to select mixed-use and residential developments as well as certain existing residential assets to reflect current market conditions. This was partially offset by gains in the retail portfolio, which were supported by favorable leasing and cash flow assumptions related to backfilling certain sites with higher quality tenants and favorable cap rate adjustments, mainly in Ontario, reflecting continued demand for necessity-based retail centers. On a full year basis, we continue to generate stable value across the portfolio, resulting in year-over-year NAV growth of $263 million or 2.6% on a per unit basis. We ended the year in solid financial position with strong debt metrics and ample access to capital, including $1.6 billion of available liquidity through our corporate facility and cash on hand and $13.8 billion of unencumbered properties. Our debt-to-EBITDA ratio was 7x and remained largely stable. We had no material financing or debt maturities in the quarter and with our next material maturity not occurring until our $350 million debenture in November. Turning to our development activity. Our pipeline continues to be a reliable source of long-term cash flow growth and NAV creation for the REIT. In the quarter, development spend totaled approximately $40 million, and our team delivered 3 new commercial projects totaling 601,000 square feet at a blended yield of 7.8%. Our largest delivery in the quarter was the latest phase of Choice Caledon Business Park project totaling 530,000 square feet at our ownership share, which we completed at a yield of 7.9% and expect rents commencement to begin in April. We also completed 2 retail intensifications, including a 54,000 square foot Costco Gas Bar in Edmonton completed through our 50% owned JV at a 6.1% yield and a 17,000 square foot Shoppers Drug Mart in Ontario at a 6.9% yield, leaving 8 additional Shoppers Drug Mart projects in our active pipeline and many more in various stages of planning. On a full year basis, our development spend totaled approximately $237 million, and we successfully transferred $222 million of assets to income-producing, representing 836,000 square feet of new commercial GLA. These transfers resulted in approximately $47 million of value creation for Choice. Looking ahead, we remain confident in our strategy and financial plan. Our focus remains the same. We will continue to prioritize operational excellence supported by strong leasing execution while enhancing portfolio quality through disciplined capital recycling and delivering on our development pipeline to create value for unitholders. For the full year 2026, we expect to maintain stable occupancy and deliver 2% to 3% year-over-year growth in same-asset cash NOI. Our business is expected to deliver annual FFO per unit diluted between $1.08 and $1.10 in 2026, supported by the strength of our core business, including strong same-asset NOI growth and contributions from transactions and development. This strong performance will be partially offset by the impact of Allied's distribution cut. We will continue to leverage our industry-leading balance sheet to support both our transaction and development activity while maintaining our debt-to-EBITDA below our long-term target of 7.5x. Lastly, given the strength of our business and performance in '25, as Rael mentioned, we are increasing our distribution to $0.78 per unit effective March 2026, which represents a 1.3% increase from the prior year. With that, Rael, David, Niall and I will be glad to answer your questions. Operator: [Operator Instructions] And your first question today comes from the line of Mark Rothschild from Canaccord Genuity. Mark Rothschild: It sounds like that industrial is doing pretty well for the types of properties you own. You're advancing on the development projects. Is this an area that you think you can expand on, grow this year? And do you feel confident enough to maybe start additional development projects? Rael Diamond: So look, we said throughout the year that things are starting to stabilize, and we've definitely seen that in -- on the leasing front. We commenced the spec development last quarter, and it's a function of us having confidence in the market. We've seen lots of RFP activity. I think we need to see a little more traction on the RFP activity before we consider commencing another spec development. I think from a growth point of view, we'll continue to capture that mark-to-market that we spoke about. And our team is always looking for new investment opportunities, and we hope we can grow in that avenue, too, but nothing yet that we are underwriting actively. I don't know, Niall, if you want to add anything else? Niall Collins: Yes. Maybe just to add, we're delivering our spec building in early 2027 for really focusing on deliveries for that year or tenant inquiries for that year. We're starting to hear inquiries around 2028. And as we feel that they're getting some traction, we'll be able to pursue those opportunities as well. Mark Rothschild: Okay. Great. And maybe just... Rael Diamond: Mark, sorry, just one thing quickly. Erin's... Erin Johnston: Mark, just wanted to call out the prospect activity at Caledon has increased to Niall and Rael's point. And then just if we think about industrial for 2026, we would think about same asset growth being closer to that 4% range. Mark Rothschild: Okay. Great. And then maybe just one more in regards to office. The transaction you did sounds like more strategic than anything else. There has been some signs of an office recovery. Obviously, Allied has not participated in that yet. Do you have any thoughts on office investment at this time? Is it an asset class that you would ever -- would the REIT get back into in a more material way? Would you do something if you were confident in improvement? Or is that an asset class that Choice is just not looking to be heavily involved in going forward? Rael Diamond: Yes. Look, Mark, if you go back a few years ago, we exited office because we felt we could never get real scale in the asset class. And it's unlikely for us to see that opportunity. So we are very focused on continuing to build out our retail, industrial and then over time, purpose-built rental. And there's enough investment opportunities in those 3 asset classes that we would not be pursuing office as an asset class. Operator: Your next question comes from the line of Lorne Kalmar from Desjardins. Lorne Kalmar: Just on the guidance side, and Erin, I'm sorry if I missed this. You guys are usually really tight and not that $0.03 isn't tight. But just wondering what has to happen to hit the low end versus the high end? Is it more of that lease term income you guys saw throughout 2025? Or is there something else we should be thinking about? Erin Johnston: Lorne, I would think about our plan as right down the middle now. I know we gave an extra bit of range on guidance, but I think last year, we got the feedback that it was very tight. So I just thought we'd give ourselves the room. In order to outperform a couple of things that we need to see is leasing coming in stronger than expected on retail, same in industrial, maybe a little bit less downtime than is in plan. So there's definitely flex there. And then yes, if there was a little more lease termination income, that would help. But I think there's a bit of room for our team to outperform. Lorne Kalmar: Okay. And then I think you talked to the SP-NOI growth range for industrial for retail, would that kind of be in the 2% to 3% range? Erin Johnston: That's right. Lorne Kalmar: Okay. And then just lastly, on Building D at Caledon, I noticed the yield is quite a bit lower. Maybe just some color around that and why you guys decided to move forward with it given the lower yield than what you guys were getting on the previous buildings. Niall Collins: Lorne, it's really a function of it being a spec building, and it needs to address a wide range of kind of tenant requirements. So we feel we've put in appropriate allowances to be able to capture those requirements. So as we continue to see costs moderate and hone in on a potential tenant, we feel we'll be able to improve those yields. Operator: Your next question comes from the line of Brad Sturges from Raymond James. Bradley Sturges: Just to follow up on your commentary around the industrial segment and RFPs. Is it -- I guess I'm trying to understand that the comment around the need to see a little bit more activity on the RFP side. Is it a function of you're not -- have you seen a change in that market relative to last quarter? Or it's just -- it's a little bit too early to be thinking about 2028 yet given you're only starting to see that activity start to pick up now? Niall Collins: Well, it's more about supply coming into the market, which is falling off dramatically. And with Building D, it will be one of potentially 2, 1 million square feet buildings in the GTA, one actually being ready for occupancy now. So we're the only spec building underway. The activity we've seen over the last couple of months is a function of, I think people are getting used to a level of uncertainty and starting to make decisions around that. For 2028 deliveries, that's now going to be a function of how we see the current environment smoothing out, but we're encouraged by it. Bradley Sturges: Okay. And just following up on that, in terms of like just market rents for industrial for the type of assets you own and across your markets, what do you expect there this year in terms of time line to see a bit more stabilization, even maybe a positive inflection point on the market rent growth? Niall Collins: I think we see this year's -- 2026 spreads will be consistent with '25, which I think has been a very good year in itself. Operator: Your next question comes from the line of Himanshu Gupta from Scotiabank. Himanshu Gupta: On the same asset NOI outlook, and I think you mentioned 4% for industrial. Just wondering, are you being conservative here given the occupancy uptick you have seen year-to-date and then the mark-to-market opportunity as well? Erin Johnston: Yes, it will be between 3% and 4%, Himanshu. And I'd say, as I was just answering the last question, there could be upside if our team sees stronger leasing on deals, $0.50 or $1 more or shorter downtime. But I'd say that every year is also dependent on the mix of what's renewing and what province it's renewing in. So to Niall's point, spreads will be relatively consistent with last year. And that 3% to 4% is very in line with how we view industrial long term. Himanshu Gupta: Got it. Okay. Sticking to industrial here. Your industrial occupancy is obviously outperforming the broader Canadian market. What is causing that for that outperformance? Niall Collins: I think it's a combination of our quality of building and the age as well as the generic kind of properties of the building as well. It's not -- we're not -- we don't -- we're not factoring into some of the other issues that our portfolios are seeing. Himanshu Gupta: And I know there's a section of Loblaw portfolio. On the third-party portfolio, are you more small to mid-bay, larger bay? How would you classify in terms of demand for these types of product? Rael Diamond: I think when Niall is speaking about the market, Himanshu, and he'll chime in after this, he'll refer to the third-party portfolio because the Loblaw represents roughly just, call it, 30% of our income, and it's very stable. And I think we're seeing demand across the board in the small bay, mid-bay and then obviously, on RFP activity on the large distribution type buildings. But maybe, Niall, is there anything else you want to add? Niall Collins: No, I think it's large activities where we're seeing the most interest. There's a lot of competition in the smaller bay, and we're not really focused on that. Himanshu Gupta: Got it. Okay. That's very helpful color. Last question is on capital recycling. Obviously, you have been very active on that front over the years. What more noncore disposition targets do you have for the year? And do you become like more active on net acquisitions here given the good balance sheet? Rael Diamond: Look, Himanshu, I would say, for us, we always focus on quality. And every year, we start the year and we say there's not a lot of product to buy, and we have to obviously source the product and depends what comes to market. And if you think of 2025, we did roughly $800 million of total transactions, and we bought more than we sold. And we're entering '26, we've done a few small retail acquisitions. And we're hopeful that we can find more assets to buy and use the strength of the balance sheet. We just don't have great visibility right now. As far as what we can still sell, I would say our portfolio is in phenomenal shape. And it's not that we're selling things that in our mind is bad quality. It's just on the lower end of spectrum maybe from a growth point of view, and we can use that capital and recycle it into new acquisitions. I would say the other area we're very focused on is the greenfield and just on the commercial development. Erin made reference to 8 Shoppers Drug Marts that are currently on construction. There's a significant pipeline behind that. We're also building, I think, 5 neighborhood shopping centers, and our team is underwriting another asset. So I think just that benefit of working with Loblaw to find those growth opportunities, we believe we'll be able to deploy capital in that area as well, which is very encouraging. Operator: Your next question comes from the line of Giuliano Thornhill from National Bank. Giuliano Thornhill: Just one question back on the greenfield that you mentioned there. How big are these kind of retail sites? And where are they kind of working for Loblaws? Niall Collins: At the moment, we've got 4 that total about 350,000 square feet, and they range from about 40,000 to 160,000 square feet. They're largely Loblaw's anchored with either No Frills brand or some Shoppers brand. So they're very -- they're a large part of how we're anchoring our centers and going out and getting additional CRE leasing. Giuliano Thornhill: And kind of with the industrial, I guess, I don't want to say on pause, but now is the increasing focus going to be more of that retail nodes and larger sites going forward out to 2027? Rael Diamond: Yes. We don't see industrial on pause because we're building the large 1 million foot facility. It's just -- from our point of view, it's just managing risk that you don't want to be doing too many of them at once. But as we said earlier, as we get leasing traction on the building, we'll consider other spec industrial buildings to keep the momentum. Niall Collins: Yes. And just to add, like Tullamore has a range of building typologies as well. So if there is a demand for a smaller size, we can also go forward with that, too. Giuliano Thornhill: I see. Okay. And just one last question. Just with the Bank of Canada potentially done cutting, there's rates may be going higher for longer. Are you seeing the narrowing of bid-ask spreads beginning to happen in transactions and potentially for the market to pick up yet? Rael Diamond: Look, for the product that we've been buying and selling, there seems to have been strong demand. And I think the wider bid-ask spread is when a certain seller or a seller needs a certain price to clear or cover their debt. I think as time has gone by, they've become more realistic. But we think the transaction market has generally stabilized for the assets that we are investing in. Operator: Your next question comes from the line of Sam Damiani from TD Cowen. Sam Damiani: Congrats, David, on your return to Choice. Just on the -- so little bit one by one, my questions have been addressed here, but maybe just to drill a little bit deeper on the retail development. The active pipeline is down around 200,000 square feet. Now that doesn't include the Nepean site, which I assume you're going to move forward with. I wonder if you could just confirm that. But just given how tight retail leasing is today, do you see that sort of 200,000 to 300,000 square foot sort of activity annually meaningfully increasing potentially for choice in the coming years? Erin Johnston: Just going to give some color and then I'll hand it over to Niall. What we include in our MD&A is active, our sites where we really are further along with our permits and zoning. But you'll see in our investor presentation as well, if we think about kind of the next 3 or 4 years, we've identified over 1 million square feet plus in our portfolio that we are able to build out and probably over 60 projects plus in the next 3 to 4 years. So very healthy pipeline there, and those will start to funnel into our MD&A as they become more real. But I'll let Niall comment on the detailed color. Niall Collins: Yes. So as I mentioned, Sam earlier, it's about 350,000 square feet, but there is also an additional 4 that we're bringing in as well as we kind of work through it. So what's in our active development is what's zoned and we can move forward with in the next 6 to 12 months. We will see additional projects coming into the pipeline, the active pipeline over the course of the year. So we're encouraged by what's going to happen over the next 3 years in our plan. Sam Damiani: That's great. That's helpful. And maybe just shifting over to the rental residential segment. It's obviously seen a little bit of pressure. The occupancy is down, which you commented on in your opening remarks. But maybe to drill down a little bit more deeper, which sort of, I guess, clusters or markets are performing best for Choice right now? Is it between Toronto, North York, Brampton, Ottawa, Edmonton? Niall Collins: Look, Ontario, generally, we're seeing in Ottawa and Toronto, a similar pattern. However, that pattern, we think has leveled off. And as we saw the majority of the supply that was going to come off for shadow rental occur in '25, we think we're going to see the same type of growth pattern for a little bit longer and potentially see it improve over the next 12, 18 months. Sam Damiani: And do you still feel confident you'll move forward with a new project potentially this year? Niall Collins: We do. We do. That will bridge the cycle in our view. Operator: [Operator Instructions] Your next question comes from the line of Pammi Bir from RBC Capital Markets. Pammi Bir: Just coming back to the, I guess, the new joint venture with Wittington, can you maybe just expand on that? And what was the -- maybe the motivation behind those transactions? And any color you can share just in terms of the longer-term play there? Rael Diamond: Yes, Pammi, I think if you think of Yonge, St. Clair, essentially the block is owned by either Choice or Wittington. So Choice owning the office asset, Wittington owning all the development land. And the last piece of the block that wasn't owned was the corner, which is 2 St. Clair, which is a small office asset, but call it, more than 30% of the income comes from the ground floor retail. If you stand in the buildings, you actually don't know which one is 2 St. Clair and which one is 22 St. Clair. So from our point of view, it just made logical sense to own them, obviously, own the office together. Office is obviously not completely strategic to Choice. We've said we do it when it's primarily through related entities. And what it did is it allowed us to reduce overall exposure, control operations and then from a group point of view, allowed full control of the block. 22 St. Clair is fully occupied and 2 St. Clair has a bit of leasing upside, which we're quite confident we will pick up that just given the pickup in office momentum at the moment. Pammi Bir: Okay. Actually, that was actually one of my next questions just in terms of the occupancy there. So that's good to hear, and it all makes sense. Maybe just as a follow-up, are there other opportunities where a similar situation may arise that you might be looking at for -- in terms of 2026, where there's an opportunity to maybe consolidate some ownership that might be held by third parties or... Rael Diamond: If you think of 2025, we actually consolidated ownership through some of our joint ventures where our partner wanted out. So I can think of an asset in Edmonton that we purchased our -- 2 assets in Edmonton, actually, we purchased one of our partners out. One of them we took back a Chapters box and we split and we leased it to No Frills and a Shoppers Drug Mart. So I think we're always looking for opportunities where one of our partners wants liquidity, where we can consolidate ownership. And then I think back a few years ago, if assets were not core or strategic to us, we always offer to our partner first. So we'll continue to look for those opportunities on high-quality assets. Pammi Bir: Okay. And then just was there any -- like what range of sort of transaction activity was, I guess, incorporated into your guidance, if any? Erin Johnston: So Pammi, in 2025, we bought more than we sold by about $120 million. I'd say in 2026, our plan would be to be kind of around $100 million, buying more than we're selling. Operator: And with no further questions, I will now turn the call back over to Rael Diamond, CEO, for closing remarks. Rael Diamond: Thank you, Rob. Once again, our portfolio and balance sheet remain in excellent position, and our teams are focused on executing on our strategic objectives in the year ahead. Thank you for your interest in Choice and for joining us this morning. We look forward to providing you another update on the business in the spring. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Brady Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ann Thornton, Chief Financial Officer. Please go ahead. Ann Thornton: Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 Second Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on Slide #3. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2025 Form 10-K, which was filed with the SEC in September. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Shaller. Russell? Russell Shaller: Thanks, Ann. Thank you for joining today. We released our fiscal 2026 second quarter results this morning, and I'm pleased to report that this marks our 20th consecutive quarter of organic sales growth. Top line growth is a key metric and achieving this milestone for 5 straight years of quarterly sales growth demonstrates the strength of Brady's business model. This quarter, we also improved our gross margin. Our cash generation was incredibly strong, and we grew adjusted earnings per share 9%. I'm proud of the team and proud of our first half of the year. Brady's core mission is to create new world-class products to serve our industrial customers. Just last week, we launched an exciting new product that's unlike any other on the market, the i4311 transportable industrial desktop label printer. This is the first transportable printer that can print on materials that are up to 4 inches wide. It has an all-day battery. It's WiFi and Bluetooth enabled and includes our LabelSense software technology. The difference maker with this new printer is that it adds portability when our customers need to print on larger adhesive back materials, which greatly expands the use cases for our customers. With the i4311, our customers can set up shop anywhere, and they can print up to 5,000 labels on a single charge on hundreds of different specialty materials across wire ID, safety and facility ID and product ID. The battery is rechargeable and can be easily swapped out, maximizing productivity at all times. And just like our entire printer lineup, the i4311 is incredibly versatile and ideal for a wide variety of applications, including both indoor and outdoor uses, safety and OSHA requirements, harsh environments, lean manufacturing, electrical and datacom and lab applications. This is just one of the many examples of our R&D developments, which span our printers to RFID to optical image recognition to lasers and more. I've always been most excited about Brady's commitment to R&D. When I first joined Brady a bit over a decade ago, we spent roughly 3% of our revenue on R&D. This has grown to almost 6% in 2026, while our pretax earnings have more than tripled over the same period. To keep this trend going, we just hired Jane Li as our new CTO in January. I'm personally delighted to have her on Brady's leadership team, where she's bringing a wealth of insights to improve our technical road map. And as always, we are committed to helping our customers in their journey to identify products in a safe working environment. Now I'll turn it over to Ann to provide more details on our financial results. Ann? Ann Thornton: Thanks, Russell. Our financial results were strong once again in the second quarter. Organic sales were up 1.6%. And as Russell just mentioned, this was our 20th consecutive quarter of organic sales growth as a company, which was led by the top line performance in our Americas and Asia region. The Americas and Asia grew 3.1% organically, which was partially offset by a slight organic decline of 1.1% in the Europe and Australia region. We also reported strong growth in our adjusted pretax income as well as our adjusted diluted earnings per share in the quarter, while funding a significant increase in research and development. And we finished the quarter in a net cash position, which allows us to continue to invest in both organic opportunities and strategic acquisitions to continue to drive shareholder value into the future. Slide #4 details our quarterly sales trends. Organic sales grew 1.6% this quarter. Acquisitions added 2.3% and foreign currency translation increased sales by 3.8% for total sales growth of 7.7%. Slide #5 details our quarterly gross margin trending. Our gross profit margin was 50.6% this quarter compared to 49.3% in the second quarter of last year. Last year, we took actions to streamline our cost structure, and we closed manufacturing facilities in Beijing, China and Buffalo, New York, and we reorganized our overhead structure in Europe. Adjusting for the onetime charges in gross margin in last year's Q2, our gross margin -- gross profit margin would have been 49.8% in last year's second quarter. You can see the gross margin benefit from cost reduction actions in our results, along with our sales growth coming from our highly engineered products, both of which led to the improvement in gross profit margin from 49.8% last year to 50.6% this year. Turning to Slide #6. This details our SG&A expense trending. SG&A was $107.9 million this quarter compared to $105.9 million in the second quarter last year. As a percent of sales, SG&A decreased to 28.1% of sales 29.7% last year. If you exclude amortization expense from the current and prior year, as well as the facility closure and other reorganization costs that we incurred last year then SG&A was 26.7% of sales this quarter compared to 27.3% of sales last quarter. A decline of 60 basis points. We're seeing the benefits of our facility closure and other cost structure actions that we took last year, while we continue to invest in growth through targeted additions to our sales force as well as expanding in certain geographies. Moving to Slide #7. This details the trending of our investments in research and development. We continue to increase our investment in new products within our organic business with products like [ i-4311 ] that Russell just described as well as products from our acquisitions from last year. R&D expense was $24.3 million or 6.3% of sales this quarter which was an increase from $18.7 million or 5.2% of sales in last year's second quarter. We funded a nearly 30% increase in R&D in the quarter and still improved profitability. For the second half of this year, we do expect R&D as a percent of sales to be around 5.5% of sales, which would put us slightly below 6% of sales for the full fiscal year 2026. Slide #8 shows the trending of our pretax earnings. Pretax earnings on a GAAP basis increased 19.1% from $52 million to $62 million in the quarter. If you exclude amortization from both periods and exclude the facility closure and other reorganization charges we incurred last year, pretax earnings increased 7.7% from $62.4 million to $67.2 million. Turning to Slide #9. This details the trending of our net income and earnings per share. Our net income increased 19.1% from $40.3 million to $48.1 million. Excluding amortization from both periods as well as the facility closure and other reorganization charges from last year, net income increased 8% from $48.1 million to $52 million. GAAP diluted earnings per share was $1.01 compared to $0.83 last year. Excluding amortization from both periods and the facility closure and other reorg charges from last year, our adjusted diluted earnings per share grew to $1.09 this year from $1 last year, an increase of 9%. Our results continue to benefit from sales growth in our highest gross margin products as well as from the cost reduction actions that we took last year in certain areas of our business. Moving to Slide #10. This details our cash generation. Operating cash flow increased 34.7% to $53.3 million in the second quarter of this year compared to $39.6 million in the second quarter of last year. And free cash flow increased 30.5% to $42.3 million in Q2 of this year compared to $32.5 million in last year's Q2. Year-to-date, our cash flow from operating activities is up nearly 38% versus last year, which demonstrates our high-quality earnings and our consistent focus on cash-based decision-making. Slide #11 outlines the impact that our cash generation has had on our balance sheet. As of January 31, we were in a net cash position of $97.8 million. Our approach to capital allocation is consistent, and that is to always fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales-generating resources, capability-enhancing CapEx and improvements in automation. We have the ability to invest throughout the economic cycle so that we're always positioned to grow the top line and our profitability. And we're focused on consistently increasing our dividends. At the beginning of this fiscal year, we announced our 40th consecutive annual dividend increase, which was a very exciting milestone for us as a company. From here, we're disciplined and opportunistic in our approach to both acquisitions and share buybacks. We're focused on identifying acquisitions with clear synergies, and we have the financial strength to do all of this to fund our organic business, our dividend, M&A opportunities and share buybacks. So far this year, we've purchased 121,000 shares for $9 million, which works out to an average price of $74.23 per share. Moving to Slide #12. This details our fiscal 2026 guidance. We are increasing the bottom end of our full year fiscal 2026 previously announced adjusted diluted EPS guidance range from $4.90 to $5.15 per share to $4.95 to $5.15 per share. And we are increasing the bottom end of our full year GAAP EPS guidance range from $4.57 to $4.82 per share to $4.62 to $4.82 per share. Our adjusted diluted EPS guidance range represents a range of growth of between 7.6% to 12% compared to 2025. We expect organic sales growth in the low single-digit percentages for the year ending July 31, 2026. Other elements of our guidance include depreciation and amortization expense of approximately $44 million, capital expenditures of approximately $45 million and a full year income tax rate of approximately 21%. Our income tax rate generally tends to be slightly lower in the fourth quarter compared to our full year expectation which is based upon our historical profit mix and the expected timing of other discrete adjustments. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that were unable to offset in a timely enough manner or an overall slowdown in economic activity. Now I'll turn it back over to Russell to cover our regional results and to provide some closing thoughts before Q&A. Russell? Russell Shaller: Thanks, Ann. Slide 13 details the financial results of our Americas and Asia region. Sales were $251.6 million this quarter, up 7.6% from Q2 last year. Organic sales growth was 3.1%. Acquisitions added 3.5% and foreign currency translation increased sales 1%. We grew sales in most of our major product lines with growth once again led by our wire identification product line at nearly 8% in the quarter. Data centers are an ideal use case for our specialty wire ID solutions, and this has been a growth leader for us. Asia continues its strength of strong performance with organic growth of 14.2%. Our business in India continues to lead Asia with nearly 25% organic sales growth this quarter. We expanded into North and West regions of India over the last several years, and India is now our second largest business in Asia. Our reported segment profit in Americas and Asia region increased 16.9% to $53.8 million, and segment profit as a percentage of sales increased from 19.7% to 21.4% in the second quarter. If you exclude the impact of amortization in both the current quarter and last year's Q2 as well as the facility closure and other reorganization activities from last year, segment profit increased 11.3%. Our sales growth in Engineered Products as well as our cost reduction activities from last year have led to improved profitability. Tariffs are still a headwind in the U.S. compared to last year's second quarter. We're constantly taking steps to mitigate the effects and halfway through the year, we continue to expect the full year incremental impact to be at the low end of the range we initially provided, which was approximately $8 million. Slide 14 details the financial results of our Europe and Australia region. Sales were $132.5 million in the quarter. Organic sales declined 1.1% and foreign currency translated added 9% for a total growth of 7.9% in the region. The manufacturing environment in Europe has been weak for the last several quarters, and we're feeling the effects of that. But we still saw growth in our Wire ID product line in the quarter, so we're benefiting from the data center expansion in this key product line in Europe and Australia as well. We saw sales declines in Safety and Facility ID and Product ID, which are more closely tied to general manufacturing and automotive. Despite the weak macro activity in the region, we reported significant improvement in segment profit once again this quarter. Our reported segment profit in Europe and Australia increased 35.5% in the quarter to $15.4 million, and segment profit as a percentage of sales increased from 9.3% to 11.6%. If you exclude the impact of amortization in both the current quarter and last year's Q2 as well as the facility closure and other reorganization activities from last year, segment profit increased 10.6% compared to the prior year. We took several actions last year to reduce our cost structure in both Europe and Australia, and we're seeing the benefits in our results this year. We're positioned for increased profitable growth when manufacturing activity picks up in the region. I know we're on the right track halfway through the year. We're growing sales, we're improving profitability, and we're generating increased cash flow, all while investing in our products. I'm really looking forward to our customers' reactions to the brand-new i4311 transportable label printer, and we have a lot more to come in our product pipeline. We work hard to help our customers operate a safe and productive workplace in any industry anywhere in the world. Product marketing and identification requirements are rapidly changing with the upcoming GS1 standards and the European Union product labeling requirements being only a couple of examples. This means that our customers are facing a more extensive set of identification requirements that call for both the knowledge and the solutions to be able to comply. This is exactly where Brady excels. Our goal is to provide our customers with easy-to-use products that meet complex requirements in situations with a high cost of failure. We value our customers and our #1 focus is to provide them with solutions that keep them coming back to Brady. We've reported a strong first half of 2026. We have momentum in our Americas and Asia region, and we've nearly returned to growth in Europe and Australia. Our acquisitions added direct part marking and inkjet printing capabilities to our product portfolio, helping us achieve our objective, which is to provide easy-to-use solutions for all of our customers' identification need. With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners? Operator: [Operator Instructions] Our first question comes from the line of Steve Ferazani with Sidoti. Steve Ferazani: I wanted to start with -- what I -- to us was a negative surprise was the organic sales growth in the Americas, I mean, down to only just over 1%. I mean, if I group that with what you're doing in Europe and Australia, it looks like if I combine those, your organic growth is completely dependent on Asia right now despite the fact you're investing 6% plus sales in R&D. Was this a 1-quarter blip? Or where is the growth going to be? Ann Thornton: Steve, the -- our organic growth in the Americas and Asia region this quarter was actually up 3.1%. Steve Ferazani: I'm speaking specifically about the Americas. That's what I'm saying. If you put the Americas and group them with Australia and Europe, net, that's probably going to be down, which means all your organic growth came from Asia. Ann Thornton: Got you. Got you. My apologies, I missed that. Yes, the Americas on its own was up 1.4% and Asia on its own was up 14.2%. So we did take the big step back in the momentum on organic growth in the Americas on its own in the quarter. Steve Ferazani: So what I'm asking is, was that a 1-quarter blip? Or what's the trend here? What are you seeing as you late in the quarter from orders and now into pretty deep into Q3? Russell Shaller: Yes. So we feel like we're headed in a better direction for us. November was actually a little bit on the weak side in the Americas. But as we exited the quarter, we definitely saw some improvement. I think there is still some struggling out there with U.S. manufacturing, certainly not as bad as Europe, but it has not been as robust as we would have expected. Steve Ferazani: And how much of that 1.4% growth in the Americas was price versus volume? Russell Shaller: Virtually no price. Steve Ferazani: It was virtually no price. Okay. What do you think gets you back to a growth trajectory? Is it going to be completely macro dependent? Russell Shaller: Yes. We correlate very tightly, particularly in America to U.S. manufacturing capacity utilization, which right now is in the 78%, 77% range. We see something closer to 80% is very stimulative for us. It's starting to trend up a little bit, but it's still not at a point that we would like. Steve Ferazani: Okay. And then if I can ask about the very healthy margins again. It sounds like you weren't that aggressive on pricing, so it sounds like more of a mix for this quarter. Russell Shaller: Yes. It's a mix. As you can imagine, our more commoditized products have actually done less well compared to our engineered products. So while I'll say the empty calories of our commoditized products have clearly gone down year-over-year, the engineered products have more than compensated for that, which is, in turn, bumped up our margins. Operator: Our next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: Russell, your confidence in Europe and Australia returning to growth here in the second half of the year. I guess what's giving you some of that confidence? Russell Shaller: So I was actually in Europe two weeks ago and kind of was taking a tour of pulse of manufacturing over there. It feels like there will be modest. I mean -- and when I mean modest, they'll go from a contraction to maybe a 1% growth. I'm not saying by any stretch of the imagination that we saw something super robust. But I'm hoping that they actually hit bottom towards the end of last calendar year, and they're starting to see a recovery. So I think there's still an awful lot of headwinds in Europe in terms of energy prices and some of their policies due to manufacturing. It's no surprise if you read about heavy manufacturing in Europe has been particularly hard hit by energy prices and the influx of lower-cost Chinese products. So we're hoping they're doing it. And we also are seeing some growth in some of the noncore European countries. Middle East is doing pretty well for us. The Poland and Eastern Europe also doing well, Scandinavia. Unfortunately, those economies are not quite as big as the Germany, France and U.K., which largely are still struggling. Keith Housum: Got it. Okay. And then the Gravotech acquisition is probably 1.5 years behind you. You guys have added Mecco or Mecco, I apologize whichever you say it. And how is that performing for you guys? I know you guys had some restructuring you guys were doing there, but how are we doing in terms of growth trajectory? Russell Shaller: Yes. So it's absolutely from a technology perspective, it has done 100% of what we wanted. We wanted to have that capability for direct part marking, which we see as a significant growth potential, particularly if you look at European digital passport and some of the initiatives here in the United States to have unique part traceability. I think in the short term, we're definitely seeing a little bit of an impact of European automotive. They do serve the European automotive market. And manufacturing in Europe, particularly in Germany, has been pretty hard hit. In fact, it is still below where they were in 2019. So there's one slice of Gravotech related to automotive that I think has been weak, but the rest of the business is doing well. And actually, the luxury personalization segment is doing the best amongst that group. Keith Housum: Interesting. Okay. I appreciate that. Just to get this question out there because I'll ask everybody, I know your printers use a small amount of memory. Any issues you guys are facing in terms of pricing or shortages on memory? Russell Shaller: So no issues so far on memory. We try to lock up supplies for a long period of time. We're a memory light user. Will it affect our [ BOM ] a tiny bit? Yes, probably. But we're not anywhere near, say, the usage of a tablet or a mobile computer or something like that. So at the margin, it's just a very, very small effect. Keith Housum: Got you. Okay. And I appreciate your commentary on R&D and R&D is an investment for the longer term, but maybe you can help reconcile it for investors because, again, we did see 1.1% organic growth or 1.6%, whatever it was, probably less than what we expected, but yet R&D has a significant investment. How should we reconcile the increase in the R&D versus the, I guess, the declining organic growth? Russell Shaller: So you need to compare it to our gross margin. If I look at our non-engineered products, we're probably collectively in the 40% gross margin. Now fortunately, that's a small percentage of our portfolio versus the engineered products are mid-50s and higher. I wish all of our products had the engineering behind them. So we continue to do that. I think that is 100% of Brady's growth story over the last decade. And it was a part of what I said. For us, engineering is a multiyear journey. The investments we're making today are things that pay back in 3 years. I would never look at engineering and R&D on a quarterly basis. It's kind of irrelevant. I would look at it more of the journey Brady has been on in the last 10 years where we've tripled our operating income while R&D has gone from 3% to 6%. So I wish we can keep that trend going for the next decade. And again, I am super delighted to have our new CTO joined. I can't say enough about the experiences she's bringing in a more connected ecosystem. She came from Honeywell. And I think that is -- she will help us get to the next level in the coming years. Keith Housum: Great. Last question for me. As I think about the European business, it probably has always had a more of the commodity type products, but it's been more defensible and the pricing has been better on that. Any signs or concerns that, that pricing for the commodity type of products might be breaking down? Russell Shaller: Yes. So that was always -- has been an issue in the U.K., much, much less so in the other countries. We've seen it. We continue to see some deterioration in the U.K. but it's also the backdrop of the overall U.K. economy, which isn't awesome as well. So as Brady goes on, I wouldn't say that there's any trend there that is catastrophic. It's just the long-term revolving of Brady out of commodity products into manufactured products. It's a journey we've been on for years. It will continue to happen. Unfortunately, it is a little bit of a drag on our overall growth, but we're going to get through it, and that's kind of the story of Brady. Operator: And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Russell Shaller for closing remarks. Russell Shaller: Perfect. Thank you for your time and participation today. We exited the first half of 2026 with momentum going into the second half of the year. We're investing in new product development, and it's our highly engineered products that drive organic sales growth and profitability improvement. We have more products in our pipeline that are focused on solving our customers' problems in the simplest way possible, which also gives us the opportunity to engage with a broader set of customers and markets. Despite the tariff environment and the decline in manufacturing activity in Europe and Australia, we still grew organic sales for the 20th straight quarter in a row. We're improving our productivity while increasing our investment in R&D. We keep our focus on what we control, and we move forward with a long-term always in focus. I continue to be optimistic about this year and our ability to deliver improved results for our shareholders. Thank you for your time this morning. Operator, you may disconnect the call. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Andreas Spitzauer: Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations, and I want to welcome you to Knorr-Bremse's presentation for the full year preliminary results of 2025. Today, Marc Llistosella, our CEO; and Frank Weber, our CFO, will present the results followed by a Q&A session. The event will be recorded and is available on our homepage in the Investor Relations section afterwards. It is now my pleasure to hand over to Marc Llistosella. Please go ahead. Marc Llistosella Y Bischoff: Thank you, Andreas. Ladies and gentlemen, I'm pleased that you are participating in the capital market call on our preliminary results for 2025. The most important news first. Despite geopolitical uncertainties, we were once again able to steer Knorr-Bremse successfully through a challenging year. Thanks for the stringent execution of our BOOST measures and the dedication and expertise of our colleagues worldwide; we strengthened existing businesses, developed new areas of growth during demanding times. Let's go to Page #2. We are reporting strong financial results today. Fiscal year 2025 clearly demonstrates Knorr-Bremse's excellence and resilience once again. With our BOOST strategy, we have delivered what we have announced. Phase 1 is almost completed, creating a more stronger and cleaner cost base. This now enables us to clearly shift the focus towards accelerating margin accretive growth. BOOST Phase 2 centers on growth and expansion while maintaining strict cost discipline. This means BOOST and the regained efficiency are not over as management culture is here to stay and a permanent part of how we run and steer our business. Our Rail Division delivered strong margin accretive growth and reached its midterm target margin 1 year earlier. We promised the numbers and we see it already 1 year ahead. RVS now represents around 55% of total group revenues so we've become more railish as indicated in the past. At the same time, CVS showed disciplined cost management, solid performance despite a tough truck market backdrop. A great achievement by our truck colleagues. In total, we achieved our full year '25 guidance and have issued a solid '26 outlook in line with our existing midterm targets from the past. We will provide an update on new midterm targets together with the release of our quarter 2 results end of July this year. Ladies and gentlemen, let us now take a quick look at our guidance for last year on Page 3. We were able to achieve all of our targets; including revenues, EBIT margin and free cash flow. The strong order book, the strong cash conversion rate and the low leverage underpin these results and confirm our strong resilience. We are in top financial shape ready to continue with our BOOST strategy from a position of strength. I'm very pleased that we are able to present such convincing results today. They are a clear proof that our collective efforts over the past years have paid off. Let me continue with more details of our BOOST program on Page 4. When we launched BOOST in the summer of 2023, our ambition was clear: to make Knorr-Bremse faster, more efficient and structurally stronger again. Two years later, the benefits of the program have become clearly visible in our financial results. The consistent execution of sell-it and fix-it measures have delivered tangible margin expansion driven by a lower breakeven. BOOST is firmly anchored in value creation. Every initiative is designed to contribute to profitability, which remains our top priority. With the brownfield part very well advanced, we are now transitioning into the next stage of BOOST. In 2026 and beyond, the focus of the whole management team will clearly shift towards greenfield initiatives, accelerating margin accretive growth and expansion while maintaining the operational discipline we have built. As a result, we expect the company to continue benefiting strongly from BOOST in '26 both through sustained efficiency gains and an increasing contribution from margin accretive growth initiatives. Let me now turn to our sell-it program on Page 5. Overall, we are close to complete all key actions. The sales process for our HVAC business is advanced and we are fully committed to sell the business if we can realize a fair value. Therefore, we prefer a long-term and sustainable solution instead of a hasty action. We are not a forced seller and we will never be. HVAC is classified as an asset held for sale on the balance sheet. The sell-it program is only 1 side of the coin. Over the past years, we have so far divested businesses and units with revenues of more than EUR 400 million and an average EBIT margin of well below 5%. Once the HVAC business is sold, it will make up to EUR 750 million in total as promised and as said in 2023. On the other side, we have added businesses with revenues of roughly EUR 600 million, generating margins of 15% or above. This is our definition of portfolio optimization, respectively, portfolio rotation. In other words, we have deliberately exited lower margin activities and reinvested capital into higher quality, more profitable growth platforms. Our motivation behind this strategy is very clear and remains a top priority, creating shareholder value by continuously improving the quality, profitability and growth profile of Knorr-Bremse. Let me now turn to fix-it and our efficiency measures on Page 6. Over the past years, we have made very solid progress in improving key financials. For me and the whole management team, keeping fixed costs under tight control remains and is very important. This is not a one-off exercise. It is a permanent discipline for us. We are permanently monitoring our fix-it businesses and drive them into improved performance. The breakeven, respectively, the control of our fixed cost is particularly important to me. In the past, it suffered from revenue headwinds in countries like China, Russia and it was impacted by high inflation. This is, therefore, very important to us as a management team to regain this financial flexibility and strength. So far, we have already been able to improve the breakeven by 4 percent points or 400 basis points. In our internal business reviews, I therefore explicitly challenged the operating units on cost structures and efficiency. Frank in parallel places a strong focus on cash flow generation. This combination has proven to be very effective. Our persistence has clearly paid off. Over the last 3 years, we have reduced headcount by more than 2,400 people, of which only 1/4 was achieved through divestments and the majority through real reduction measures with particularly strong progress in the CVS division so far. In addition, the migration of operating activities to lower-cost countries in our major regions such as Hungary, Poland and India is already well advanced. Importantly, cost optimization goes far beyond administrative functions. We are systematically adjusting our operational footprint across engineering, production, R&D, service activities and purchase in order to achieve an optimized strategic global footprint. At the same time, we have established global shared service hubs in all major regions and are doubling down on those. These hubs are already delivering tangible benefits. Overall, fix-it has made a meaningful contribution to margin expansion, cash flow improvement and return on capital employed enhancement of 20.2% -- at 22.8% of Knorr-Bremse. And let me be very clear, fix-it is not finished. Efficiency and cost discipline will remain an integral part of how we run Knorr-Bremse going forward. Let me briefly outline the strategic logic behind how we intend to develop Knorr-Bremse in the coming years. The main focus of our greenfield strategy is to drive revenue growth and margin expansion beyond historical levels. Our portfolio strategy remains clearly anchored in rail and truck combined with opportunities in adjacent and other existing growth areas. The rail industry provides very attractive profit pools. As a result, future organic and inorganic investments will take place more in rail going further. Wayside signaling is an interesting segment strengthening our sustainable margin accretive growth. In truck, mobility as a service via our CVS service platform represents another greenfield pillar. Here, we are evolving towards a technology-enabled solution partner and we are systematically expanding digital and service-based aftermarket solutions, a market that is just emerging in trucks. In energy technologies, we are building on our existing nucleus to explore attractive opportunities in intelligent grid solutions and the field of energy distribution not in a rush, but step-by-step and accretive. Beyond our core, we are selectively analyzing and developing additional growth fields like dampers and electronics business. Green technologies are still at a very early stage for Knorr-Bremse, for example, supporting our existing but small Reman business. Overall, our ambition is to put Knorr-Bremse on several strong profit pools to reduce cyclicality and grow profitability. Let me be very clear. To be part of Knorr-Bremse, every business must meet its target margin. This discipline is central to create long-term shareholder value, an important part of our financial guardrails regarding M&A. Let me now turn to signaling on Page 8. Signaling itself is clearly a success story for Knorr-Bremse so far. We acquired a good asset and made it even stronger. KB Signaling is well integrated and it is a market leader in an attractive segment, which can be seen in the favorable growth prospects. Over the past year, our focus was deliberately on cleaning up the project portfolio of KB Signaling. This led to a slight decline in revenues, but significantly improved the quality and risk profile of the business. At the same time, we reduced the cost base through targeted staffing optimization. With this groundwork completed, our focus is now firmly on profitable growth. We aim to defend and further strengthen our market leadership in the United States and to expand into markets that have adopted U.S. rail standards such as Australia and South America. In Europe, we have extended our signaling footprint through the acquisition of duagon, strengthening our electronics and system capabilities. Beyond organic growth, we also remain open to selective nonorganic investments to further expand our European activities in signaling. Overall, our objective is clear to build a global high-quality wayside signaling portfolio and to fully capture the attractive growth potential of this market. Moving please to Page 9. Let me now turn to energy, which at first glance may appear less obvious for a company noted and rooted in rail and truck braking systems. However, there are 2 very clear reasons why this field is highly relevant and interesting for Knorr-Bremse. First, energy is not new to us. For Zelisko, we have been active as a Tier 1 supplier in the European and American energy distribution market for more than 50 years. Together with Microelettrica in Milan, we already generate meaningful revenues in this segment today and the business is both growing and highly profitable. Second, the European energy market is currently undergoing profound changes. Investments in grid modernization, intelligent power distribution and network management are increasing and demand for smart reliable solutions is high. Given our long-term standing, customer relationships and technical expertise; we see a clear opportunity to benefit from this development. Currently, we are screening this market globally and are interested in opportunistic moves. We are responding to increasing demand and concrete requests from our existing customers in the areas we are already in. Our approach is, therefore, deliberate and disciplined. We intend to expand our positioning in energy technologies step-by-step through organic investments and being open to selective M&A opportunities, always fully aligned with our strict financial guardrails. In this way, energy represents a value-accretive extension of our portfolio by reducing cyclicality and cyclical dependency and support sustainable margin accretive growth over time. Our CVS service platform addresses the truck aftermarket for primarily digital solutions, a segment that is structurally outgrowing the OE market and offers a more attractive margin profile. We call it the truck aftermarket ecosystem. We are already well positioned with Cojali providing a strong base in diagnostics, data and workshop solutions. Cojali generates annual revenues of more than EUR 130 million with a very, very attractive EBIT margin. We are now accelerating our expansion in truck services with TRAVIS at the core of the CVS service platform. We are bundling services that are essential for fleet operators, but which are not part of their core transportation businesses. Over time this will include services such as repair, parking, charging enabled by TRAVIS as an asset-light data-driven platform. Together with TRAVIS [indiscernible], we are at the start of being a digital solution partner in the truck aftermarket, strengthening the CVS ecosystem and expanding Cojali's opportunities. Overall, this is a strong strategic fit for our Truck Division; high growth, attractive margin, asset light, scalability and a higher share of revenues less depending on cycles. And this is exactly what BOOST Greenfield stands for: building new growth platforms in structurally attractive markets that enhance the quality, resilience and growth profile of Knorr-Bremse's portfolio. 2025 was a good year for Knorr-Bremse. Let me briefly highlight the key points. In Rail, we secured several important contracts. Siemens Mobility awarded us an order covering braking systems and for the first time a coupling system for 90 lightweight trains for the Munich SVA. In China, we contributed to growth with CRRC, supplying equipment for more than 1,000 metro cars in major cities as well as technologies for around 150 trains complemented by export orders, including braking systems for over 100 locomotives for Kazakhstan. We also entered India first high-speed rail project for an equipment initially with BEML initially equipping 2 prototype trains. Beyond that, with the opening of our new artificial intelligence center in Chennai, we are continuing our global digitalization strategy and also strengthening our presence in India. Just a few days ago, we laid the foundation stone for a new site there, which will be built over the next 1.5 years. In the future, we will bundle engineering production capacities here for both divisions together with a capacity of more than 3,500 people long term. Digitalization in rail freight was another highlight. In the U.K., we signed a long-term agreement with VTG Rail U.K. for the supply of at least 2,000 freight control sentinel wagon sets; improving safety, availability, efficiency and infrastructure use. In simple words, we make freight trains smart. We make them smart for the first time and after more than 100 years. In Truck, we extended a major contract with a leading OEM for 200,000 electronic leveling control system while continuing to expand our digital aftermarket business. The extension of Nico Lange and my personal contract are further strong signals of continuity and stability. It reflects the confidence in the leadership team together with all my colleagues, a strong collaboration across the organization and a shared commitment to long-term value creation. Together, this provides a solid foundation for Knorr-Bremse continued success and a very promising future. Deliberately leverage the benefits of artificial intelligence, we are now further advancing our AI transformation together with strong partners like Amazon Web Services. Our objective is to build a new operating model for the company over the long term powered by high-performance AI agents. This is an exciting initiative for which we are shaping the digital future of Knorr-Bremse, enabling us to become faster, more agile and more efficient. Let us now take a look at the current market situation for rail and truck as well as our market expectations for the current year. Starting with rail. The overall picture remains very robust and continues to be our least concern within the group. Underlying demand is strong across all regions supported by high order books at OEMs and our customers. There has been no material change in market fundamentals and we expect a full year book-to-bill ratio around 1 or slightly higher. In Europe, demand remains solid with passenger rail continuing to outperform freight, which is still somewhat softer. Same picture for North America where the passenger business continues to more than compensate for the still subdued freight environment. The APAC region continues to develop at a high and stable level. After good growth driven by increased ridership and pent-up demand, the Chinese rail market should normalize this year. On the other hand, we are quite convinced and we get clear indications to be part of a new rail platform in China in the future. Turning to the truck markets. The market picture overall has improved compared to 3 months ago although regional differences remain pronounced. In North America while the market is still at a low level, we are now seeing first signs of stabilization. Orders activities and customer sentiment have improved sequentially suggesting that the market may be starting to bottom out. For 2026, we expect slightly increasing demand year-over-year. That said, uncertainties remain and we continue to assume a gradual recovery rather than a sharp rebound with half year 2 expected to develop better than half year 1 in North America. The European truck production rate should continue its positive momentum seen in '25 and it should slightly grow in '26. I would now like to hand over to Frank, who will outline the preliminary financial figures for you. Frank Weber: Thanks, Marc. A big welcome also from my side. I would say let's first turn to Chart 13 to discuss the financials for the full year at first. Knorr-Bremse generated total revenues of almost EUR 8 billion, a strong figure and slightly up in organic terms. On a divisional level, RVS more than compensated for the tough truck market development especially in North America this year. From a regional point of view, Europe and APAC contributed to the organic revenue increase while North America reported a decline. The improvement in our operating EBIT margin was driven by a strong contribution from Rail supported by an attractive regional mix and good aftermarket in general. Together with our operating leverage and structural initiatives from the BOOST efficiency program, this led to a 70 basis points increase in the group operating margin to 13%. Rail achieved its midterm target ahead of schedule with 16.5% while CVS successfully fought against the very challenging truck market and achieved a resilient and stable EBIT margin of 10.4% despite the weak market situation in our stronghold North America. Order intake and backlog also achieved great results, 6% and 8% up year-over-year on organic level. These developments once more demonstrate KB's outstanding position in both markets and provide a great backbone for future growth. The very strong cash flow is again one of the major highlights of '25. We were able to generate EUR 790 million in free cash flow, a new record on operating level, which resulted in an improved cash conversion rate of 131%. Looking at these superior full year results, I would like to also thank all our colleagues, business partners and customers for their great collaboration and dedication in '25. Let's continue this year and support KB to become even stronger. Let's now focus on our balance sheet on Chart 14. A core pillar of our financial policy is and remains the fostering of our superior financial profile. This strong financial foundation has proven its value over recent years and continues to provide a high degree of flexibility. This enabled us to achieve our strategic objectives and operational needs while managing -- at the same time, managing the cycles of the market dynamics. A robust equity base continues to be a key priority for us. At year-end '25, Knorr-Bremse reported an equity of almost EUR 3.2 billion corresponding to an increase and very solid equity ratio of 36%. Our liquidity decreased to around EUR 1.7 billion solely driven by the repayment of our last year's bond maturity of EUR 750 million. Looking at the real operational effect, liquidity increased by nearly 15%. Our net debt, therefore, declined by 31% to a very healthy EUR 627 million. This was strongly driven by the repayment of the beforementioned bond translating into a strong and comfortable net debt-to-EBITDA ratio just below 0.5. As a result, KB's credit ratings of A3 and A- remain at a very solid level with stable outlooks underscoring the resilience and strength of our financial balance sheet. Let's move to Chart 15. CapEx amounted to EUR 319 million corresponding to 4.1% of revenues. In absolute terms, capital expenditures declined by EUR 30 million year-over-year. This development is fully in line with our strategy to optimize CapEx spending to a level of 4% to 5%. Net working capital in operating terms declined by EUR 85 million year-over-year with an annual reduction of more than 3 days resulting in a once again improved net working capital efficiency year-over-year. This sustained progress reflects the continued success of our collect program, delivering improvements across all key net working capital drivers, especially inventories and trade receivables. Importantly, these efficiency gains were achieved while maintaining the highest level of supply reliability for our customers, which is our clear priority. Since end of last year, we have accounted HVAC under IFRS as asset held for sale. Driven by higher EBIT and continued improvements in capital efficiency, ROCE increased by 200 basis points to 22.8%. This demonstrates disciplined asset input and utilization while simultaneously increasing our profitability in absolute terms. I would like to provide more details regarding our free cash flow on Chart 16. We improved the free cash flow sequentially last year reaching EUR 471 million in the last quarter alone. Overall, the free cash flow came in at EUR 790 million on a full year level, a new record and the best operating figure in 120 years of KB. The increase was supported by stronger EBIT generation, disciplined capital expenditures and the successful execution of our persistently lowering net working capital. As a result, we delivered broad-based improvement across all the key drivers. The cash conversion rate remained at a superb level reflecting our ability to effectively translate earnings into cash once more. In '25, it reached 131% in operating terms, which is an extraordinary figure even well above last year's level. If you include the one-off effects of around EUR 80 million for the severance packages in '25, the cash conversion rate would have even been at 138%. Let's move to Chart 17. We continued our way to strengthen KB's sustainability performance to identify efficiency potentials and increase resilience in our operations and supply chain. Our sustainability strategy continues to deliver measurable progress across all dimensions. Since 2018, we have reduced Scope 1 and 2 CO2 emissions by 79%, keeping us fully on track to achieve our 2030 climate target of 75% reduction. Despite market-driven revenue headwinds, our emission intensity has slightly improved year-over-year while self-produced renewable power increased by 41%, further strengthening our energy resilience. From both a regulatory and financial standpoint, EU taxonomy aligned revenues show a slight increase primarily driven by comparatively higher RVS business. This progress is supported by a very strong external validation, including the first allocation and impact report for our green bond, the leading ESG ratings and multiple sustainability awards we achieved. Let's turn to Chart 18 to discuss the financial highlights of the fourth quarter. Order intake was strong with almost EUR 2 billion with a strong organic growth of almost 6%, which was well supported by trucks. A book-to-bill ratio of 1 again is important and good support for our future capacity utilization. Our revenues almost amounted to EUR 2 billion with a strong organic growth of more than 6% driven by both divisions. Operating EBIT margin increased to 13.5%, which is a very strong improvement year-over-year. Both divisions contributed to this development. As already outlined, free cash flow improved to EUR 471 million and followed the typical seasonal pattern over the course of the year, which we also expect for '26. Let's take a closer look at the RVS performance on Chart 19, therefore. In terms of order intake, RVS again recorded more than EUR 1 billion, but showing a decline of 10% year-over-year which was driven by all regions except for China and needless to say, including significant FX headwinds. In quarter 4, we had expected a larger order in North America in the mid-double-digit million euro range, which was shifted into '26. Global rail demand is very strong and will continue, but sometimes as regularly mentioned, does not really fit into quarterly reporting. In general, we expect order intake in '26 to be in the range of EUR 1 billion to EUR 1.2 billion each quarter. For the year as a whole, the book-to-bill ratio should be around 1 or slightly above 1 after also consistently recording a value well above 1 in recent years. As in '25, we expect order intake to be stronger in the first half of the year than in the second half. In the fourth quarter, the book-to-bill ratio stood at 0.91. Order book at year-end with almost EUR 5.6 billion came close to our existing record level. Organically, the backlog grew by around 9% year-over-year. This high order backlog underpins strong visibility and provides a solid basis for growth well into 2026 and beyond. Let's move to Chart 20. Quarter 4 revenues from RVS amounted to nearly EUR 1.1 billion, which is an increase of 3% year-over-year. Especially pleasing was the growth in organic terms accelerated now to more than 7%. Our aftermarket business was almost flat year-over-year with all regions except Europe showing declines. OE business on the other side grew nicely year-over-year by almost EUR 30 million. From a regional point of view, revenue growth was fueled by Europe while APAC remained stable and North America and China very slightly declined. In Europe, aftermarket business and OE sales grew nicely. North America recorded almost stable aftermarket business, but a decrease in OE business. The APAC region saw a stable development with OE overcompensating slightly lower aftermarket figures. China also saw flat OE revenues while aftermarket business slightly declined after some catch-up demand has been satisfied. Please keep in mind that we have had very strong China business in '24 and '25, which benefited from a meaningful increase in ridership. As a result, we expect that our China business could slightly normalize in '26, but still being well above our long-term expectation that we shared with you in the past. Operating EBIT margin recorded an increase of 140 basis points to 17% driven by operating leverage and our efficiency measures within BOOST. In addition, we worked off all remaining legacy projects meaning the inflation burdened order backlog. In quarter 1, normally a rather weaker market quarter due to the seasonality of aftermarket business and the impact by Chinese New Year, we expect the profitability of RVS should be slightly up year-over-year. For the full year '26, the operating margin of RVS should be only slightly below 17.5% including HVAC. Therefore, and as in '25, we expect the operating EBIT margin in the second to fourth quarter of this year to be higher than in the current quarter. Let's continue with our Truck Division on Chart 21. Order intake in CVS amounted to EUR 977 million representing an increase of around 10% year-over-year and around 20% compared to the third quarter. The very strong year-over-year organic growth of 20% was partly offset by M&A and FX headwinds. From a regional point of view, Europe was very strong and also the APAC region posted growing orders. In contrast, North America recorded significant declines due to market and FX factors. The strong development quarter-over-quarter in all regions is quite promising. Especially in North America, we feel reassured that we have seen the bottom. Nevertheless, we still expect no sharp increase in market demand from this level. Our book-to-bill reached 1.1 in the past quarter and therefore, the order book with almost EUR 1.8 billion at the end of December remains on a good level. Order intake in the current quarter should be good as well and only slightly lower quarter-over-quarter. Nevertheless, the start into '26 was very solid so far. Let's move on to Chart 22. Revenues decreased nominally by 4% to EUR 881 million. A rather good organic growth of over 5% could unfortunately not fully compensate for the headwinds driven by M&A and FX. Against the backdrop of a continuously challenging U.S. market, especially in the U.S. this development reflects a very resilient and solid operational performance by our Truck Division. Our OE business decreased by around EUR 30 million compared to the prior year. This was driven by a significant decline in North America as anticipated while Europe showed good growth and the APAC region recorded solid momentum as well. The aftermarket business, on the other hand, was overall robust and saw a more or less stable development driven by Europe and China despite FX headwinds. North America was down by 10%, but slightly up in organic terms. Turning to the bottom line. Our operating EBIT amounted to EUR 99 million in the past quarter representing a strong increase of 14% year-over-year. Consequently, the operating EBIT margin improved by 180 basis points to 11.3%. This margin expansion was driven by a quick and consistent adjustment of workforce and the continued reduction of structural cost as well as the support of our accretive aftermarket business. Looking ahead to '26, we anticipate organic revenue growth in the range of low to mid-single digit versus '25 driven by a slightly positive development of truck production rates in our major regions, Europe and North America. Based on the related operating leverage by the already lowered and continuously further optimized cost base, we expect to improve the operating EBIT margin towards 12%. We also believe that the profitability of CVS should improve step by step throughout '26. In the current quarter, we expect a slightly lower operating EBIT margin quarter-over-quarter, which will increase in the quarters ahead. With that, I hand over to Marc again. Marc Llistosella Y Bischoff: Thanks, Frank. So let's have a look at our guidance for '26 on the next page. Based on the assumptions outlined on the right side of the chart, we expect the following for full year '26. Revenues in the range of EUR 8 billion to EUR 8.3 billion, an EBIT margin of 14% and a free cash flow between EUR 750 million and EUR 850 million. We will give you an update of our new midterm targets with the publication of our quarter 2 results on the 30th of July. Ladies and gentlemen, as you can see, we continue to deliver and especially what we have told you and what we have announced. KB is well on track to all strengths and beyond. Be assured that we are setting the path for further growth and value creation. In '26, we want to enter into the next area of KB, which clearly focuses on sustainable and margin accretive growth. Thanks a lot for your attention. Looking forward to your questions. Andreas Spitzauer: We will start the Q&A session shortly. In case you would like to ask questions, please dial in via the provided telephone number. Mute the webcast and ask the question via telephone. Please limit yourself to 2 questions. All other participants can stay in this webcast in the listen-only mode. Operator: [Operator Instructions] And the first question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: Two questions, please. Maybe 1 at a time. So firstly on your growth initiatives, what makes you think that you can win in the electrification market? I mean the grid and electrification markets are characterized by well-established very large players with extensive distribution network. So what's your positioning exactly? Are you a sub-supplier for the likes of ABB and Schneider or do you compete directly against these guys? And I'm also curious to understand if your focus area is just around the grid side or whether you also see opportunities to supply data center customers as well? Marc Llistosella Y Bischoff: I think I take this. So saying about energy market, for us there's 2 vectors of potential growth. The one is that we go in the supply of components like instruments, transformers, like protection relays, circuit breakers. That's where we are very, very interested in because these are Tier 1 and Tier 2 suppliers to the Project TRS. Number two, are we aiming to get into direct competition with Schneider, Siemens or others of this size? No, that's exactly where we are not because the market has such a size, roughly EUR 480 billion, that's our definition of the market where we see absolutely a massive growth area especially when it comes to key components. These key components, some of them we have already. We have never focused on them, but we see now that there is a massive growth in our internal units already. So we see here a growth between 25% and 30%. And this is where we say there is granularity in the market currently and we see a massive potential that we can be a creator of a new market structure. That means we accept absolutely the big guys. We will not get in competition with them. Furthermore, we are more interested to be a competent partner for this kind of customers, which so far are seen in the fragmented granularity of market. This is our strategy. And number two, when we speak about the next vector, then we see also midsized projects and there we see Project TRS, which could be interesting for us. You know better than me that we have seen in the recent past someone -- some American went public and this is exactly where we are interested to step into. Gael de-Bray: Okay. And the second question is around the communication of the new midterm targets. I mean any color around this, maybe around the time horizon that you've said? Is it 2030? And I suspect we will hear from you around growth and margins, but any view on maybe the targeted net debt-to-EBITDA at this stage would be useful. Maybe a theoretical maximum debt-to-EBITDA level that you don't intend to exceed. Frank Weber: Gael, I take this one. As we outlined and Marc outlined precisely, we will shed definitely more light on that on the 30th of July. We are prepared to take it. It will be not hugely surprising for you that we are striving for more at Knorr-Bremse. I will not take any figures now in my mouth. We occasionally drop the one or the other elements of what we are pursuing going into the future. We will also not give you a 5 to 10 years midterm guidance range, but rather focus towards -- like you always knew it from us, towards the next 2, 3 years kind of. That's the way we are thinking. And as I said for some businesses, we have already here and there shared with you in the quarterly call some expectations what we can think of the businesses to achieve in the future. But let us wait for July, please. Let us first bring home all the targets that we have still at hand to be achieved. Operator: And the next question comes from Sven Weier from UBS. Sven Weier: First one is also a follow-up on the new midterm targets. I mean in a way, don't we know some of the targets already; the 19% in rail, 13.5% in trucks. Now you said this is like on a 2-, 3-year view. So is the focus then end of July more around the expected growth that you see because the margins we kind of know already? Frank Weber: We have not fully talked about CVS for example and we have, as you rightfully said, not really talked about the clear time horizon for RVS and whether the 19% will be there. Let's see, maybe it's even a bit more. So let's see what we are talking about then in July. But of course for sure, there is some further need to discuss on our strategic revenue path going into the future and how we operationalize ultimately our greenfield ideas that Marc outlined nicely regarding the business areas and we can also shed some more light on this or we will definitely shed some more light on this. So I would say you're rather right. It will be a bit more focused on the revenue side, maybe how to generate accretive growth for this company, but also the margins of course. Sven Weier: And the other question I had was just on the greenfield side. First one there being on the CVS side because obviously recently we heard a lot about the truck fleet management powered by AI, that the load of the truck fleets could be much, much better in the future. And I just wonder with the products you have there, I mean would you have any inroads into that helping the truck fleets on that end or is that not going to be your focus? Marc Llistosella Y Bischoff: Yes, it's less product in terms of hard assets, it's more services. And what now is the time is -- and this is why TRAVIS is so important because their customer leads are important. As you know, the captives are trying their best to cover the new areas. The problem with most of the fleets, they don't want to be only covered by 1 captive. They want to have a brand independent approach. And for us, this is a the chance to step in and this is where we stepped in already. We have with our PleaseFix a massive real connection to hundreds, close to thousands of independent dealerships where there is no brand dedication and which is for us very important because that's what the customer wants. So we follow the customer and they want to have a free choice of services and exactly this is where we step in. So it's more a service. It's more a transaction-based service than it is a form of asset transfer. This is the product, this is the part. This is not where we see our trade going on. What we see is that I sometimes refer to it like Amazon for trucks. It doesn't depend what you buy, it depends where you buy it. It doesn't depend what kind of service you ask for, it depends only on which platform. And the time of this platform is only one thing; size, speed, agility and services. And this is why we think it's a game of speed. The faster and the quicker you have a network connected on this platform, the more it is very hard to reach your position. So here, speed is the name of the game. This is why we were very happy with TRAVIS. It's a Dutch company as you know, very agile, very aggressive and this is what we need. And everywhere where we as Knorr-Bremse, a little bit located by ourselves in terms of an old German company, we need different ingredients of entrepreneurship. Cojali is another good example because their form of business is not brand dedicated. It's not 1 brand they serve. They serve everything what is in the market. So it's a very, very indiscriminative approach to the market, which I think and we think that's where the growth will be. That's where the margins will be. And that is we have to take the place because if we don't be quick and fast, others could be tempted to do so. So far we are in a relatively good position and we want to keep this position and we want to build it up. Sven Weier: And on the energy side, did you say that you have data center exposure or not because I didn't fully capture that on Gael's question? Marc Llistosella Y Bischoff: The data center exposure from our side is relatively limited, but we are already supplying Project TRS who are equipping data center. So what we will -- currently not in a position to give data center the full-fledged program, but what we do already is that we provide with the ingredients, with the components, with the systems which you need to give this kind of service to data center. And this market we see also absolutely not only in America, we see it also in Europe and we see it also in Asia. And as I said, currently the market of component suppliers is extremely granularized. So we have a lot of little ones, small size, midsize providers of components and that's exactly our chance. We could scale it and we will scale it. Operator: And the next question comes from Meihan Yang from Goldman Sachs. Meihan Yang: Just the first one, you mentioned there was an order shift into 2026 on the RVS side. Could you give us a bit more color on this and do you expect it to be signed in 1Q '26 or any color would be helpful. Frank Weber: I would say it's just an example of how things go usually on a regular basis in quarters. When it comes to the bigger project business of RVS, sometimes orders are outspoken or signed kind of sometimes it doesn't happen on a last-minute notice. So it's just a EUR 50 million to EUR 100 million order in North America. It's the regular thing that you would expect. It's not signaling. So it's just happening and with that, we would be pretty close to EUR 1.1 billion and that's what we wanted to indicate with this message kind of that's how things go when it comes to quarterly reporting. But it's not a spectacular kind of all of a sudden order that's coming. It's something that's pushed out from one quarter to another and that's an example. Nothing more I think to add. Meihan Yang: Got it. And on the second question, you talk about how you could expand the aftermarket services to your customers from AI. On your internal operating leverage, is there anything that you're seeing big benefits -- like for example you're doing your R&D or your software development much more quicker and do you see any benefits coming through in '26 already? Marc Llistosella Y Bischoff: I think you're on the right track when you say especially in software engineering, we can accelerate massively and this is exactly what we are going to do. You remember when I said that the output per person, the output per employee has to be improved and increased. For 22 years, the output per person in this company was stable and it was not improving in terms of output and this is exactly where we are focusing for the next 3 to 4 years. We have a clear target and that includes purchasing, that includes accounting, that includes controlling, that includes HR, that includes every form of legal and compliance. It includes every functionality, which can be seen as repetitive. 80% to 90% of the software coatings are repetitive. So we have to focus with our people, human people. We have to focus on the 10%, 15%, which are really creative. The rest has to be done by AI or I would call it by algorithms because that is not the differentiating part. So we focus on the differentiating part where we put our engineerings in and everything what is repetitive is being more and more handled by algorithms and we call it the agents. And this kind of agents when the first impact is, we are starting now. We have started already a project in accounting and controlling. We see here effects, real effects not just a vision or so, we see real effects of 30% to 40%. That means you can say 30% to 40% of more output per person or in reduced workforce. That's the call and that is why we say so far we have a very clear plan that the output per person has to reach in, I would say, visible time 300,000. And either we grow or if we don't grow, we have to shrink our workforce. With shrinking workforce, that means we have the breakeven in mind and with that, we have the personnel expenses in mind. And you know that our personnel expenses, especially in rail, they are now in a reach of EUR 1.2 billion. There we are not happy, I tell you this very clear because the output has to be improved. In truck, we are already on a much better way because we are here in the range of EUR 700 million coming from EUR 800 million. So we reduced our personnel expenses around EUR 100 million within 1 year in CVS. This is a potential where we have to leverage everywhere not only with trucks. And now the question is how do we get it? We get it by standardization of processes, we get it also by automation of processes and we get it also by using agents more and more in some areas. Operator: And the next question comes from Ben Uglow from Oxcap Analytics. Benedict Uglow: I had a couple. The first was just about the kind of qualitative view, the sentiment around the CVS outlook, particularly for North America. I guess some of the truck OEMs that have reported seem to have been a little bit more optimistic, mid- to high single-digit growth in truck production rates. What I kind of wanted to know was do you see anything fundamentally different from them or are you just being sort of naturally conservative? That was my first question. Marc Llistosella Y Bischoff: So thanks for the question. We are naturally more conservative. Why? Because you know better than me what happened in the years '21, '22. We were eventually a little bit erratic with our predictions and since that, we are more conservative and we are only claiming what we can really achieve. That's number one. Number two is for us, the best indicator for the truck American market in North America is PACCAR. PACCAR is known to be the most agile one when it comes to layoffs. It's the most agile one when it comes to production capacities. PACCAR is Champions League, absolutely Champions League when it comes to reacting to the market's ups and downs. We see that there is some upside. But I would say the results what we have in truck -- and it's just a mathematical calculation. We have managed to make in the fourth quarter 11.5% in a market which was still very sluggish. Now you can imagine what happens when the market is going up and you know also that we are generating roughly USD 1.3 billion to USD 1.5 billion in America alone with Bendix. So it's one of our biggest markets and it's one of the most profitable market. So that is for us the significant upside which we see, but we stay conservative. We say everything what we have predicted so far is based on the cost by slightly stable market size. So if the market goes up, you know exactly what that means. There's a potential and this is what we are not claiming, but we are preparing. Benedict Uglow: Understood. And then coming back, I guess we're all excited about this energy technologies business that, frankly, I certainly didn't know existed. Can you talk a little bit more about Zelisko and the production setup? I mean presumably you've got 1 large facility or something like that. Are you expanding capacity? What are you doing organically to build that business? And I guess my follow-up question is if you think about M&A in that segment, are we talking about sort of bolt-ons, i.e., EUR 50 million, EUR 100 million type transactions or are you more ambitious in your thoughts there, i.e., there are certain assets available, which are bigger. But the question is is that what you're sort of signaling or not? Marc Llistosella Y Bischoff: Ben, you're very curious, I have to admit that. Very smart questions, exactly the same questions which we have discussed for the last 7, 8 months. I try to do my best not to spoil our own story because otherwise everybody would know where we go and what we do. We are not -- I make it simple from the beginning. We are not shying away from a bigger ticket, number one. Number two, as long as we don't have the perfect big ticket in sight, we are going step by step. And as I said, the granularity of this market is very interesting and we see here a lot of opportunities of, let me say, smaller size tickets. The problem is -- not the problem. The opportunity is that with 2 or 3 assets, you can already have a very, very really good market position worldwide. So for us, it's very important to do both. We are not choosing left or right. We're not saying the big bang is the only thing what we search. We go absolutely both ways. The one is we go components for components, markets increase, market share increase wherever possible. This is permanent. This could include also smaller-sized businesses, what you said, EUR 50 million to EUR 100 million tickets. But parallel to that, we are ready and we are scaling ourselves up to have expertise in this regard so that we could imagine also a bigger ticket. So this was #3 and #2 of your question. Number one of your question was what is the current size and where are you located? We are located in Vienna, we are located in Milano and we have now a massive aggressive turn that we go to Americas with our existing business partners. That means Zelisko and Microelettrica. Zelisko is now your question is and I think it was also a little bit of a critical hint what you gave. We didn't know that it is existing. The funny thing is 3 years ago nobody took care of this business so much. It was a little bit like a bifung in Germany, to say and this company was staying very, very solid alone, but very profitable, very small with EUR 50 million. Now within exactly 2.5 years, they doubled their revenue to EUR 100 million to EUR 110 million. Their profitability is in the range of 18% to 20%. So it's a very, very promising business and the competence is also enlarged and increasing. So we have the nucleus. The same with Microelettrica. The business is doing quite, quite well. We have already organic growth areas not only for Europe, but also for America. But as we are not that patient and I think you are also not that patient, we say organic growth would take us too long. This is why we are very open for inorganic growth in this area. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: My first one goes to the Rail business and quite similar or aligned with Gael's question around energy. I mean signaling is clearly another target for your greenfield. But when we look at the signaling industry, it's typically dominated by the likes of Siemens, Alstom or Hitachi that treat signaling as the brain of the train and a core part of their expertise. So when you look at growing within that marketplace with a focus on profitability, what structural evidence is there that a component-led player can actually capture premium margins within the signaling industry? Marc Llistosella Y Bischoff: Okay. With signaling, superior margins, we stepped in. It was an occasional opportunistic step and we did it. And now, excuse me, I would love to do that. I have a list of 5 assets which we have in mind; 2 of them would be very significant, 3 of them would be additional. Of course you understand that I can't give it to you. But the second of your question -- the first was more where do you see yourselves competing with Siemens, competing with ABB, competing with others, Hitachi. Yes, you're right. This is eventually not what we want. We want to be a brand independent offerer of services and the market is really interested because before we step into the market, we always ask is there a market for us? So we ask potential customers, we ask competitors, is there an area or are we just a me-too into an existing market where you differentiate yourself with pricing or whatever. This is never going to happen with us. We are not interested in a price war. We are not interested in competing with something which is not differentiating. So we see differentiators. We see different sizes. We see sizes which eventually for the big players are insignificant because the big players are now overrun by demand and also in energy and that gives us a massive opportunity. It's a time -- a window of opportunity for the next 3 years to go. In the next 3 years this kind of games will be decided and after that, it will be very, very hard to get into. So this is why we decided in signaling and also in energy to be very quick now. We need to make our mind. We have to be very clear what is an asset which is helping us and what is an asset which eventually is not helping us at all. The profitability of these 2 markets and especially in signaling is different. We have here very, very profitable market players and we have very average market players. This is where we have to focus on the ones which we manage to improve and this is why we always refer to this accretive growth. It can be that in 1 year we excuse you. In the second year, we don't excuse you any longer. In the third year, you have to be at our level otherwise it is a wrong move to do. And before we acquire any asset and if we touch any asset, this growth and accretive EBIT margin plan has to be secured. If it's not secured, we don't touch it. It's very clear. And to your question, what is the evidence of your success? The evidence of our success is whatever we said the last 3 years happened, whatever we said happened. And the evidence in the future is never given by any evidence of the past. It is also the -- yes, you can only say it's the players and it's a probability and it's a logic. If the logic is clear, then it is very unprobable the logic will be broken. If the logic is not clear, then I'm with you, then you need evidence. Future has no evidence. It has only a track record. And our track record -- and this is why it was so important that Frank and the whole team, we have now delivered everything by the number, by the number. Remember when we came in 2023; you were shattered, you were absolutely out of trust, you were not believing anything because everything what we said was perceived as an excuse. Now for the last 3 years, we delivered every number what we have promised. Even when markets were tough in CVS last year, we delivered the double-digit number. We delivered it. We never deviated from our targeted numbers and that's exactly what we do in the future. What we have done the last 3 years will follow the next 3 to 5 years. That's what we stand for. This is what we go for and this is exactly the logic which we follow. William Mackie: My second question and there's a short follow-up relates to CVS. And when we think about the fact that the future is based -- is going to be different, you've done a lot to demonstrate the cost flexibility of the business. You've highlighted the opportunity to drive out some of the structural costs in the business and you've allocated capital to enhance the profit profile of the business as a whole. So with those structural factors in mind, how should we start to think about the through cycle ability for CVS to generate returns? Should we look at the past and think actually you could achieve more as you develop around the service activities and structurally change the mix? Frank Weber: As we have a historical meeting where more questions addressed to the CEO, he just pointed at me so I take this one. Yes, I mean very well described. So that's why we believe we have created or will be having created a cost structure in CVS towards the end of the year of '26 where the truck business can run in a rather weaker market environment on an operating margin basis of around 12% kind of. And if the markets get then overall a bit more normal than the weak situation, then they should be able to come along with close to 13% maybe. And if the markets are even good, they can come to the 13%, 14% of margin. That's what we believe in and that's, by the way, also the way how we on a daily basis kind of steer the truck business according to those kind of 3 inherent scenarios. And please keep in mind that the 13.5% we took already in our mouth some time ago when we had the expectation originally that markets could be quite nice, not strong, super strong, but quite nice and we still stick to that. This is what's possible with the truck business given that cost measurements that we have been taking over time. That's the way to think about the truck ambition going into the future depending on a certain market specification; weak, normal and good markets. That's the way we think. William Mackie: If I can ask one short follow-up related to the new business operating model. When you described the application of AI, it was with many references to indirect functions in the business. What type of direct value-creating functions such as R&D or operational performance do you see the opportunities in as you develop a new business model? Marc Llistosella Y Bischoff: So in this context, AI is not a cost cut. It's an accelerator. It's faster. It's quicker. In our case, it's relatively simple. We have here more than 6,000 engineers. These engineers are occupied with repetitive work, which from our point of view is not the most substantial added value work they could do. The more we get them liberated from this repetitive work, the more output they will generate and that's exactly where we see AI. At the current level of AI, there is where we see. I'm pretty sure you have seen what happened the last 5 days. We spoke about large language models and we spoke about Claude and we spoke about a lot. And now we see OpenClaw coming into the game, relatively cheap, relatively interesting. So it is a completely disruptive approach when it comes to AI. This we have not still incorporated. But what we do, and this is why it's so important that we go to a greenfield approach like GenAI, we let it go. We let it just try it out because one thing is for sure. If you use an algorithm for your existing business, you are limiting already the opportunities for the algorithms. If you let the algorithm do things which normally are not foreseen to be done, not only repetitive work, but eventually also generating work, accelerating work, that is something where you sometimes need a new environment and a new spirit. And this is why we have chosen Chennai because there we have absolutely -- we are ensured also that these guys and these girls who are working in there have a completely different view on it. They make it happen instead of excusing and telling us why it does not work and they will be more risk taking. So what we will not do is that in our current processes especially when it comes to safety and security relevant assets, we will not step into it directly with AI. But in terms of services, in terms of new ideas, new services and especially new applications, which eventually are not that safety relevant, we can see whether the algorithm can accelerate us and give us also new solutions. So that is where we go. We don't go full fledged now in AI and say blindly that's it. We utilize it as a tool and when the tool gets better, it has the right environment to accelerate and to leverage. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: Most of my question has been asked. Just 1 left and that is on China. Can you talk about what are you seeing in China? I think when we look at your Q4 orders, you had some growth in both of the segments. But in general when we look at for the year 2026, what have you embedded in your outlook? And particularly in rail, how do you see the business overall between high-speed and metro and services? Frank Weber: Akash, I would say nothing is rocking the boat here in very general regards to China. We still see quite better numbers than we have initially guided you with for China some kind of 2 years, 3 years ago. We should be slightly weaker maybe in absolute terms in revenues than in the year '25. That's the only thing. We see a bit of weaker metro demand. It's market driven. It's not market share driven. It's solely market driven, maybe a bit less metros in the year '26 to be built than in the year '25. So maybe even below 4,000 metros overall. So I would say a small or below EUR 50 million year-over-year reduction in China could happen, maybe EUR 30 million less next year compared to '25. So nothing spectacular, but it's 1 aspect of the business developing into '26. High speed: number of high-speed trains always a bit unclear, but we expect a similar amount, maybe 10 less also, like we had in '25; but similar amount, stable market share for us. Metros is the point maybe a bit less. That's all. Marc Llistosella Y Bischoff: There's one thing which is not based on our recent years. Eventually you know that for the last 8 years, we were excluded -- 9 years, we were excluded for the newest latest platform of high-speed trains as a system component supplier. So we lost our position from -- in 2014, '15, we were the one, the one which were equipping the high-speed trains in China. For the last 8, 9 years we were not discriminated, but we were set back. So we were excluded in the latest new forms. Since September last year, there is a massive shift that Knorr-Bremse is reconsidered to be a potential system component supplier to the Chinese CRRC in terms of high-speed trains. So that is something which it was hard work, it was very, very hard to reach that and it is an opportunity for us to compete currently with the best and that is in China for high-speed trains. And if we are perceived as a full-fledged provider of services for the high-speed train, that would be and that is exactly what we were fighting. And since September, we have indications that we are back in the game which we were out for 8 years. And that makes us very, very proud because it was hard work to get there back and there's a potential that not only for metros, you know it better than me, but also for high-speed trains, we could get back to be seriously a contender in this business. Frank Weber: No order yet, Akash. Operator: And we have 1 last question from Alexander from BofA. Unknown Analyst: Maybe I can follow up, first of all, on that last question. You talked about the exciting opportunity for the latest generation of high-speed trains. Could you give any idea of the sort of magnitude that could add to your Chinese rail business in due course if that comes through? Marc Llistosella Y Bischoff: Yes, it's more repetition than immediately in orders because when I came here on board in 2023, everybody told me the story is over and the party is over and we have a defense to make and it is like a long tail, which we have to defend. If this comes true and if we are really a contender and if we will succeed, this story is no longer valid. It's a game changer. I can't give you the numbers in terms of quantities for the next 2 or 3 years, but it would be a completely repositioning of Knorr-Bremse in the Chinese environment. And you know we have done a lot for the last 2, 3 years to be seen more and more as a contender, as a market player who takes the Chinese specifics very, very serious. And sorry to tell you and you know it; you can Google it, you can search it; more than 65% of high-speed train in the world is China. So China is the place to be and high speed is the grail of the rail industry. Everything else is very important. Nothing to say about it, but that's the grail. That's the S-Class, that's the top. And if you're out of that, if you're no longer a serious contender in these kind of tenders, then you have a reputational issue and this reputational issue of course for a world market leader as us. We want to stay not only there. We want to be back in the game. That is what we tried the last 2, 3 years. You haven't seen it in the numbers because the numbers which we have seen in rail, sorry to say, that was we were providing the services of the past and we did it well and we did it very, very well. In metro, we are very absolutely competitive. We are very good. We are good. But the grail of the rail industry is the high-speed trains in China. If there you make it, you have an excellent position for the future. Unknown Analyst: Understood. And then maybe if I can squeeze in 1 more on M&A. You've talked about it several times as a sort of key part of the greenfield strategy. Could you share a little bit about the pipeline you're seeing there and whether valuations appear acceptable? And linked to that, remind us of the sort of financial thresholds you're using to assess those deals in terms of return on capital or otherwise? Frank Weber: Yes. I mean I've told you several times that we have a very healthy balance sheet and we are not shying away from net debt-to-EBITDA ratios of 1, absolutely no issue. And if good or great market or business opportunities would come along, we could even go higher with a clear path to bring margin accretive revenues to this company and to help us profitably grow into the future. So that's definitely something we will -- we have our clear financial guardrails. We are searching basically only for businesses that fulfill those criteria. We have businesses with 14% of return on sales. Given ourselves as a hurdle rate we said should be on the cash side accretive and return on capital employed above 20%. All those 3 will be measured rightfully, as Marc said, after we have a clear plan that within at least 2, 3 years, those businesses should be able to achieve this. If there is no clear visible plan for us, recognizable, we wouldn't touch it. So that's pretty clear. I would say, a clear set of criteria. Marc Llistosella Y Bischoff: And to add on this and to finalize it, there is 1 thing and I think you're all aware of the club of the 25%. Growth and EBIT margin together has to exceed the number of 25%, capital goods. That's the Champions League. We are currently not in this Champions League. Rail is close, truck is not. And our aim is that the whole company, including truck, rail and whatever, is a significant part of this Champions League Top 25% club. That's our aim. That is not a forecast for the 30th of July. This is what we aim. This is what we want. This is where we have been in the past. We haven't been there for the last 5, 6 years, but now our aim is to get back on this Champions Club League. We will not be the top of that not at the beginning, but we have an aim. There we want to get back. Andreas Spitzauer: Okay. Thank you very much for your questions. We wish you a great springtime and happy to talk to you next time most likely in May. Thank you very much.
Operator: Thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medical Properties Trust Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Charles Lambert, Senior Vice President. Please go ahead. Charles Lambert: Thank you, and good morning. Welcome to the MPT conference call to discuss our fourth quarter and full year 2025 financial results. With me today are Edward K. Aldag, Jr., Chairman, President and Chief Executive Officer of the company; Steven Hamner, Executive Vice President and Chief Financial Officer; Kevin Hanna, Senior Vice President, Controller and Chief Accounting Officer; Rosa Williams, Senior Vice President of Operations and Secretary; and Jason Frey, Managing Director, Asset Management and Underwriting. Our press release was distributed this morning and furnished on Form 8-K with the Securities and Exchange Commission. If you did not receive a copy, it is available on our website at mpt.com in the Investor Relations section. Additionally, we're hosting a live webcast of today's call, which you can access in that same section. During the course of this call, we will make projections and certain other statements that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our financial results and future events to differ materially from those expressed in or underlying such forward-looking statements. We refer you to the company's reports filed with the Securities and Exchange Commission for a discussion of the factors that could cause the company's actual results or future events to differ materially from those expressed in this call. The information being provided today is as of this date only, and except as required by the federal securities laws, the company does not undertake a duty to update any such information. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, Medical Properties Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to our website at mpt.com for the most directly comparable financial measures and related reconciliations. I will now turn the call over to our Chief Executive Officer, Ed Aldag. Edward Aldag: Thank you, Charles, and thanks to all of you for joining us this morning on our fourth quarter 2025 earnings call. Before you hear from the rest of the team, I'll spend a few minutes discussing what we're seeing across our diverse portfolio of hospitals as well as a few recent strategic updates. Beginning with performance trends. Total portfolio EBITDARM coverage increased year-over-year to 2.6x. General acute operators delivered particularly strong performance with more than $130 million EBITDARM increase versus the same quarter last year. For the second consecutive quarter, post-acute care operators reported a $50 million EBITDARM increase year-over-year, led by a 15% improvement at Ernest Health, a 28% improvement at Vibra and an 8% increase at Median. Finally, our behavioral health portfolio was down slightly year-over-year, driven by certain volume headwinds in the U.K. market and labor cost pressures in the U.S., which Rosa will elaborate on shortly. During the quarter, we continued to take decisive steps to strengthen our portfolio. Given the strong performance of its post-acute facilities over the past few quarters, we are pleased to enter into a new 20-year master lease agreement with Vibra. We capitalized on an opportunity to acquire a high-performing post-acute facility in California for approximately $32 million with a strong cap rate. More recently, we acquired a new post-acute care facility in Europe for EUR 23 million. We also continue to identify opportunities within the portfolio to achieve attractive returns that enhance our capital allocation flexibility moving forward. To that end, we sold 6 smaller properties during the quarter. Before turning it over to Rosa, I also want to acknowledge that 2025 marked our 20th anniversary as a publicly traded company. Throughout the past 2 decades, we have been guided by the same core principles, providing hospital operators with capital solutions that allow them to focus on patient care, acquiring high-value real estate to deliver attractive returns for our shareholders and supporting the communities we serve around the world. These principles have stayed true as we've navigated periods of significant opportunities and challenges, and they continue to shape the strength of our business today. We are entering our third decade as a public company with strong conviction in our business model and a clear focus on strengthening our platform for the long term. We recently unveiled an updated brand identity, and we were able to acquire MPT as our stock ticker. Given the encouraging performance trends across the portfolio, we remain confident in reaching our goal of over $1 billion in annualized cash rent by year-end. Rosa? Rosa Hooper: Thank you, Ed. Entering 2026, I'm encouraged by the strength and steadiness we see across our global portfolio. Echoing Ed's comments, 2025 was a year in which we solidified our foundation for long-term sustainable performance. Our operators' discipline, coupled with our own structured approach to re-tenanting and portfolio positioning gives us confidence as we look ahead to 2026 and beyond. Our international portfolio today comprises 50% of our investments, and these operators continue to be a cornerstone of portfolio stability. In Germany, Median recorded its strongest quarter since entering the portfolio with quarterly EBITDARM increasing more than 20% year-over-year with occupancy at 90%. Improving reimbursement levels, growing orthopedics demand contributed to notable operational momentum that positions Median for continued strong performance in 2026. In the U.K., general acute operators such as Circle Health sustained strong performance in the face of an evolving health care landscape. As a result of NHS budget constraints impacting the behavioral health market, Priory remains focused on adjusting to shifts in referral patterns and strategically modifying service lines to meet market demand at certain of its facilities. Across Continental Europe, Swiss Medical Network reported solid year-over-year growth in hospital EBITDARM. Its new clinical collaboration with the Mayo Clinic enhances its long-term capabilities and international reputation. Additional operators such as HM Hospitales, eMDs and Atos continue to produce steady performance trends. Turning to the U.S. portfolio. Ernest Health delivered double-digit growth in EBITDARM year-over-year, supported by strong performance of their inpatient rehabilitation facilities and expansion of inpatient rehab units within LTAC facilities. Ernest also successfully refinanced their 2026 term loan and revolver in Q4, extending maturities out to 2030 and compressing the rate, a significant credit enhancement. At LifePoint Behavioral, new leadership is implementing forward-looking program enhancements that will modernize the segment, control labor costs and support a strong revenue mix throughout 2026. As Ed mentioned, we recently entered into a new master lease agreement with Vibra, who increased EBITDARM coverage 28% year-over-year in Q3, driven by strong earnings in the rehab division. Our other long-standing tenants such as Surgery Partners and pipeline continue to report healthy performance trends. Finally, our portfolio of recently transitioned tenants rent continues to ramp, and we expect them to be at 100% contractual rent by the end of 2026. During the quarter, we entered into a new 15-year lease agreement with NOR Health Systems in California, which is expected to reach stabilized annual cash rent of $45 million in December, in line with the rent previously paid by Prospect for these facilities. HSA showed measured progress in Q4 with modest improvements in collections across its markets. Upcoming supplemental receipts and the expected implementation of the MEDITECH EMR system in Q2 are anticipated to support operations and facilitate cost savings. While HSA remains focused on improving cash collections, it's important to remember that HSA will finally be fully stand-alone operationally once the EMR system is implemented. We feel comfortable with the steps underway to drive revenue cycle management enhancements. Our team continues to carefully monitor performance across these new operators. In fact, just last week, members of our team visited the NOR and HSA Miami facilities, all of which had high patient activity. It's clear that efforts to bring back doctors and improve EMS turnaround times are already having a positive impact. While the facilities are generally clean and in good condition, each operator is actively undertaking projects to modernize the properties. Taken together, the consistent performance of our international assets, the steady execution of our core U.S. operators and the ongoing ramp of our transition tenants provide us with a clear confident outlook heading into 2026. We expect 2026 to be a year of continued stabilization and increasing cash rents as our tenants capitalize on service line enhancements, reimbursement tailwinds, EMR modernization and operating efficiencies gained throughout 2025. Our global portfolio is stronger, more diversified and more resilient than it has ever been. We are confident in the long-term earnings power of these assets, and we remain steadfast in our commitment to generating stable, growing cash flows for shareholders. Kevin? James Hanna: Thank you, Rosa. Today, we reported normalized FFO of $0.18 per share for the fourth quarter and $0.58 per share for the full year 2025. As mentioned in our press release this morning, we completed a restructuring transaction with Vibra in the fourth quarter, resulting in a new master lease agreement and collection of approximately $18 million in the form of a onetime rent payment for past obligations. In October, we received a $4 million payment of September rent from HSA. As a result of these cash receipts, normalized FFO was approximately $0.03 to $0.04 higher than it otherwise would have been for the quarter. In the fourth quarter, we entered into a new lease with NOR Healthcare Systems for the 6 California properties previously leased to Prospect. NOR is contractually scheduled to begin paying partial rent in June 2026 with a ramp-up to 100% of contractual rents in December of 2026. We plan to account for their revenue on a cash basis as well. G&A expense was lower year-over-year in the quarter, primarily driven by the lower stock compensation expense due to the change in fair market value of certain performance-based equity compensation. Finally, we recorded approximately $34 million of impairment charges in the quarter, the majority of which related to Prospect. From a cash flow perspective, we received approximately $70 million of net proceeds from the Prospect bankruptcy in the quarter, with a remaining investment of $60 million expected to be collected in 2026 as the bankruptcy process nears and end. Steve? R. Hamner: Thank you, Kevin. I just have a few general comments about our financial position and outlook, and then we can take any questions. First, a general reminder of our debt maturities and our options for refinancing and deleveraging. Our nearest maturity is a EUR 500 million unsecured notes issue due in October of this year. We are paying a rate of 0.99% on these notes, and so we'll, of course, maximize the time benefit from that rate. Our bank revolver and $200 million term loan will mature in June of 2027 after our presumed extension of this facility. And then our $1.4 billion unsecured notes issue matures in October 2027. We retain numerous options for refinancing maturing debt over the next 2 years. Without belaboring those options, which we have discussed previously, they include refinancing with secured debt, additional asset sales and other transactions as the capital markets and our cost of capital continue to evolve. We are confident in these options because of our recent successes generating highly profitable sales of hospital real estate, achieving attractive terms on the $2.5 billion of secured notes we issued a year ago, the euro portion of which are now trading at premiums implying a 5-ish percent rate and the successful 10-year secured financing of our German rehab portfolio in June of last year at a similar 5-ish percent coupon. Our carefully crafted covenants have provided plenty of headroom to be able to consider each of these potential options. As Ed mentioned, we announced a $150 million share repurchase plan last quarter that we used to repurchase a little less than 1% of our market cap through the end of the year. We also invested about $60 million in 2 attractively priced and well-performing post-acute rehabilitation facilities, which we intend to add to the respective master leases of 2 important long-term tenants. While these are relatively modest acquisitions, the acute and post-acute hospital real estate market continues to offer attractive growth opportunities, both in the U.S. and Europe that we will take advantage of as our cost of capital continues to improve. And with that, I will turn the call back over to the operator to queue any questions. Regina? Operator: [Operator Instructions] Our first question will come from the line of Michael Diana with Maxim Group. Michael Diana: I'd like to talk a little about your facility recycling during the quarter. I think you mentioned you sold 6 small properties and a surprise to me anyway, bought 2 properties. So maybe you could talk about those 8 properties, but also just more in general, what your view is on the recycling. Edward Aldag: Sure, Michael. But let me first take the opportunity to thank you for picking up coverage on us and the time you spent with us to fully understand the company and our business model, and we certainly look forward to working with you. So the 6 properties that we sold were smaller properties. They were properties that were underperforming for the rest of the portfolio. We will continue to look at opportunities like that going forward. But also, we're in a position now where we can go back into the acquisition mode. We'll do it very selectively. We believe that the 2 properties that we acquired are very good investment and the opportunity for us to continue to support our existing tenants. Operator: Our next question will come from the line of John Kilichowski with Wells Fargo. William John Kilichowski: Maybe if we could just start on the Prospect sales. If you could just kind of help me source of uses. I think you gave some helpful color in the opening remarks, but maybe just to tie it all together. Could you talk about the sales proceeds from the assets that have closed, the expectations of the asset under contract and then maybe what's going to be above and beyond the DIP financing and where those proceeds will go? R. Hamner: So the only remaining transaction that's pending is the binding contract to acquire the Waterbury facility in Connecticut, and we expect that to close in this quarter. That will significantly finalize the major components of the Prospect bankruptcy. We expect proceeds that will come from that sale, along with collecting of the receivables that will probably take over the next 60 to 90 days, will fully pay the DIP financing. And as we announced previously, probably going back as many as 2 quarters, we've committed to a super secured DIP commitment that we may fund going forward that the proceeds from causes of action that is litigation that's being pursued by the litigation trust, we have first claim on those proceeds, and we remain highly confident, frankly, that the super secured DIP financing will be repaid from those proceeds. William John Kilichowski: That's helpful. And then maybe just jumping to your '26 rent target and the ramp from your legacy assets, legacy Steward assets, the $22 million that you got this quarter. I believe last quarter, we got some color on expectations looking forward. Are you able to provide any color on what you expect to receive in the first quarter of this year? R. Hamner: No, we're not yet giving guidance on quarterly or annual amounts for a couple of reasons. One is, as Kevin mentioned, we still have several fairly significant tenants that we are accounting for on the cash received basis. And so we continue to watch that rent ramp. It has ramped in accordance with the contract that we entered into with those tenants going on 18 months ago now. And I think we said in our press release this morning that virtually all of them are fully paid as we sit here today. Now I'll qualify that with the 2 very small tenants that in recent quarters, we've also called out roughly 3% of the total replacement rents are not yet paying rent. But nonetheless, and as Ed pointed out, we continue to expect through 2026, by the end of 2026, we'll be at an annualized run rate of cash collections exceeding $1 billion. Edward Aldag: And John, I think just to further answer that question with Steve is that there was one payment that HSA made for -- that was received last quarter that was for the previous quarter. Kevin went through that. The next big jump will be when NOR starts paying rent in June, I believe it is. Operator: Our next question will come from the line of Austin Wurschmidt with KeyBanc. Vikram Partap Garewal: This is Vikram Garewal on for Austin. Just one for me. Can you provide us with some additional color on the Vibra restructuring? Specifically, what was previous and what is the new cash rent expected from Vibra? R. Hamner: No, we haven't detailed that out. I'll remind you for the last couple of years, we've referred to this tenant kind of vaguely as the 1% tenant that we've been restructuring. That was consummated in the fourth quarter, and therefore, the collection of $18 million of rent that was due, although not paid pending restructuring. And going forward, Vibra is a significantly stronger tenant for us. And I'll just again reiterate based on your question that there's no impact on previous rental revenue because we haven't been recognizing it because Vibra has been on the cash basis. I don't know if that addressed your question. Edward Aldag: As a part of answering that question, Vibra refinanced all of their debt. So as Steve said, they're in a much better position today than they have previously been. A couple of their properties are actually now leased to Select Medical and rather than Vibra from our standpoint. Operator: Our next question will come from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: Sorry. I wanted to stay on the Vibra transaction. I just wanted to confirm, in the press release, it sounded like the $32 million acquisition was leased to Vibra. I mean, did you buy that from Vibra? And if so, why was that included in this transaction? Edward Aldag: We did buy it from Vibra, and it is a great facility that we feel very good about and glad to have had the opportunity to acquire. Michael Carroll: Okay. And then the cash went to Vibra for that specific deal then? R. Hamner: Correct. And also, Mike, Just to clarify a little bit, the $18 million, we've actually had on our books, a significant portion of that since this time last year when Vibra made a deposit of $20 million. And of that, about half of it we held in reserve to apply to rent. So your point is well taken. Yes, we provided proceeds by virtue of acquiring this asset. But Vibra itself has put in probably upwards of $70 million over the course of this restructuring. Edward Aldag: And Vibra actually used the proceeds from this sale to pay off debt that they had. Michael Carroll: Okay. I mean, is there -- and maybe it's just because the transaction is pretty complicated. I know that we've been talking about the 1% tenant/Vibra for it seems like the past few years now. I mean, is there a reason why it took so long to get this done? And is there anything -- and I guess -- and back to your earlier comments, Steve, you said that you weren't recognizing any rent from Vibra. So did Vibra have 0 rent payment in fourth quarter outside of that $18 million payment, so it will be additive as you go into 1Q '26? Edward Aldag: No, they were actually paying rent. This was just additional rent that they owed as well. R. Hamner: That had not previously been recognized. Edward Aldag: The first part of your question, as I said, it was a total refinancing of Vibra's balance sheet. So there were multiple parties involved. Operator: Our next question will come from the line of Mike Mueller with JPMorgan. Michael Mueller: Yes. A couple of questions. I guess on the first one, for this acquisition and the other acquisition, can you talk about pricing, I guess, the cap rates and coverages? And then for the second question, maybe just a little bit bigger picture. I know you bought some stock back in the quarter, but you also went through all the debt maturities coming due over the next couple of years. How are you thinking about today kind of buybacks versus delevering? Edward Aldag: So let me answer the first part of that, Mike. The coverage on both of these were very strong. The cap rates are also very attractive. As you know, it's not our policy -- it is our policy not to go and disclose each individuals on the various properties, but these are very strong both on the coverage and from our standpoint on the cap rate. R. Hamner: Going forward, Mike, on the balance sheet, we invested what, roughly $25 million in our own stock over the quarter, relatively modest amount. We'll continue to evaluate when it's appropriate to be in the market with the stock. We have multiple opportunities that I tried to summarize very briefly in my prepared remarks to address the upcoming maturities and have a high level of confidence that we'll have some attractive options for addressing that, obviously, beginning this year as we have the very, very low rate euro issuance coming due in October. Operator: Our next question will come from the line of Vikram Malhotra with Mizuho. Vikram Malhotra: I guess two ones. One, just bigger picture. You mentioned the acquisitions. I'm just wondering sort of as the portfolio stands today, whether it's just noncore or international, can you just talk about potential sales and give us an update on like how the buyer pool has shaped up? What sort of capital is still interested in owning hospital real estate? Edward Aldag: So Vikram, if I understood your question correctly, there still continues to be a very strong market for people interested in acquiring our properties. We get calls often. But where we are today, we are much more likely to be in an acquisition mode than a disposition mode. We'll do dispositions as we review various items and think it's appropriate for us. But we are more in an acquisition mode. Vikram Malhotra: And then I guess just on that acquisition point, just looking at the different, I guess, sub-asset classes, behavioral, leaving hospital aside, I'm wondering sort of the opportunity set when you look at post-acute and behavior. Are there any specific focus areas, any types of assets? Just -- and I'm wondering just if you look to sort of maybe -- I don't want to call it expand, but maybe shift the focus in terms of types of health care/hospital settings in terms of acquisitions? Edward Aldag: Sure. Our focus will continue to be general acute care, which it has been through the vast majority of the life of medical properties. But we will continue to look at post-acute, but that's primarily almost exclusively in the rehab sector, which we've been very strong on since the inception of the company. We're still big believers in behavioral. In the U.S., behavioral softness has not come from lack of demand, but lack of ability to have nurses and staff at each of the facilities. In the U.K., it's much more of a funding issue with NHS. If you follow the U.K., you'll know that the need is there. The desire is there. It's just more of a political funding standpoint. Still believers in both sectors, but probably the biggest acquisitions we'll make today will be in general acute care, followed by post-acute care being rehab. Operator: Our next question will come from the line of Farrell Granath with Bank of America. Farrell Granath: This is Farrell Granath. I just wanted to also dig in a little bit more on your acquisitions. Just when thinking about Europe versus the U.S., especially now that we've seen some pressures just on public pay with headlines and reimbursement rates. Does that weigh in on how you're evaluating your pipeline? Or can you give a quantifiable qualitative of how you think about your pipeline in both regions? Edward Aldag: That's a good question, Farrell. And as you know, we're roughly 50-50 now, 50% of the United States and 50% outside of the United States. Still believe that the United States has the best health care in the world, and we obviously will continue to focus here, but it is less political outside of the United States. And so we like our investments outside of the United States very strongly. We're in 9 different countries. We'll continue to invest in the countries that we're in, and we'll continue to look for expansion in places in Europe and places where we are not. We still feel very good about where health care in general is in the United States and feel very good that -- we feel very strong that there'll continue to be small ups and downs, but we don't think there'll be any big ups and downs in the reimbursement in the United States. Farrell Granath: And I guess also on that, when thinking about the people who are selling, are these in the properties that you're acquiring, are these marketed deals? Are you having reverse inquiries? Are these also just operators that you have past business with? Just curious how that pipeline is building out. Edward Aldag: Yes, it's probably 50% or slightly more of people that we've already done business with, our existing tenants or tenants that had formally been our tenants. There's still a very strong pipeline of people who know who we are, that are looking to make acquisitions and to use our type of funding for those acquisitions. I would say most of the deals that come to us outside of our existing tenants are marketed transactions. R. Hamner: Farrell, I'll just point out in addition, just a little bit, we did a pretty limited amount, $60 million in total. That's a result of actually many quarters of negotiation and exploration. So it's not just something that generates just in the quarter. We're able to be and we are being very selective. Right now, again, we still want to see our cost of capital improve. And the point I think we want to make is as that happens, there is a pretty vibrant market. The fact that we did only $60 million in 2 transactions is not indicative of the size and vibrancy of the market. We could have -- I'll put it this way, there were available many more transactions that we could have done that we evaluate. But again, we're being very selective. Operator: Our next question is a follow-up from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: I guess, Ed or Rosa, I wanted to follow up and circle back on the comments related to HSA. Can you remind us, is that operator cash flow positive today with the rent fully ramped? I know that you indicated that last quarter that their coverage was above 1 on the fully rent ramps, but obviously, it takes time for cash collections to pick up to equal that. Edward Aldag: Yes. The cash collections, as Rosa pointed out, are not where any of us would like to see them. However, if you look at this from where they came from, not just as a typical start-up, they actually started out in the whole picking up the Steward properties. We're very pleased with where they are. We obviously want them to be much better. We talked about there being able to -- in the second quarter that we believe that they'll be totally independent acquiring the MEDITECH license and all that goes along with that, taking great steps in the cash collections and we hope and feel good about their ability to do better than that. Where they are right now is still continuing to be at 1x full rent coverage. Michael Carroll: Okay. And then just last one for me. I mean, does HSA or NOR need to be -- does MPW needing to provide them working capital loans still? Or have they weaned off of those specific loans and are able to work with what they have on their own balance sheets? Edward Aldag: Yes. We have not provided any additional working capital loans for either one of those entities. We have provided HSA with funding to help them acquire the MEDITECH license and with NOR, the last fundings that we were participating in those were left over Prospect bills. Operator: And I will now turn the call back over to Ed Aldag for closing comments. Edward Aldag: Regina, thank you very much. And again, thank all of you for listening today. And as always, if you have any additional questions, please don't hesitate to reach out to us. Thank you very much. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the Travelzoo's Fourth Quarter 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions] The company would like to remind you that all statements made during this conference call and presented in the slides that are not statements of historical facts, constituted forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could vary materially from those contained in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements are described in the company's Forms 10-K and 10-Q and other SEC filings. Unless required by law, the company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Please refer to the company's website for important information, including the company's earnings press release issued earlier today. An archived recording of this conference call will be made available on the company's Investor Relations website at travelzoo.com/ir. Now it is my pleasure to turn the floor over to Travelzoo's Global CEO, Holger Bartel; its Chair, Chief Membership Officer and General Counsel and CEO of Jack's Flight Club, Christina Ciocca; and its Financial Controller, North America, Jeff Hoffman. Jeff will start with an overview. Jeff Hoffman: Thank you, operator, and welcome to those of you joining us. Today, I'm stepping in for Lijun, our Chief Accounting Officer. Please refer to the management presentation to follow along with our prepared remarks. The presentation in PDF format is available on our Investor Relations site at travelzoo.com/ir. Let's begin with Slide 4. Travelzoo's consolidated Q4 revenue was $22.5 million, up 9% from the prior year. In constant currencies, revenue was $22.1 million, up 7% from the prior year. Operating income, which we as management call operating profit, decreased as expected as we invested more in the growth of Club Members. Q4 operating profit was $0.6 million or 3% of revenue, down from $4.9 million in the prior year. Let me explain the rationale for a significant increase in marketing expenses, which lowered EPS. Slide 5 shows that investments in the acquisition of Club Members are attractive as they have a quick payback. On the left side, you will see that average acquisition cost for a full paying Club Member was $28 in Q1, $38 in Q2, $40 in Q3 and $34 in Q4. On the right side, you see that we get this money back fast. The member pays, in the U.S. in this case here, their $40 annual membership fee right away at the beginning of the membership period. Additionally, we generated $10 in revenue from transactions in the same quarter. This full payback doesn't even consider an increase in advertising revenue and future membership fees and other revenues. Now Slide 6 shows as a reminder that with subscription businesses, membership fee revenue is recognized ratably over the subscription period, whereas acquisition costs are expensed immediately when incurred. Slide 7 shows the effect. While we have a quick payback, the reported EPS is different. Higher member acquisition expenses, coupled with only a small portion of revenue recognized in the quarter reduces EPS. In the case of Q4, that effect was a reduction of approximately $0.08. As shown on Slide 8, our strategy is fueling membership growth at a rate of 180% year-to-date. New Club Members come roughly half from legacy members and half from those new to Travelzoo. On Slide 9, we break down the main categories of revenues, advertising and commerce and membership fees. Advertising and commerce revenue was $18.3 million for Q4 2025. Revenue from membership fees increased to $4.1 million. Membership fees, which are more stable and predictable, are adding revenue and are becoming a larger share. This year, we expect them to account for about -- for around 25% of revenue. On Slide 10, you can see that revenue growth came from all reporting segments. Investment in member acquisition in Europe led to a loss. G&A expenses increased primarily due to a onetime expense related to a global company meeting. Operating profit on our North America and Europe segments was lower. Operating profit on our Jack's Flight Club segment remained flat. On Slide 11, you can see that our GAAP operating margin was 2% in Q4 2025. Acquiring more Club Members has the effect of lower GAAP operating margin. Still, given the favorable ROI, our goal is to further grow the number of Club Members to accelerate Travelzoo's growth. Slide 12 shows that the investments in Club Members occur in all key markets. Over time, we expect margins to return to previous levels or even exceed them. On Slide 13, we provide information on non-GAAP operating profit as we believe it better explains how we evaluate financial performance. Q4 2025 non-GAAP operating profit was $0.9 million or 4% of revenue compared to non-GAAP operating profit of $5.4 million in the prior year period. Slide 14 provides information about the items that are excluded in the calculation of non-GAAP operating profit. Please turn to Slide 15. As of December 31, 2025, consolidated cash, cash equivalents and restricted cash was $10.8 million. Cash flow from operations was $1.5 million. Our cash balance increased accordingly. Now looking ahead, for Q1 2026, we expect year-over-year growth to continue. We expect continued revenue growth in subsequent quarters as membership fees revenue is recognized ratably over the subscription period of 12 months. As we acquire new members, as more legacy members become Club Members. Over time, we expect profitability to increase as recurring membership fees revenue will be recognized. In the short term, fluctuations in reported net income are possible. We might see attractive opportunities to increase marketing, and we expense marketing costs immediately. Now I turn the discussion over to Holger. Holger Bartel: Thank you, Jeff. We will continue to leverage Travelzoo's global reach, our trusted brand and the strong relationships with top travel suppliers to negotiate more Club Offers for Club Members. Travelzoo members are affluent, active and open to new experiences. We inspire travel enthusiasts to travel to places they never imagined they could. Travelzoo is the must-have membership for those who love to travel as much as we do. Please turn to Slide 17. Membership empowers travelers to live the life of a modern travel enthusiast to the fullest while respecting different cultures. Membership provides access to high-quality and highly-valuable Club Offers. Our global team negotiates and vets them rigorously. These offers cannot be found anywhere else. Membership also provides complimentary access to airport lounges worldwide in case of flight delays. And we just launched in partnership with Allianz, the first Travel Enthusiast Hotline, providing 24/7 complimentary assistance wherever Club Members travel. Culinary Journeys created for the travel enthusiasts are coming soon. Slide 18 shows a few of the many exclusive Club Offers that we created for Club Members during Q4. Our members love luxurious trips. So on the left side, we had a Bali 5-star Jungle Spa Retreat for 2 people at an amazing price of $499. Below, Costa Rica 5-star new resort with an upgrade for Travelzoo members to an Ocean View room. A $499 Portugal trip that includes round-trip flights from the U.S. or in London, a Top West End Show with dinner for GBP 75 per person. Slide 19 shows the worldwide complimentary launch access in case of flight delays. It's perfect for the travel enthusiasts. Slide 20 then provides information about Travelzoo members. As you see Travelzoo is loved by travel enthusiasts who are affluent, active and open to new experiences. On Slide 22, we provide an overview of our management focus. We are working to grow the number of paying members and accelerate revenue growth by converting legacy members and adding new Club Members, retain and grow our profitable advertising business from the popular top 20 product, accelerate revenue growth, which drives future profits in spite of temporary lower EPS, grow Jack's Flight Club's profitable subscription revenue and developed Travelzoo META with discipline. Now Christina will provide an update on Travelzoo META and Jack's Flight Club. Christina Ciocca: We are excited to announce that we now expect the first Travelzoo META experiences to become available in Q2 2026. We are planning to incorporate access to Travelzoo META as a benefit of Travelzoo Club Membership. Through Jack's Flight Club, we focused in Q4 on profitability, while acquiring sufficient premium subscribers to offset attrition. This was due to other investment priorities. I'm now handing over to the operator for questions for Jeff, Holger and me. Operator: [Operator Instructions] We will take our first question from Michael Kupinski with NOBLE Capital Markets. Michael Kupinski: Just a couple of questions on the revenues, particularly on the advertising and commerce, it decreased sequentially, and I was wondering if you can add some color on the reasons that, that was down. And then on membership fees, that increased only $0.5 million from the previous quarter, and that was a slowing of the cadence as well, which was 20% from the previous quarter. So just on the revenue trend. So if you could just add some color both on the membership fees as well as the advertising and commerce as well. Holger Bartel: Yes, you are right. Revenue from advertising and commerce was a bit soft in Q4. So far, we see that softness to continue a bit more into Q1 as well. Really no specific reason that we can point out. We've been focused very much on membership and adding new members. And it's as I said, no -- really no specific reason I can point out why it was a little bit soft. And then membership fees, I think it's probably mostly a rounding issue the change from Q3 to -- Q2 to Q3, Q3 to Q4 was really not that substantial. We expect that to increase, that quarterly revenue increase. We expect that to increase in 2026 as we are looking to spend more on member acquisition this year than in 2025 as long as we can maintain and achieve the positive return and quick payback that Jeff was talking about. Michael Kupinski: And if I can slip one in. G&A was a little higher than expected. Anything extraordinary in those numbers? Holger Bartel: I think Jeff mentioned it, we had a one-time expense related to a global company meeting that we held in Q4. So it's not a permanent increase. It's just a temporary increase in Q4. Operator: Your next question comes from the line of Patrick Sholl with Barrington Research. Patrick Sholl: Kind of just your comments around profitability and marketing expense. So I think marketing expenses were up like 30% just full year. Do you kind of see that as like the peak level or like that you'd be able to leverage additional growth off of? Or do you kind of see that continuing to move higher? And I guess, can you maybe sort of like reconcile the comments on the payback with like the lower operating cash flow for basically each quarter in 2025 year-over-year? Holger Bartel: As I mentioned, as long as we can maintain a good return and the quick payback that Jeff was talking about, we would increase member acquisition in 2026. So we are planning to increase it over 2025. And as we've now explained for a few quarters, that in the short term always impacts EPS. However, as we move throughout 2026, and we have now recurring revenue coming in for members that are renewing after the first year of membership. And for these members, we don't have to spend anything on member acquisition. They are simply renewing their membership. So that revenue will increase without expenses related to that. So that will, over time, improve EPS. But as we said, cautiously in the last few earnings statements, we do not know in advance what the opportunities for member acquisition are. If we really see good opportunities, we might spend very aggressively, and that will certainly impact EPS in the short term as it has in Q3 and Q4. Patrick Sholl: Okay. And then just could you maybe talk a little bit about churn within that initial member cohort and how you're expecting that to go with the members that you added through 2025. I guess like the thing that kind of kicks that one off is just like the decline in the deferred revenue balance in the quarter. Holger Bartel: It's too early to judge that because as you saw from that slide that showed the growth of Club Members, most Club Members joined in the first quarter of 2025. Their renewal is coming up now. So it's a bit too early to comment on that. As you also see, we are adding new benefits for our club members, and we hear that they are very much appreciated by the members, and that will lock these members in over a longer period of time even if they don't necessarily find a specific offer that they would like to buy in a certain quarter at a certain time. Operator: Your next question comes from the line of Steve Silver with Argus Research. Steven Silver: Holger, the slides early on mentioned the potential for additional advertising revenue from membership fees and -- or the membership revenues affecting potential advertising revenues from advertising, just curious as to where you think the member base -- the paid member base needs to be in order to reach a critical mass in terms of having an impact on that incremental advertising revenue. Holger Bartel: Well, as we are adding new members, we are also -- this also allows us to increase or maintain our advertising rates. So that's -- I don't think there's a specific point where we can say it makes a huge -- it makes a big difference. So as we are growing, it allows us to also maintain and then improve our advertising business. But as I said, we are really looking to drive members' membership and the growth of members in 2026 more aggressively because that revenue, which currently is around $4 million, as you saw, that revenue is recurring, very stable revenue while advertising and commerce revenues are always a bit contingent on the situation of how many offers we can source, what these offers are, if they are good or very good and the appetite of our advertisers. So that's less controllable while membership revenue is recurring, stable, and that's why we decided 2 years ago to move to a model of a subscription, a paid subscription and created Travelzoo Club. Steven Silver: That's helpful. Great. And one more, if I may. Can you just discuss a little bit about the underlying trends that led to the lower cost of new customer acquisition in Q4. I know you've mentioned seeing -- or taking advantage of opportunities as they arise, maybe being a little more aggressive in some periods versus others. But can you just talk a little bit about the underlying trends between Q3 and Q4 that led to the lower cost per acquired member? Holger Bartel: Christina is overseeing this. So she will respond to this question, Steve. Christina Ciocca: Sure. So I think it's a combination of factors. So hard to pinpoint exactly what drove the lower cost per acquisition. But in general, actually Q4, we tend to see more difficult cost per acquisitions with certain channels like META and Google, but we were able to manage that with kind of optimization that we made through the user experience. We had member days in Q4 that helped to drive the lower CPAs and we were kind of cautious with spending as efficiently as possible. So I think that resulted in a lower CPA in Q4 as compared to Q3. Holger Bartel: It's contingent, though, Steve, on how much we invest in member acquisition. If we scale it as we are planning to do now in 2026, that normally makes CPAs go up a little bit. But from that slide, you see that we were still under the threshold of where we could spend because $34 and then we get $40 back from the membership fee and we get additional revenue from these members, we could have spent more in Q4. And so our plan is going forward to get a little bit closer to that threshold. And so having said that, CPA on the one hand, as Christina explained, CPA, we have a positive impact on CPA through learning how to do things better. On the other hand, CPA will go up if we spend more. But as long as we are staying within that quick payback, we feel comfortable that we can maintain that. Someone mentioned earlier a question about cash, maybe it was Pat or Michael. As you see, our operating cash flow in Q4 was positive. In general, member acquisition as long as we can maintain the numbers that we showed on this earlier slide, we are able to finance that member acquisition through the cash we are generating because the member has to pay their 12-month membership fee at the beginning of the membership. So that brings in this $40 and if we can acquire them below $40, the impact on our cash situation is basically neutral. Operator: Your next question comes from the line of Ed Woo with Ascendant Capital. Edward Woo: My question is, what are you seeing out there in terms of the industry travel outlook for this year 2026? Holger Bartel: I think in travel, we see a little bit the same as what people are seeing in the U.S. economy that it's diverging on the one hand, luxury travel is absolutely booming. In fact, you might have also read that hotel rates at 5-star properties around the world have reached the highest ever and the increase from 2024 to 2025 was also quite strong. While on the other hand, lower-end travel, cheaper travel is more challenging. However, you saw from the demographic that our members are generally more on the upper end. They are higher income. They can spend. They have the money to stay at 5-star properties and maybe that's also what was the -- what was explaining a bit the softness in Q4 and now the softness in Q1 in advertising and commerce, it is challenging. It's a bit challenging right now to get really very aggressive offers from luxury properties. But I think that the supplier on these properties is increasing. There's many, many new hotels operating -- sorry, opening all around the globe and they need to fill their beds. We feel that, that will become better going forward. But that trend is similar to what I think we are seeing in the U.S. economy in general. Edward Woo: Great. And this is the same trend you're seeing in Europe and Asia? Holger Bartel: Yes. There's no big difference between the market. More pronounced in the U.S., I would say, just let me add that, yes, but the trend is the same, but it's a bit more pronounced in the U.S. Operator: Your next question comes from the line of Theodore O'Neill with Litchfield Hills Research. Please go ahead. Theodore O'Neill: Holger, the new annual fees for 2026 are $50 per member and it looks like. And so existing members, will they -- who are paying $40, do they now pay $50? Or does that apply -- the $50 applies to new members only? Holger Bartel: Good catch, Theo. Yes, I was talking about $40 because we were speaking about Q4. In the U.S., we increased the membership fee to $50, correct. We did not increase it in other markets. We increased it on January 1, but then we gave existing members an opportunity to renew at the old rate of $40 before the end of January. But anyone who didn't take advantage of the opportunity has to pay the $50 now going forward, whether that's someone new to Travelzoo or whether that is anyone who is renewing their membership that expires after February 1. Theodore O'Neill: Okay. And on the balance sheet, accounts receivable dropped. So it looks like your DSOs went up. Is that a happy coincidence? Or was there an active plan to try to bring receivables down? Holger Bartel: I'm happy -- I was happy to see that our team is doing a better job collecting receivables. Jeff, do you have any more insight on that part of the balance sheet? Jeff Hoffman: No, I would say that more aggressive outreach with our clients to ensure that we're getting paid on a timely basis is consistent with prior quarters. I think it was most likely a happy coincidence. Operator: This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Holger Bartel for closing remarks. Holger Bartel: Yes. Dear investors, thank you so much for your time and support. We look forward to speaking with you again next quarter. Have a great day. Operator: This concludes today's Travelzoo's Fourth Quarter 2025 Earnings Call and webcast. You may disconnect your lines at this time, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Jericho, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Taseko Mines 2025 Q4 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Brian Bergot, Vice President of Investor Relations. Please go ahead. Brian Bergot: Thank you, Jericho. Welcome, everyone, and thank you for joining Taseko's 2025 Fourth Quarter and Annual Results Conference Call. The news release and regulatory filing announcing our annual financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com and on SEDAR+. I am joined today in Vancouver by Taseko's President and CEO, Stuart McDonald; Taseko's Chief Financial Officer, Bryce Hamming; and our COO, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. As such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our fourth quarter MD&A and the related news release as well as the risk factors particular to our company. These documents can be found on our website and also on SEDAR+. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. And finally, all dollar amounts we will discuss today are in Canadian dollars unless otherwise specified. Following opening remarks, we'll open the phone lines to analysts and investors for questions. I'll now turn the call over to Stuart for his remarks. Stuart McDonald: Great. Okay. Thanks, Brian, and good morning, everyone. Thanks for joining our call today to discuss our fourth quarter and 2025 annual results, which were released yesterday. As usual, I'll start by providing some comments and additional detail on the operational aspects of our business, and then Bryce will review the recent financial performance. So I'm going to jump straight to the exciting news that we announced yesterday. Florence Copper is now producing copper as of just a few days ago when we turned on the electrowinning circuit. Copper is now being plated, and we're just a few days away from harvesting the first cathodes. This is a great achievement for everyone at Taseko and especially the construction and operating teams at Florence. As we've talked about, wellfield operations commenced in the fourth quarter, so we've actually had solutions flowing in the commercial wellfield for about 3 months now. Initial results from the wellfield have been very positive as we've been able to achieve higher injection flow rates than expected in these first few months. As a result of those higher flows, the acidification of the ore body has been faster than planned and the grade of copper recovered in solution or PLS has actually ramped up faster than expected. So it's still early days, but the initial leaching results have been quite positive. And actually, our PLS grade was high enough to begin copper production several weeks ago, but the commissioning of the SX/EW plant took a few weeks longer than planned. We're expecting Florence to produce approximately 30 million to 35 million pounds of copper this year. And by the time we report first quarter earnings, we'll be in a good position to provide some operating metrics in terms of flow rates, PLS grade and production from the initial wells. A key factor in the ramp-up will be our ability to expand the wellfield and bring on new wells through the year. Drilling resumed in the fourth quarter, and there are now 3 drill rigs running. It's taken some time for the new drilling crews to get ramped up. We have a fourth drill rig being added in the next week or so and expect to see improved drilling productivity going forward. Before we turn to Gibraltar, I'd like to start by commenting that safety is a core value at Taseko. Nothing is more important than ensuring that the people who work at our operations go home each day the same way they arrived. In November, a tragic accident occurred at Gibraltar that resulted in the death of a contract worker. We're deeply saddened by the loss of a colleague and again, offer our condolences to the coworkers, friends and family of the individual. Findings from that incident are in the process of being reviewed with employees on site. In terms of production at Gibraltar, in the fourth quarter, we saw copper head grades increase to 0.26% and recoveries of 81%, which led to 31 million pounds of copper production. So it was a strong production quarter. The higher grades and recoveries were slightly offset by throughput, which was about 8% under design capacity for the period due to unscheduled mill downtime. Molybdenum production was 800,000 pounds and also benefited from higher grades and recoveries. Copper and moly production for the quarter was the highest level of 2025 as we expected it would be. And for molybdenum, it was actually the best production quarter in the history of the mine. With higher production, our total operating costs dropped to USD 2.47 per pound in Q4. For the year, Gibraltar produced a total of 98 million pounds of copper and 1.9 million pounds of molybdenum at a cost of $2.66 per pound. Production was heavily weighted to the second half of the year as we mine deeper into the connector pit to access higher grades and better ore quality in the third and fourth quarters. Looking ahead to 2026, mining operations are much better situated in the Connector pit, so we expect higher annual production and much less quarterly variability than last year. We are, however, taking a more conservative view on copper grades due to the impact of small higher-grade zones that have not been realized through our mining so far in the Connector pit. Over the last 18 months, we've also encountered more oxide and supergene and transitionary ore in the Connector pit than we originally expected. The oxide ore has been stacked on leach pads and would be processed through the Gibraltar SX/EW plant. But the supergene ore goes through the concentrator with lower recoveries. For 2026, we're expecting average recoveries between 75% to 80%. And that's really a similar level to what we saw in the second half of 2025. Taking all of this into account, we're expecting Gibraltar to produce 110 million to 115 million pounds of copper this year. And given that the Connector pit will be the primary source of ore for the next 3 years, we expect annual production will remain in the same range, plus or minus 5% through the end of 2028. With copper prices now roughly 25% higher than last year's average price, we are well positioned to benefit from our copper price leverage supported by higher production from Gibraltar and production growth at Florence. Tight supply due to global mine disruptions, combined with strong demand from traditional end users and new demand from AI data centers and grid modernization all support continued strong copper prices. So Taseko is very well positioned for cash flow growth in the future. We also have significant long-term optionality and value in our other projects. And in 2025, we achieved some significant milestones at both Yellowhead and New Prosperity. The new technical report from Yellowhead confirms strong economics, and we will continue to advance the project towards an ultimate construction decision and begin unlocking the net present value. And talking about leverage to copper, that NPV also benefits from a strong copper price environment. When we published our report in June, we used a price of $4.25 per pound, which gave us a $2 billion NPV. At today's pricing, that's more like $4 billion after-tax NPV or even higher. So the project is getting a lot of attention from potential partners. And when you consider the lack of large-scale open pit copper projects in North America that can be brought online in this time frame, these opportunities are very rare. So it's a great asset, I think, for the company going forward. Permitting efforts are very active, and we continue to engage with the local communities and open houses in recent months with no major issues arising so far. Our Yellowhead project team is also preparing the detailed project description that will be filed later this year. So 2026 promises to be another busy and productive year on many fronts. And with that, I'll turn the call over to Bryce for some commentary on the financials. Bryce Hamming: Thank you, Stuart, and again, welcome, everyone. I'll give some further color on some financial details before we get into any questions. Total copper sales for the fourth quarter were 32 million pounds, including 800,000 pounds of cathode from Gibraltar's SX/EW facility at an average realized price of $5.13 per pound. Including $25 million of revenue from moly, we generated revenue of $244 million in the quarter. For the year, revenues of $673 million were recorded for the sale of 99 million pounds of copper and 1.9 million pounds of moly. The average realized copper price in 2025 was robust at USD 4.61 per pound, and we benefited from a generally weaker Canadian dollar. Both quarterly and annual revenue are the highest Taseko has ever recorded now that we own 100% of it. For the quarter, we recorded net income of $4.5 million or $0.01 per share. And on an adjusted basis, after removing unrealized marks on our liabilities, which are tied to the higher copper price and other unrealized items, it was $42 million or $0.11 per share of adjusted earnings. Adjusted EBITDA in the fourth quarter was $116 million as compared to $56 million in the same quarter in 2024 and $62 million in Q3. For the year, adjusted EBITDA was $230 million, slightly higher than the prior year. So production in Q4 contributed to half of our annual earnings. Also for the quarter, cash flow from operations was $101 million, which was significantly higher than previous quarters, with Gibraltar contributing free cash flow of $72 million. For the year, $220 million of cash flow from operations was generated from Gibraltar. Overall, financial performance was strong and definitely benefited from the higher copper pricing in the second half of the year with improved production and sales levels. I will remind everyone that we do have copper price collars in place that we put in place to support our Florence copper project development and project finance. It has a ceiling price of $5.40 per pound until the end of June, which had a mark at year-end of $22 million. For Q3 of 2026, we have added copper price collars that have secured a minimum price of $4.75 per pound for 8 million pounds per month in the third quarter, and that have much higher ceiling prices of $7.50 and $8.50 per pound. As we move beyond the ramp-up of Florence, we do plan to revert to our longer-term strategy of just buying copper put options over shorter-term time horizons and leaving the entire upside to copper price open with 2 mines running. Now on to Florence, where things have been going very well, as Stuart mentioned, we completed the capital project in the fourth quarter. Capital spending decreased dramatically from prior quarters to just USD 8 million in the quarter as construction activity started winding down. Final capital costs for the commercial facility were USD 275 million, which was approximately 3% over the revised budget from early 2024 when we started construction. In the fourth quarter, $60 million of site operating costs and commissioning costs were capitalized for Florence. With cathode production now underway, we will begin expensing operating costs, which to date have been capitalized significantly still in the first quarter. We ended the year with a cash balance of $188 million plus our undrawn revolving credit facility for USD 110 million. So that brings our total liquidity to a very strong $340 million. With strong cash flows expected from Gibraltar in 2026 and the development capital spending behind us at Florence, our balance sheet will improve throughout the year in the current copper price environment. As Florence Copper begins to provide cash flow as the second operating mine, our credit rating will naturally re-rate, and we will prioritize delevering the balance sheet with our excess cash later this year. And with that, operator, I'll open the lines for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Ernad Sijercic from TD Securities. Ernad Sijercic: Congratulations guys on Florence. Just a quick question here. What should we expect for CapEx and stripping this year? Bryce Hamming: It's Bryce. Yes, I think with respect to CapEx, last year, we had $80 million of capitalized strip and we'll have slightly less this year as we're kind of in -- we're past some of the heavier strip sequences of Gibraltar. So we'll see that come down to some extent. I think we have on the sustaining CapEx side as well, the main thing is some additional tailings work that we're going to do this year, but that should also be contained. So nothing really unusual compared to some of the capital projects that we've had in prior years like the crusher move and so forth. Ernad Sijercic: Great. And just one follow-up. How should we think about grade and throughput this year as it relates to your guidance? Stuart McDonald: Well, I think -- I mean, I think throughput, we're always expecting to achieve something in the range of design capacity, which is 85,000 tonnes a day, just over 30 million tonnes for the year. That's always the goal. And I think we've been successful. I think last year, we achieved that. Grade, as I noted in my remarks, I think the reserve grade in the Connector pit is 0.25. But what we've actually seen is the impact to some -- of that reserve grade being skewed a little bit by some smaller high-grade zones. So we're being a little more conservative now in our expectations and expecting something potentially 5% to 10% lower than that. So yes, that's generally how we get to the guidance figures. Operator: Our next question comes from Dalton Baretto from Canaccord Genuity. Dalton Baretto: Congratulations on Florence. And maybe I'll start there. Stuart, as you're thinking about the ramp-up on a go-forward basis now, is -- how do you think about some of the risks? What are you keeping your eye on? Is it purely a function of wellfield expansion? Are you sort of concerned around homogeneity of the ore body? What are you keeping an eye on? Stuart McDonald: Yes. I think -- I mean, obviously, we're very pleased with the initial leaching results, right, and our ability to solidify new sections of the wellfield, get our PLS grade up. Obviously, we still have a lot of work to do to stabilize the whole process from wellfield through to actually plating the copper. So it's still very much a ramp-up, but early days, but so far, so good. One thing I would say on the ramp-up, as you noted, is definitely the drilling. We do need to add new wells. And in our mining plan, we plan to add 80 to 100 new wells essentially every year for the next decade or longer. So that's normal course, going to be normal course at Florence, and that's an important part of the ramp-up. So, yes, I don't know, Richard, if you have any comments. Richard Tremblay: Yes. No, that is exactly, Stuart. Really, the thing we're watching closely is just the drilling performance and how the drilling is moving forward to bring on the new wells that we know we need as the production profile increases. Dalton Baretto: That's great, guys. And then maybe switching gears to Gibraltar. Can you talk a little bit about some of these issues you're seeing at the Connector pit? I mean what happened? Why aren't you picking up some of those higher-grade zones? And maybe why some of the higher oxide and supergene material was maybe missed in the reserve? Richard Tremblay: Yes. I think the easiest way to explain the high-grade zone is there's very high -- there's a kind of isolated drill hole -- exploration drill hole results that are skewing the geological model, and we're in the process of kind of going through and I guess, reinterpreting those drill holes. And in turn, it's going to downgrade the grade that we're encountering because we've mined through a few of those areas and not realized the grade that we expected. So we know those, I would describe as ultra-high grade pockets that are in the model need to be adjusted, which we're in the process of doing, and that's why we provided the guidance we did today. Dalton Baretto: And what about on the supergene and oxide material? It sounds like you're seeing more of it than you anticipated. Richard Tremblay: Yes. The oxide has been a positive that's allowed us to go to the oxide dumps and will actually allow us to run the SX/EW plant longer than was originally envisioned. So it's actually a good case scenario from an overall cathode production perspective. The supergene hypogene kind of transition zone is there's interpretations of where that is. And in some places, we've seen it not be properly reflected where the supergene actually is more than we have in the model. And those things are -- we just need to adjust it to reflect the reality of what we're seeing. Dalton Baretto: Got it. And if I could just squeeze in another one here just on the portfolio. I mean, in this environment, clearly, Yellowhead and Prosperity are very valuable assets and niobium looks like it's going to have its day in the sun as well. Stuart, how are you thinking about next steps for each of those? Stuart McDonald: Well, Yellowhead is very much a permitting project now. We've got a lot of work underway. We have a big -- good solid team in place that's working closely with the regulators and with the community. We've got solid relationships, I think, there. I think in the coming -- over the next year or 2, I think we're going to probably advance some discussions with potential JV partners there. There's a lot of interest, as you would expect in this copper price market. And as I mentioned in my remarks, this is a pretty unique opportunity with a large-scale open pit greenfield project in North America. There are very few of these out there that could be brought on in the next 5 years, 4 to 5 years. So that's heading on a path, I think, on a good path to realize value. New Prosperity, obviously, the big news last year, we signed our agreement with the Tsilhqot'in Nation in BC. I think generally, look, we all know that is an incredibly valuable deposit. But to really unlock it and move forward, we need the consent of the Tsilhqot'in Nation, and that was clarified, obviously in our agreement last summer. So we're allowing their land use planning process to move forward, and we'll be patient and respect that process, obviously still in the future. Yes. And then niobium, you mentioned, it's obviously one that's a little bit off the radar perhaps for some of our investors, but it's a very large open pitable niobium deposit in Northern BC. It's one of the largest undeveloped niobium deposits in the world. And we continue to work on that in the background. We don't talk a lot about it, but we do have a strong technical team that is pushing forward on and doing some very good work. And we're also expanding our work and looking for potential offtake partners and partners to help us develop that project. So lots happening there. Yes, so it's good. We've got -- I think one thing about our company. We've got obviously immediate growth with Florence, but we've got a lot of longer-term options as well in our portfolio. So pretty exciting, we think. Operator: [Operator Instructions] There are no further questions at this time. That concludes the question-and-answer session. I would like to turn the call back over to the Taseko management for closing remarks. Stuart McDonald: Great. Okay. Well, thanks again, everyone, for joining. Yes, we will continue to keep you updated as the Florence ramp-up progresses and obviously look forward to talking again next quarter. Thanks. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good day. and welcome to the UL Solutions Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Yijing Brentano. Please go ahead. Yijing Brentano: Thank you. Welcome, everyone, to our fourth quarter and full year 2025 earnings call. Joining me today are Jennifer Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com. Our earnings release is also available on the website. I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements about UL Solutions results of operations and estimates and prospects that involve substantial risks, uncertainties and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements. Please see the disclosure statement on Slide 2 of the earnings presentation, as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2025. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law. Today's presentation also includes references to non-GAAP financial measures. A reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation. With that, I would now like to turn the call over to Jenny. Jennifer Scanlon: Thank you, and good morning, everyone, and thanks for joining us. I'm delighted to report that UL Solutions concluded a record year with outstanding performance that exceeded our guidance. What makes our results particularly impressive is that we achieved them while navigating trade policy shifts and geopolitical uncertainties throughout 2025. Our resilience is evident. We've once again delivered robust organic growth, enhanced profitability and strong cash flow generation while maintaining our investment-grade balance sheet. Our performance is a testament to the durability of our business model, the essential nature of our services and the strength of our team. I'm particularly pleased that our global product TI strategy continues to deliver balanced performance across segments, service offerings and regions. Our strategic alignment with major industry megatrends is resonating with customers. This demonstrates the critical role we play in their success, helping them innovate with confidence while accelerating their path to global market entry. The sustained demand for our services underscores the fundamental value proposition we deliver to our customers worldwide. On the call today, I will cover 3 areas: First, highlights of our strong full year performance; second, some notable achievements and activities throughout 2025; and third, our financial position and capital allocation strategy for 2026. With respect to our full year performance, our delivery of superior results reflects our team's consistent ability to execute. I want to express my deep appreciation to our employees whose dedication to our mission of working for a safer world, scientific excellence and customer centricity defines our culture and is fundamental to our long-term success. Ryan will dive into the fourth quarter numbers, but first, let me hit the high notes of our full year 2025 results. We continue to fuel the momentum that began when we became a public company almost 2 years ago, delivering revenues of nearly $3.1 billion, up 6.4% versus 2024 and up 6.2% on an organic basis. Our Industrial segment led the way with 6.9% full year growth, including 7.1% on an organic basis, while our Consumer segment grew 6.5%, including 6.1% on an organic basis. Our Software & Advisory segment completed the year with 4% top line growth, including 3.7% on an organic basis. Our full year results once again reflected growth across all major geographic regions. Adjusted EBITDA for the full year grew 20.7% and adjusted EBITDA margin expanded by 300 basis points to 25.9%. We significantly exceeded our original long-term goal of 24% in our second year as a public company, and we expect this progression to continue. Next, let me highlight significant investments in our global testing infrastructure that we completed or announced in 2025. We opened new advanced facilities in Aachen, Germany for battery testing; Carugate, Italy for HVAC and heat pump testing, Ise Japan for electric motor efficiency testing, and we expanded laboratories in Dongguan and Ningbo, China for IoT, wireless and retail product testing. Additionally, we broke ground on our Global Fire Science Center of Excellence in Northbrook, Illinois, one of our largest laboratory investments to date. We also broke ground on 2 advanced automotive EMC testing facilities, one in Toyota City, Japan, expected to open during the second half of 2026 and another one in Neu-Isenburg, Germany projected to be operational by mid-2027. In addition to our organic investments, we invest in the evolution of safety standards. That role enables us to proactively build the certification services necessary to advance emerging technologies. For example, in Q4, we announced the launch of new certification services for battery-powered vehicles and industrial equipment, supporting the UL 2850 and UL 2701 standards for battery management, thermal runaway risks and functional safety. This work helps manufacturers navigate the complexities of the global energy transition. We are excited to extend our ECOLOGO certification program to industrial products, helping manufacturers demonstrate sustainability commitments and meet growing market and regulatory demands. We issued Schneider Electric, the first ECOLOGO certification for an industrial product, certifying their PowerPact circuit breakers portfolio. Our new ECOLOGO certification for energy and industrial automation equipment sets a new benchmark for sustainable product design, advancing transparency and sustainability. On the software side, we expanded our ULTRUS software platform with new AI-powered releases that support compliance and sustainability goals. These releases help customers manage regulatory requirements and operationalize sustainable practices while complementing our testing, inspection and certification services. Our ongoing strategic investments significantly expand our capabilities across critical growth sectors, including data centers, energy storage, connected devices, fire safety and digital services. Our new offerings address demand in markets projected to experience substantial growth for years to come. Finally, let me comment on our disciplined approach to capital allocation activities during the year. Our strong revenue growth and rigorous expense management allowed us to generate robust cash flow. Key actions in 2025 included investing $197 million in capital expenditures to drive growth, paying down $253 million in borrowing and paying $104 million in dividends. We are excited to enter 2026 building on this momentum. First, we are introducing our 2026 growth outlook, reflecting continued strength in our underlying business model. Second, we are increasing our regular quarterly dividend by 11.5%. And third, we have made some enhancements to the composition of our segments. At the beginning of this year, to better position the company for growth and enhance customer value and innovation, we realigned our Software and Advisory segment as a means to focus and grow our software business. This change creates a focused software segment, which we have renamed Risk and Compliance Software. The segment will be positioned to deliver great value with ULTRUS, our digital platform that helps customers simplify product compliance, gain supply chain visibility and access data to enable smarter decision-making. As part of that focus on high-quality growth and strengthening our value proposition, today, we are announcing the divestiture of our employee health and safety software business. This divestiture is expected to close in the second quarter. We consider these EHS software offerings to be noncore, and we believe this divestiture will allow us to concentrate resources on the core software offerings most relevant to our TIC customer audience and redeploy capital toward attractive opportunities. Over 55% of our global and strategic accounts customers currently purchase at least one of our ULTRUS risk and compliance software offerings. Those offerings will remain a core part of our value proposition. To further focus our Risk and Compliance Software segment, effective in Q1 this year, we moved advisory services, which accounted for approximately 5% of our consolidated 2025 revenue into the Industrial segment from the Software & Advisory segment. We believe this move is a better strategic and operational fit with our core testing, inspection and certification work. We expect this change will strengthen customer value by more tightly pairing technical advisory with standards-driven TIC services and will better align advisory with the industrial demand drivers where we see attractive growth opportunities, such as broadening services into the wider energy ecosystem, expanding our focus on the built environment and better tailoring our offerings to the medical device industry. We believe we are well positioned in 2026 for continued high-quality growth and remain focused on maintaining our investment-grade balance sheet to help execute our strategic priorities. Now let me turn the call over to Ryan for a detailed review of our fourth quarter results and our initial 2026 outlook. Ryan Robinson: Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering another strong quarter and full year 2025. Jenny did an excellent job summarizing our outstanding financial results for the year, and I will focus my comments on our fourth quarter and segment results before closing with some comments on our initial 2026 full year outlook. We are proud to report a continuation of strong growth, adjusted EBITDA margin expansion and solid cash generation in the fourth quarter. Now let me dive into the details of the quarter. Consolidated revenue of $789 million was up 6.8% year over prior year quarter, including organic growth of 5.7%. The increase was particularly impressive given the difficult comps we had from the prior year period and reflected strength in both the Consumer segment, which delivered 7.1% organic growth and the Industrial segment, which delivered 6.1% organic growth. Cost of revenue as a percentage of revenue improved 260 basis points, primarily by holding organic cost of revenue unchanged from last year's level while delivering strong revenue growth. SG&A as a percentage of revenue improved by 150 basis points compared to the prior year period. We recorded pretax restructuring charges of $37 million associated with the previously announced restructuring plan. Adjusted EBITDA for the quarter was $217 million, an improvement of 28.4% year-over-year. Adjusted EBITDA margin was 27.5%, up 460 basis points from the same period a year ago on particular strength in the Consumer and Industrial segments. The primary drivers of the margin expansion include operating leverage from revenue growth and supporting our team members with better technology and work environments. This allowed higher employee productivity and laboratory utilization. And as a result, we reduced our employee compensation expenses as a percentage of revenue -- our service and materials costs also improved as we decreased our use of third parties to fulfill portions of our work. Approximately 120 basis points of the adjusted EBITDA margin improvement was due to certain nonrestructuring severance expenses recorded in the fourth quarter of 2024 that were absent in the fourth quarter of 2025 due to the implementation of the restructuring plan. Adjusted net income for the fourth quarter was $114 million, up 11.8% from $102 million in the fourth quarter of 2024. Adjusted diluted earnings per share was $0.53, up from $0.49 in the fourth quarter of 2024. adjusted net income and adjusted diluted EPS improved alongside stronger core profitability, partially offset by a higher effective tax rate. For the full year, our effective tax rate was 26.6% in 2025. This compares to 16.9% in 2024. Our effective tax rate in 2025 was impacted by the additional implementation of the OECD's Pillar 2 provisions for multinational corporations. We also experienced a benefit in 2024 from a significant release of tax reserves that did not recur in 2025. Now let me turn to our performance by segment, starting with Industrial. Revenues in Industrial rose 7.3% to $352 million or 6.1% on an organic basis as compared to the fourth quarter of 2024, with growth in all service lines. This was achieved despite outsized ongoing certification services growth in the year ago period, which we believe were a result of increased activity ahead of potential tariffs. Certification testing growth was led by energy and automation as well as fire safety testing. Adjusted EBITDA in the Industrial segment increased 21.9% to $128 million in the quarter, while adjusted EBITDA margin improved 440 basis points to 36.4%. As I mentioned earlier, we delivered revenue growth with expense efficiency across the business. Now turning to the Consumer segment. Revenues in Consumer were $335 million, up 8.4% from the 2024 quarter or 7.1% on an organic basis. The improvement was driven by demand across all service categories, led by non-certification testing and other services. In terms of end markets, we saw a surge in demand across consumer technology, including EMC testing as well as HVAC. Adjusted EBITDA for the quarter in Consumer was $66 million, an increase of 46.7% versus the fourth quarter of last year. Adjusted EBITDA margin for the quarter was 19.7% an increase of 510 basis points year-over-year. Margin growth was driven by higher revenue, along with disciplined operational execution and employee utilization. In our Software & Advisory segment, revenues were $102 million in the quarter, essentially flat year-over-year in both total and on an organic basis. The results reflect strong demand in software, including retail product compliance, offset by lower advisory-related activities. Adjusted EBITDA for the quarter in Software & Advisory was $23 million, a 21.1% increase as compared to the fourth quarter of last year. Adjusted EBITDA margin for the quarter was 22.5%, an increase of 390 basis points, primarily due to lower services and materials costs. Turning to cash flow. For the full year 2025, we generated $600 million from operating activities, an increase from $524 million in the prior year. Capital expenditures for the year amounted to $197 million or 6.5% of revenue, reflecting our continued commitment to investing strategically, both for future growth opportunities and for current infrastructure needs. CapEx as a percentage of revenue moderated in 2025 as we finished a couple of key lab additions in 2024 and early 2025 and are ramping up the Global Fire Science Center of Excellence in Northbrook and the EMC labs that Jenny mentioned earlier. Free cash flow totaled $403 million in 2025, up strongly as compared to $287 million in 2024 and grew as a percentage of revenue from 10% to 13.2%. We finished the year with $295 million of cash and cash equivalents. The strength of our balance sheet is reflected in our investment-grade ratings. Our robust balance sheet and strong cash flow generation give us great flexibility to invest in organic initiatives, accretive acquisitions and to pursue a number of value-enhancing activities as we strive to produce best-in-class shareholder returns. In addition, we repaid $253 million of borrowings and returned $104 million to our shareholders through quarterly dividends. Now let me expand a bit on the divestiture of our employee health and safety software business we announced today. This business accounted for approximately $56 million of 2025 revenue, and the transaction is expected to close in Q2. The sale price is approximately $210 million and is subject to customary post-closing adjustments. This strategic exit allows us to focus resources on higher-growth software offerings that are more closely aligned with our core testing, inspection and certification services. The cash proceeds provide flexibility for value-accretive investments and capital allocation priorities. Now turning to our initial 2026 full year outlook. As a reminder, organic growth is constant currency and excludes acquisitions and divestitures. We expect 2026 consolidated organic revenue growth to be in the mid-single-digit range as compared to our full year 2025 results. we expect industrial to grow at a faster pace than consumer. At this time, the forward FX forecasts imply an additional approximately 50 basis points tailwind on revenue growth year-over-year and market forecasts have a large majority of that FX benefit in the first half of the year. We expect to improve adjusted EBITDA margin to a range of 26.5% to 27% in 2026, assuming current forward FX rates that I just mentioned. As a reminder, as part of our restructuring actions announced in the fourth quarter of last year, we expected to exit nonstrategic service lines totaling approximately 1% of 2025 revenue, which will reduce organic revenue growth. and it is factored into the organic revenue guidance. The revenue impact of the expected EHS divestiture, which is pretty similar each quarter will be reflected in the acquisition and divestiture portion of the revenue change and will not affect our organic revenue growth rate. We will be sharing recast historical results for our new segment orientation when we report Q1 2026 results, which will include the movement of $139 million of Advisory revenue in 2025 from the Software and Advisory segment to the Industrial segment. We continue to expect the restructuring plan to be substantially completed by the end of the first quarter of 2027 with remaining changes expected to largely be incurred in the first half of 2026 in the Consumer segment. Once completed, we expect to improve annual operating income by between $25 million and $30 million compared to the trailing 12 months ended Q3 2025 as a result of both the revenue and expense impacts of these actions. Our adjusted EBITDA margin guidance for 2026 contemplates the expected EHS divestiture, some benefit from the restructuring program and our current estimates of the FX impact. We expect capital expenditures to be approximately 7% to 8% of revenue in 2026 with investments in new labs continuing as we seek to match continued strong customer demand. We estimate our effective tax rate in 2026 to be approximately 26%. While our guidance is for the full year of 2026, let me provide you with some color with regard to seasonality. As a reminder, Q1 is typically our lowest revenue quarter in terms of dollars given the Lunar New Year holiday impact on customer operations in Asia and fewer workdays as compared to other quarters. This results in slightly less operating leverage and therefore, profitability in Q1 compared to the other quarters. Our Consumer segment benefited from a surge in customer demand in Q4 and is facing particularly strong comparable results versus the first quarter of prior year. Therefore, we expect more modest growth in Q1. Also, we expect more of our adjusted EBITDA margin improvement to occur in the second half of 2026. We are incredibly proud and thankful for the achievement of our global team, and we believe they have positioned us well for 2026. We enter the year with strong momentum and expect to continue to steadily grow while improving profitability and delivering robust cash flow. We are working hard to deliver sustainable long-term value for our stakeholders. Now let me turn the call back to Jenny for her closing remarks. Jennifer Scanlon: Thanks, Ryan. I mentioned earlier all of the various openings of facilities and investments we made throughout 2025. I would like to add that as part of the trips I often make to celebrate these achievements, I regularly meet with customers, employees and local government leaders. The genuine enthusiasm I always encounter never ceases to energize me. It's inspiring to work for an organization like ours. Our mission of working for a safer world serves essential basic needs of humanity for safer, more secure and more sustainable products. 2025 was another validating year. We exceeded guidance for both Q4 and the full year, demonstrating the strength of our business model and the value we deliver to customers worldwide. As we enter our third year as a public company, our trajectory is clear. From our initial IPO targets through our 2025 results to our 2026 outlook, we expect to continue delivering consistent top line growth and improving profitability. Looking ahead, we see tremendous opportunity. There are some fundamental shifts reshaping global commerce and many are very positive forces such as the energy transition, the push for sustainability and the evolution of connected technologies, all of which are creating unprecedented demand for the safety science expertise that we believe differentiates us. We continue to strategically invest to meet this moment, strengthening our capabilities and expanding our presence in high-growth markets. With our strong financial foundation, global reach and unwavering commitment to our mission of working for a safer world, we believe UL Solutions is exceptionally well positioned to deliver sustained value for our customers, our people and our shareholders in the years ahead. With that, we'll open the line for questions. Operator: [Operator Instructions] The first question comes from Curtis Nagle with Bank of America. Curtis Nagle: Maybe just starting with the '26 margin guide that definitely stands out, looks pretty good. Just some of the biggest drivers, how much of that restructuring leverage, stuff like that? And then I don't think I saw it, but any updates in terms of a long-term margin framework previously '24, you guys are well above that? Or maybe asked another way, sort of past '26, what's a kind of reasonable cadence of margin performance if you're still hitting that or on mid-single or growth? And then I have a follow-up. Jennifer Scanlon: All right. Thanks, Curtis, and welcome. And really, what I want to start by saying is our '26 margin guide is a continuation of our continuous improvement philosophy. And so if you look at what led to our restructuring plan that we announced last year, it really was a confluence of a number of ongoing activities that we packaged into one event. We will continue to pursue continuous improvement activities on an ongoing basis, and that's really what underpins our guidance. But I'll let Ryan go into more of the details. Ryan Robinson: Yes. Thank you for the question, Curtis. And we're pleased with the 300 basis points adjusted EBITDA margin improvement in 2025 on top of the 190 basis points we delivered in 2024. And as Jenny said, we're focused on continuous improvement and increasing that. The themes of improvement in '26 are -- we anticipate to be similar to the year we just completed, driving operational leverage through both price and volume. We intend to continue to increase the utilization of our lab capacity and our staff. The restructuring initiative will help on the cost side, but we also do have revenue reductions that we noted as well as a divested business. And so our expense and efficiency initiatives need to overcome those revenue changes. And as I mentioned on the call, approximately 120 basis points of the adjusted EBITDA margin shift in the fourth quarter was related to that restructuring initiative. All those things and FX go together to giving us comfort to guide to 26.5% to 27% for adjusted EBITDA margin in 2026. Curtis Nagle: Okay. Appreciate it. And then maybe just a quick one on cash. Just how to think about the pacing of debt paydown and potential use of proceeds. I think you said $200 million from the asset sale. Ryan Robinson: Yes. The initial use of proceeds, general corporate purposes initially, we will repay debt. Our priority is to continue to reinvest back into the business, organic CapEx to grow and drive additional shareholder returns. It is a large distributed and consolidated industry. So we continue to evaluate acquisition opportunities. So in the short term, we'll pay down debt, but we will evaluate investment opportunities over time. Operator: Your next question comes from the line of Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I guess as I think about the underlying performance of the business, could you talk a bit about maybe where you're seeing some of your strong outperformance. For example, you called out introducing your first EGOLOGO for -- ECOLOGO for industrial products and the like. Could you talk and see if the organic growth that you've seen in at least the fourth quarter, are these higher-margin verticals or end markets? I guess just trying to think about the substantial operating leverage that we're seeing and if this is just a function of, quite frankly, your initiatives around productivity and your investments? Or are you seeing any kind of maybe mix or end market benefit that would be different from just a steady course? And I have a follow-up. Jennifer Scanlon: Thanks, Stephanie. I appreciate the question. And I would say it's all of the above. First of all, our focus on the megatrends is so important. As we're out there looking at things like the energy transition or digitalization that is really pushing AI data centers and even the needs in the sustainability space, those are 3 of our biggest megatrends. All of those are yielding, as we look at it, double-digit growth. And while we transcend 35 industries and have a number of different services, that push for megatrends is important to our largest customers. and then it becomes important to their supply chains. So we do believe that the megatrends lead to that high-quality growth. At the same time, a number of initiatives that you've mentioned are giving us operating leverage between pricing as well as utilization of our teams as well as introduction of new technologies and new tools to our business. All of those pieces fit together. And then finally, on mix, Ryan mentioned that we expect that industrial will continue to have higher growth than consumer. Stephanie Benjamin Moore: That's very clear. And then I wanted to circle back on maybe the first question on capital allocation, but ask it in potentially a different way. If I'm looking at this correctly, a net cash position is probably on the table here sooner than later. So as you continue to obviously generate significant cash, I fully understand your commitment to continuing to invest back in the business. But as we think about the runway for the stepped-up CapEx, obviously, 2025, you announced a lot of major investment projects. So how should we think about the magnitude of investments from a capacity or physical standpoint in 2026 compared to 2025? What's the runway on that magnitude of investments? And then given the debt position here coming 12 months, what is the overall appetite for buybacks? Jennifer Scanlon: Yes. Let me start. On the CapEx, we always -- in addition to many of the large labs that we've publicly announced, we have ongoing critical facility upgrades that give more capacity, lease renewals to extend our positions in markets as well as just individual services for many of our COUs. So our commitment to CapEx to deliver market-leading growth is an essential part of our strategy and an essential use of our capital allocation. Given high-quality growth as a strategy, of course, we're also focused on M&A. We continue to see plenty of opportunities out there in the market, but we are very disciplined in our approach to that. We are renewing our focus for the year on finding the right opportunities and successfully achieving that discipline and those results. So it's a balance. And then I'll let Brian talk about other distributions of capital. Ryan Robinson: Yes. And in addition to that, we have mentioned that over time, we would consider share repurchases, particularly to offset dilution. We feel that we have been prudent stewards of our shareholders' capital, reinvesting back in the business and creating value. Our focus is organic growth and complementing that with accretive acquisitions. But we appreciate over time, we need to evaluate all uses of cash. Operator: Your next question comes from Andy Wittmann with Baird. Andrew J. Wittmann: All your comments so far have been very helpful and very clear. I just thought maybe I would ask specifically on pricing. Ryan, in the past, you've talked about like kind of half of your growth-ish has been attributable to price. And I think historically, that's been a comment that you've been able to say kind of more confidently around your ongoing certification. Just wondering kind of how it evolved in the quarter? And I know it's harder to pin down on the non- the cert testing portion. But do you feel like -- can you comment on the order of magnitude that you think you're seeing in pricing in those businesses as well? Ryan Robinson: Yes. Thanks for the question. We typically focus on our certification testing business and non-certification testing business, which have clear deliverables and it's easier to measure the impact on price and volume. And I would say in the fourth quarter and the full year, there were similar contributions in the revenue growth of both. We were pleased with the overall growth, particularly in certification testing in the fourth quarter. And our plan for 2026 would be to generally continue to grow with that mix. Andrew J. Wittmann: Okay. That's helpful. And then, Jenny, I just thought I would ask for kind of an update on what you're seeing from new product releases from your customers. Anything around the data center ecosystem. If you could maybe talk about some of the specific categories of testing or product types that you're seeing from that kind of area. Obviously, it feels like it should be a driver. I just feel like a little bit more on the specifics of what you're actually seeing kind of where you think you are in these product rollouts and the testing that you can do to help with this, I think it would just be helpful for us to all understand as it contributes to your revenue growth. And if it is a material contributor to revenue growth, any quantification for how much it's adding to your revenue growth, I think, would also be helpful for people to understand as well. Jennifer Scanlon: Yes. I think on the last point, I just want to highlight, again, we've got 35 industries and a number of different segments that we target. So data center is extremely important, and we are seeing that digitalization trend really lead to double-digit growth rates in those types of services. And here's why we're seeing that. Today, we tested 70 standards. But what we're hearing from our customers is that the existing set of standards for the new complexities in data centers, it's just not enough. And so they're coming to us for leadership and expertise in how they handle just the new realities of the changing of the thermal dynamics of the shift to DC current 800 volts on the ways in which cooling, rack cooling, immersion cooling, all sorts of cooling needs are happening. So the data center work that we're doing, it's across all of our industrial product categories. So power and automation, renewables has a play as these data centers are trying to get enough power to power them. Wire and cable, the shifts to that DC is a different type of wire and cable. -- the built environment around the fire suppression. And then on the consumer side, again, those chillers, those HVAC systems as well as then just the underlying consumer technology, server technology, everything else that's going into those actual racks and pieces of equipment. So it is across the board, and it's an exciting area. Our customers, I mentioned in the fall, we were having a Data Center Power Summit. It was so important and so well received. We're having a second one coming soon. And it's the attendees of that, it's the hyperscalers, it's the equipment and component and wire and cable manufacturers. And there's also the focus on the owners of the colos. So it's complex. It's growing, and we feel like we're right in the center of it all. Andrew J. Wittmann: All right. That's super helpful. Just one kind of, I guess, technical question here. The restructuring plan that you guys announced last quarter, I think at the time, you were saying it was going to be a cost of 42 to 47 . Just want to make sure that there was no change there because I guess you're 37 versus kind of that target range that I set out. It seems like most of the actions have really been taken here. Is that right, Ryan? Or is there -- have there been any changes in planned scope reduction increases, whatever? Ryan Robinson: Yes. The range has not changed. We recorded the majority of that in the fourth quarter. We anticipate completing the rest of that substantially in the first half of this year. But the total range of both the cost to achieve as well as the benefits and timing have not changed materially since we communicated it last quarter. Operator: The next question comes from Arthur Truslove with Citi. Arthur Truslove: Congratulations on excellent results. So first question for me, just within the divisional growth. So if you look at the consumer business, you talked about consumer technology, including electromagnetic compatibility testing. So I just wondered what end market that relates to? And similarly, in terms of the energy and automation within Industrial. And then second question, just to confirm, you're obviously talking about mid-single-digit organic growth on a full year basis. obviously, net of the 1% from the businesses that you abandoned. Just to be clear, does mid-single digit mean sort of anywhere between 4% and say, 7%? Or do you have a different definition? And I suppose within that, where does software fit in? I don't think you mentioned that when you talked about industrial and consumer. Jennifer Scanlon: All right. Well, I'll start with some of the diversified growth. So EMC testing is electromagnetic compatibility. And what this is the FCC in the U.S. and similar regulatory agencies all over the world set tolerance levels for essentially how much RF radio frequency devices admit. So anything with a transmitter or receiver has to go through EMC. So for example, one of our capital announcements is EMC lab in Toyota City, Japan, targeting the auto industry because automobiles, as I like to say, have become driving data centers and driving nodes on the grid. So that's why we -- as the world continues to connect, we continue to see demand for EMC growing. You also asked about energy and industrial automation end markets. That's really everything around power and controls, electrical distribution, circuit protection, wiring devices, anything that really powers large industrial equipment. And again, a lot of that then becomes the types of products that get replicated into innovation into consumer products. Ryan Robinson: And then on the revenue guidance, Arthur, I would describe it in 4 parts, some of which are organic and some clarify the total growth. So first, in each of the past 2 years, we focused on high-quality growth, and we delivered on the mid-single-digit organic revenue guidance that we set at the beginning of the year. Second, if we start with the growth rate that we delivered in 2025 and back out what we announced in 2023, the exit of some businesses that accounted for approximately 1% of 2025 revenue, that puts us squarely in the middle of a mid-single-digit guidance for organic revenue growth year-over-year. And then third, in addition to the organic change, we announced the planned divestiture of the EHS software business, which accounted for $56 million of software and Advisory revenue in 2025, and that was 1.8% of 2025 consolidated revenue. So we believe the sale will close in Q2, and therefore, the total reduction will be for a portion of the year. And then finally, a fourth consideration is FX. And this is based on market forecast. But based on the current market forward rates, that would indicate about 0.5% tailwind to revenue. So if you account for 100 basis points headwind from the divestiture of the EHS business on a total basis and 50 basis points FX tailwind, we have a net 50 basis points headwind for year-over-year total growth rate. So that's squarely in the mid-single-digit range. This is a year of a lot of small puts and takes. So I appreciate the question, and I hope that's helpful, Arthur. Jennifer Scanlon: And then, Arthur, let me add you -- I don't want to forget your question about software. And if you look at our revenue by major service categories in Q4, you'll see that software revenue in the fourth quarter grew at a faster rate than it did for the full year. And I would say that bodes well for what we're looking at in 2026. Additionally, the announced divestiture will allow us to focus on the higher growth categories of our ULTRUS platform, categories like our supply chain insights or our benchmarks, which all really fulfill risk and compliance needs that our core TIC customers have. Operator: Your next question comes from Jason Haas with Wells Fargo. Jason Haas: You mentioned that you saw a surge of demand in consumer in 4Q, and it sounds like that may have potentially pulled forward some business from 1Q. So do I have that right? Can you just explain what that -- what caused that dynamic? Jennifer Scanlon: Yes. The biggest cause of that dynamic is consumer, our customers really move quickly. And when they have innovation opportunities that they're trying to get to market quickly, we need to respond. And our emphasis on customer centricity as well as just our ability to have the right capacity allows us to do that. So we saw some particular strength in some of the most innovative customers in the world in both the consumer technology space as well as some of the really great small appliances that are going to market globally. Jason Haas: Got it. That makes sense. Very helpful. And then I wanted to follow up on -- I know it's been a trend for a while, but the advisory business has been softer and weighed on your overall growth rates. Can you just talk about what's driving that? And then recognize it's shifting segments, but how integrated and synergistic is it to have that advisory business? Jennifer Scanlon: It's a great question, and it's something that we spent a lot of time evaluating in 2025. And what we realized was that our original hypothesis was that those advisory businesses were contributing to our software businesses. But as we really decomposed it, what we realized is that those advisory businesses are much more tightly tied to our TIC business. And so areas like the energy ecosystem, we saw some good strength in renewables advisory last year, a little softening in the fourth quarter in that. But with the shift, particularly with data centers and needing new sources of energy, we see a greater tie to our industrial businesses. Similarly, the softness in commercial real estate has affected our healthy buildings advisory. And again, we believe that opportunities to couple that with some of our built environments services will help contribute to strengthening that. And then certainly areas where we do advisory services into getting medical devices to market, and we also see that tying more closely to the TIC services that we offer. And so that was really the fundamental premise of changing our focus so that we're letting our newly named Risk and Compliance Software segment focus solely on software, the purchasers of that software and those product road maps and tying our advisory teams more closely to the TIC services that are really compatible with those advisory offerings. Operator: Your next question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: I'd like to focus a little bit more on lab utilization. How much of your '26 margin expansion is coming from higher lab utilization? And then also, you mentioned technology investments expanding productivity. With that additional productivity, how do I think of the calculation of lab capacity and lab utilization? And how much higher could lab utilization go from here? Jennifer Scanlon: Yes. Thanks, Andrew. And it's a great question, something we spend a lot of time evaluating because -- what I want to emphasize is it's not just lab utilization, it's expert utilization. So we've got our engineering or team or technicians who also are part of the overall process. You've got the physical labs and then within those labs, you've got specific pieces of equipment. So anything that we can do to help improve the capacity of any of those 3 functions, our people, our equipment and then our overall facilities is where we're focused. And so certainly, the technology initiatives that we're rolling out is expanding the capacity of our people. Better use of AI in our processes frees up our people to have more capacity. At the actual equipment level, better really monitoring what's the right lab for specific services to be delivered and ensuring that we're directing those customer projects to the labs with the greatest capacity. It's one of the reasons why we believe in running global P&Ls is essential. And then as I mentioned, as part of our capital planning, we're always looking at what are ways that we should be extending the actual capacity of an overall facility, and we'll continue to do that on an ongoing basis. So that productivity comes from all 3 areas. Andrew Steinerman: And are you able to -- my first question was, could you tell us how much of the '26 margin expansion is coming from higher utilization of labs? Ryan Robinson: Yes. I would say we have -- Andrew, we have such a diversity of labs and we even measure utilization in different ways for different types of services, it's hard to directly correlate those. We do see the improvement in trend, and it is driving our results, but it's difficult to precisely correlate it. Operator: The next question comes from George Tong with Goldman Sachs. Keen Fai Tong: In the in the Industrial segment, we've seen organic revenue growth normalize from double digits in 2024 to mid-single digits exiting 2025. To what extent do you think industrial organic growth will reaccelerate? And what are the key drivers? Or conversely, do you view current mid-single-digit growth as the new steady state for industrial growth? Jennifer Scanlon: Industrial, we want to just remind everybody that we believe that there was pull forward in Q4 of 2024 due to anticipation of tariffs. So I would say that normalized level is more along the lines of our annual levels, which is on the higher end of single digits. But that said, as we look forward, the demand that we're seeing for industrial, both in certification testing and non-certification testing, it's strong. These areas of the built environment, the energy and industrial automation, wire and cable, power and controls, these are all pieces that are being fueled by the megatrends. And we're seeing particular strength. The U.S. is strong across the board, by the way, both industrial and consumer and particular strength also coming out of China and more broadly across Asia for that energy and industrial automation within industrial. Keen Fai Tong: Got it. That's helpful. You noted that the industrial business should grow faster than consumer this year. Can you talk about how much of a spread you expect in growth between these 2 segments? Ryan Robinson: We have not provided specific guidance for the growth for each of the segments. We added that comment because of the particularly strong performance of consumer in Q4, and we just wanted to clarify that, that was in part due to a surge of activity in Q4 and not a fundamental change in the relative growth rates of the quarter. Operator: The next question comes from Shlomo Rosenbaum with Stifel. Adam Parrington: This is Adam on for Shlomo. Can you talk about the shift of manufacturing activity from China and other parts of the world and how that trend looked in 2025 as it relates to you 4Q '25. Jennifer Scanlon: Yes. We're not seeing a significant shift out of China. We are seeing significant, I would call it, China Plus One continuation. So our China sites and our China -- the China sites of our customers that we inspect in our ongoing certification services continue to grow, albeit at a pretty low slope. But those sites that we visit, India is growing significantly, Malaysia, Thailand. So absolutely, we continue to see, I would say, dispersion and derisking of supply chains and our customers adding locations. Our China business continues to be strong, and we're continue to be very pleased with our customer relationships. I'm going over there next month, looking forward to being there. Adam Parrington: Okay. And the demand -- what is the demand like for the artificial intelligence safety certification services that the company announced last quarter? Jennifer Scanlon: Yes. It's still in early days, but it's an important topic. What we're hearing is just how important trust is in AI. And we're working with different customers to understand how we adapt that standard for them to provide evidence that their customers can trust their use of AI. So it's still early days. Operator: The next question comes from Andrew Nicholas with William Blair. Andrew Nicholas: First one I wanted to ask was just on kind of the advisory restructuring and the employee health and safety software sale. I mean, could you give us a little bit more color on the growth rates of those businesses over the last couple of years? I know you've called out advisory softness a couple of times over the past several quarters. Just trying to figure out what kind of the restructuring there will do to the reported growth rates? And then any color on the margin profiles of those businesses would be helpful, too. Jennifer Scanlon: Yes. It's a great question. And let me just start. Advisory in general is -- tends to be somewhat cyclical and can be directly affected by very specific market conditions such as slowdown in commercial real estate affecting our healthy buildings portfolio. I always say it's like a sine wave on an upward trajectory, but any given quarter, it can be lumpy. And so our rationale as we were assessing that for moving it under industrial with TIC is that there are just better opportunities for synergies, both in the opportunity identification with our TIC services as well as just the way in which we utilize our teams for some of those services. So we expect that to continue to be on an upward trajectory, but they will continue to be like a wave. The EHS piece of software, our rationale for divesting that is when we look at our TIC customers and the ultimate end personas of the users of our ULTRUS platform. EHS, it's an important service for many manufacturers, but that target audience isn't consistent with our target audience for our other ULTRUS offerings. So we felt it would be better off in stronger hands, and we're excited that it found a good home. It was lower growth in our software portfolio. So for us, we expect our software growth rate to improve as a result of that divestiture. Andrew Nicholas: Great. And anything you could say on the margin profile there just to check that off the list. Ryan Robinson: Yes. I would say, Andrew, with the first quarter, we will provide pretty fulsome information on the realignment of the segments, including the newly named Risk and Compliance Software segment. And so you'll be able to infer how that affects the change in revenue, how that affects the change in profitability. We were -- we wanted to be clear that our consolidated adjusted EBITDA. Our guidance for the year includes that divestiture. So more detail to come, but the guidance includes the change. Jennifer Scanlon: Yes. And last thing on that, our software and advisory team has worked really hard to improve their EBITDA, and we expect that improvement to be durable with these changes, and we'll report more in Q1 when we break them all out. Andrew Nicholas: And then if I could just ask a follow-up question on 2025 results. So obviously, adjusted EBITDA margin was, I think, almost 200 basis points better than what you had originally guided. I'm curious, taking a step back where you felt like you kind of got the most surprise relative to your initial expectations? How much of it was just taking a conservative approach a year ago versus demand or pricing or some other factor beating your expectations? Jennifer Scanlon: I'm just going to give a general philosophy in continuous improvement that when you express to a team specific metrics or specific areas of process that you're focusing on, you typically get results. And so within our processes, there were certain areas that we asked our team to focus on that really would lead to greater customer satisfaction and centricity. And those were areas that also dropped right down to our bottom line. So things like turnaround time or billable utilization or time to quote or use of the new pricing tool, those are all examples of when you put -- when you shine a light on them and apply metrics, people respond really favorably. And we've got a great team who did a great job in all of these areas. Operator: The next question comes from Josh Chan with UBS. Joshua Chan: One question on laboratory productivity as it relates to people. I guess, have you been able to keep your lab headcount relatively flat in this -- despite growing the top line? And if so, kind of do you expect that to continue into the future? Ryan Robinson: Yes. We have been able to keep lab headcount flat. So our revenue per employee and our metrics of productivity per employee have been increasing. It's from a number of different initiatives. As Jenny mentioned, where we're focused on continuous improvement. It's also an outcome of our laboratory optimization, increasingly using centers of excellence that have higher capabilities, higher throughput, higher opportunities for our employees that work in those areas. So that has been a key contributor. As we file the 10-K, you'll get some additional information on our employee compensation as a percentage of revenue by segment and consolidated. And I think you'll be able to see that even more precisely. Joshua Chan: Great. And then just a quick question on the margin guidance. So how much of the restructuring benefit is included in the '26 guide? And also, why does the margin expansion become stronger in the second half than the first half? Ryan Robinson: Some of the improvements in the restructuring initiative are wind downs of existing services that are not instantaneous. They take a couple of quarters to achieve. Also, some of it is a transition of activities to different locations that take a while to consummate. So for 2025, there is a portion of the benefits. But from the time that we announced it, we thought it prudent to focus on by the end of the first quarter 2027, we will have all of these steps behind us. Jennifer Scanlon: Thank you, everyone, for joining us today. We appreciate your support, and we look forward to updating you on our progress again next quarter. Operator: This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.